9911796707
TMI Blog2014 (8) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... - decision of assessee own previous case [1988 (3) TMI 61 - SUPREME COURT OF INDIA] followed - Decided against the assessee. Classification of goods - Colour world machine comprising of tinting machine, computer and UPS - Period April, 2005 to March, 2006 - Held that:- The Tribunal has not taken into consideration that the Department levied tax @ 12.5% only when all three machines, which are inseparable or indispensable, are sold as one single unit. As observed earlier, Computer (CPU) cannot be separated from the machine and it is inbuilt and therefore, it cannot be treated as different from the tinting machine. It is not in dispute that the tinting machine cannot be operated without computer and UPS, and that they are indispensible parts of tinting machine and, therefore, all three together deserve to be treated as one single unit and liable to be taxed at 12.5%, as unclassified item under Section 4(1)(b) of the KVAT Act. - Decided against the assessee. Taxable turnover - inclusion of Freight charges collected - Period April, 2005 to March, 2006 - Held that:- it may be true, the freight incurred by the assessee, becomes a part of the amount for which the goods are sold to the buy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt the 'revisional authority') in exercise of the powers under Section 63-A of the KVAT Act. The revisional authority reversed the assessment orders dated 11.12.2006 passed under Section 38(1) of the KVAT Act, for the tax period commencing from April 2005 upto March 2006, by the Assistant Commissioner of Commercial Taxes (Audit-9), LDU Division, Bangalore (for short the 'assessing authority'). 2. Briefly stated the facts leading to these revision petitions are as under: 2.1 The assessee in these revision petitions is a Company incorporated under the provisions of the Companies Act, 1956 and also a registered dealer under the provisions of the KVAT Act. The assessee is engaged in the manufacture and sale of various kinds of paints, varnishes, thinners etc., including road marking paints/material. The road marking paints/material, hereinafter shall be referred to as 'RMP'. The assessing authority, had passed the assessment orders, dated 1.1.12.2006, accepting the return of turnover filed by the assessee in Form VAT 100. The assessee had accordingly. paid output tax @ 4% on the sale of 'RMP' by classifying it as plastic granules. 2.2 The revisional a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proves that AA as well as FAA erred in disallowing the exemption on sales returns? 5. Whether the appellant proves that AA and FAA erred in levying full tax on inter-state sales without giving sufficient opportunity to the appellant to submit -'C' forms?" 2.4 All the questions were answered by the Tribunal in favour of the assessee and against the department. Insofar as the first question is concerned the Tribunal held that though RMP is a composite mixture of Aliphatic petroleum Hydrocarbon resin, Titanium dioxide, glass beads, Calcium carbonate and Additives, since dominant ingredient contained is petroleum resin it (RMP) will have to be classified as petroleum resin. Having so observed, the Tribunal held that the RMP sold by the assessee is entitled to be considered as industrial input in terms of the notification so as to be liable for taxation at the rate of 4%. In short, the Tribunal held that RMP manufactured by the assessee is covered by the notification and hence liable to be taxed at the rate of 4%. 3. In the backdrop of the facts mentioned above, the department filed these revision petitions under Section 65(1) of the Act raising the following question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that RMP being a finished product cannot be catagorised as petroleum resin. After inviting our attention to Entry No.51 of the 3rd Schedule of the KVAT Act, which deals with 'industrial inputs and taking materials as may be notified', she submitted that - RMP cannot be classified as petroleum resin as specified at SI.No.133 or 139 of the Notification No.FD 197 CSL 2005(6) Bangalore dated 30.04.2005 (SI.No.22) (for short 'the Notification'). In short, she submitted that road marking material is not covered by the Notification and hence exigible to tax at the rate of 12.5% as contemplated by Section 4(l)(b)(iii) of the KVAT Act. 5.1 She further submitted that the test to be applied for classification for the purpose of excise duty is the common parlance test, i.e., the sense in which the product is understood in the trade parlance or commercial usage and understanding. She submitted that the RMP do not find place in the notification and merely because one of the ingredient/chemicals used for manufacturing RMP is petroleum resin it cannot be classified as petroleum resin. She submitted that even if it is assumed that the RMP can be classified as petroleum resin st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation, in particular Rule 3(b) thereof, would give the RMP, being a mixture of different components/chemicals,(petroleum resin being a dominant component), its essential character to the RMP-mixture. After inviting our attention to HSN code 3911 and entries at SI.No.139 of the Notification namely sub-headings 3911.10.10 and 3911.10.90, he submitted that once the road marking material is classified under chapter heading 3911 as petroleum resins it gets covered under SI.No.133 and/or SI.No.139 of the Notification. 6.1 He then submitted that SI.No.51 of the third Schedule refers to the industrial inputs and packing materials that should be notified. The notification notifies industrial inputs and packing materials which are liable to be taxed at the rate of 4%. He submitted that the adoption of HSN code for the purposes of classification, the Rules for Interpretation contained in the Central Excise Tariff Act need to be applied whenever specifically indicated than the common parlance test. In support of his contention, he placed reliance upon the judgment of the Supreme Court in CCE v. Wood Polymers Ltd. 1998 (97) ELT 193 (SC). He submitted that the explanations appended to the No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of Central Excise v. Wood Polymers Ltd. 1998 (97) ELT 193 (SC), Collector of Central Excise v. Bakelite Hylam Ltd. 1997 (91) ELT 13 (SC) and Jyothy Laboratories Ltd. v. State of Assam [2011] 46 VST 308 (Gauhati). In support, he also invited our attention to the report of the National Test House, Government of India, dated 11-11-2009. 7. For dealing with the first question of law, we need to examine whether the product-RMP of the assessee-company, which is known as 'Apcomark' and Thermoline' can be classified as petroleum resin and that it is covered by the entries at SI.No.133 or 139 of the Notification. In other words, it will have to be examined whether the existence of petroleum resin namely Aliphatic Petroleum Hydrocarbon Resin in the RMP would provide essential character to the product (RMP) as contemplated by Rule 3(b) of the Rules for Interpretation. 8. Section 4 of the KVAT Act provides for liability to tax and rates thereof. Under sub-section (1) of Section 4 - every dealer who is or is required to be registered as specified in Sections 22 and 24, shall be liable to pay tax, on his taxable turnover in respect of goods mentioned in 2nd, 3rd and 4th schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not elsewhere specified or included, in primary forms 3911 10 Petroleum resins, coumarone indene or coumarone-indene resins and polyterpenes: 3911 10 10 Coumarone-indene resins kg. 16% 3911 10 90 Other kg. 16% 3911 90 Other 3911 90 10 Polysulphones kg. 16% 3911 90 90 Other kg. 16% 11. To understand and interpret the relevant entries/serial numbers, headings and sub-headings, description of goods in the Notification better it would be relevant to look into the explanations appended to the Notification, which reads thus: "Explanations-- (1) the Rules for Interpretation of the Central Excise Tariff Act, 1985 read with Explanatory notes as updated from time to time published by the Customs Co-operation Council, Brussels apply for interpretation of this Notification. (2) where any commodities are described against any heading or, as the case may be, sub-heading, and the aforesaid description is different in any manner from the corresponding description in the Central Excise Tariff Act, 1985, then only those commodities described will be covered by the scope of Notification and other commodities though covered by the corresponding description in the Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.10.10 and 3911.10.90. The sub-heading 3911.90.90 does not find place in the Notification. It was, therefore, submitted, that petroleum resin, used in the RMP is not covered by SI.No.133 heading 3911 or SI.No.139 sub-heading 3911.10.10 or 3911.10.90. It was further submitted that if the legislature intended to cover all sub-headings under tariff 3911 in Chapter 39 of the CST Act, it would not have given specific sub-headings at SI.No.139 in the Notification. In other words, the legislature would have incorporated only Entry at SI.No. 133 with heading 3911 in the Notification. 15. In order to secure a uniform classification of commodities among various taxing enactments be it parliamentary or legislative enjoining prescription and realization of duty/levy, the world/International Customs Organisation developed a system of code numbers for commodities catalogued in schedules of such legislations based on Harmonised System of Nomenclature (for short "HSN") since adopted by the Customs Tariff Act, 1975. The organization also formulated rules for interpretation of the harmonized system. The norms for classification of goods in the nomenclature have also been fulfilled. Insof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be according to the principles of rule 3. 3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce all the chemicals are possible to be isolated individually and there is an observable chemical change in the identity or composition. Being the Physical blend of several chemicals, road marking materials cannot be applied as such like paint using conventional paint application tools like brush, spray etc.,. These materials require melting at high temperature (180 - 200 deg C) in a separate pot for proper homogenization then applied on road using a special equipment. Molten material forms a strong bond with the asphalt surface of road due to melt fusion. At the time of application HMRM powder mixture is heated gradually upto 180- 200 deg C under continuous agitation in a pre-melting equipment. The hydrocarbon resin melts. In the molten resin mass, TI02, CaC03, Additives and Glass beads are homogenized by stirring to form fluid paste. This then transferred to an application equipment where the material is maintained in a molten state under continuous agitation. The homogenized molten mass is passed through the narrow slit in the application equipment opening to cast marking on the road. Based on the analysis of APCOMARK/THERMOLINE samples we can conclude that these materials ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or interpretation requires that composite goods, mixtures and goods put up in sets have to be classified on the classification of that material or component which gives to the product their essential character. In other words, Rule 3(b) requires classification based on the material which gives its the essential characteristics. This is the test of essentiality (See Kemrock Industries & Exports Ltd. (supra). The effect of the tariff schedule is to classify the products under different heads according to the character of the product. In interpreting a tariff entry, Rules for interpretation, as observed earlier, are helpful, particularly in cases of composite goods. (See Bakelite Hylam Ltd. (supra), Wood Polymers Ltd. (supra). We may also mention, at this stage, that Rule 3 of the Rules for interpretation contains the principles to be applied for classification of the goods which are prima facie classifiable under two or more headings. Since RMP is composite goods made from different chemicals/ components, viz., (i) Aliphatic Petroleum Hydorcarbon Resin chemical (ii) Titanium Dioxide white pigment chemical (iii) Calcium carbonate chemical and (iv) glass beads having retro reflective p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal chemicals which are heated, melted and homogenized and then cast on the road with specialized equipment. When we look at the properties/characteristics of each of the chemical we find that Aliphatic Petroleum Hydrocarbon Resin chemical is used for providing bonding to concrete or tar road surface when applied as a hot melt using a special machine end for converting the remaining four components into fluid paste. All other chemicals used also have their own properties/characteristics, which play equally important role in making the RMP. Altogether make the mixture (powder) which ultimately is used as RMP. It would be difficult to accept that Aliphatic Petroleum Hydrocarbon only gives/provides essential characteristic to RMP. It is not in dispute that Aliphatic Petroleum Hydrocarbon Resin chemical occupies 20% of the RMP and the other four components/chemicals including glass beads occupy major portion of the fluid paste. The test report shows what are the characteristics of each of the chemicals and for what purpose they are used in making the final product RMP. The report also shows that RMP cannot be made or given desired effect in the absence of any of the chemicals. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct made from industrial raw material or commercial commodity with distinct use and purpose, it cannot be treated as raw material from which it is made. 26. In view of the judgments of the Supreme Court referred to above and the Rules for Interpretation, to us it is clear that RMP cannot be classified as petroleum resins having HSN code 3911.90.90 so as to cover it by the Notification. That apart, the Notification does not make a reference to the petroleum resins assigned with HSN code 3911.90.90. In the result, we answer the first question in favour of the Department and against the assessee. 27. Next, we would like to consider whether Colour world machine dealt in by the assessee, comprising of tinting machine, computer and UPS are liable to tax as one single unit or three independent units to be taxed separately. Colur World machines (tinting machine, computer and UPS) are used for intermixing of colours as per the desired requirement of the customers. According to learned counsel for the assessee, all the three units are independent and cannot be treated as one single machine. Tinting machine, according to the assessee, is operated with the help of computer and UPS. UPS in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single unit, should be taxed as unclassified attempt under Section 4(1)(b) of the KVAT Act. The finding of fact recorded by the Tribunal that all three units are independent and dealers have a choice to purchase either one or two or all three together and, therefore, cannot be treated as one single unit, in our opinion, is perverse. The Tribunal has not taken into consideration that the Department levied tax @ 12.5% only when all three machines, which are inseparable or indispensable, are sold as one single unit. As observed earlier, Computer (CPU) cannot be separated from the machine and it is inbuilt and therefore, it cannot be treated as different from the tinting machine. It is not in dispute that the tinting machine cannot be operated without computer and UPS, and that they are indispensible parts of tinting machine and, therefore, all three together deserve to be treated as one single unit and liable to be taxed at 12.5%, as unclassified item under Section 4(1)(b) of the KVAT Act. The second question is accordingly answered in favour of the Department against the assessee. 28. The third question raised by the department pertains to freight charges, which according to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their case of sales returns. Sales returns are also filed on record for the relevant period which show the movement of goods including lorry receipt numbers. It is against this backdrop the case of the department was that the assessee did not produce on record sufficient material to show that the buying dealers returned the goods. Learned AGA for the petitioner-State invited our attention to the observations made by the Tribunal that the department ought to have cross-verified with the buying dealers to find out whether they returned the goods. It may be difficult for the department to cross verify every entry but, it was possible for the department to cross-check atleast one or two entries so as to find out whether the material placed on record by the assessees in support of their case of return of goods was genuine. On the other hand, the Tribunal has, after assessing the entire material on record, recorded a categoric finding that all the documents insofar as sales returns are concerned have been properly maintained by the assessee as provided for in law and answered this question in favour of the assessee. The department has not made out any case so as to interfere with this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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