IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2650 OF 2016
[Arising out of SLP(C) No. 22191 OF 2013]
Commissioner of Commercial Tax, U.P. ... Appellant
Versus
M/s. A.R. Thermosets (Pvt.) Ltd. ... Respondent
J U D G M E N T
Dipak Misra, J.
In this appeal, by special leave, the Revenue has called in question
the legal sustainability of the judgment and order passed by the High Court
of Judicature at Allahabad in Commercial Tax Revision no. 1156 of 2009
preferred by the assessee-respondent under Section 11 of the U.P. Trade Tax
Act, 1948 (for brevity, ‘the 1948 Act’) read with Sections 81 and 58 of the
VAT Act, 2008 (for short, ‘the VAT Act’) whereby the learned Single Judge
has allowed the revision negativing the stand put forth in opposition by
the State to the stance highlighted by the assessee.
2. The facts on which the controversy rests is in a narrow compass. The
respondent manufactures “bitumen emulsion”. It filed an application before
the Commissioner, Commercial Taxes, Lucknow, U.P. under Section 59 of the
VAT Act seeking a clarification about the rate of tax applicable to the
sales of bitumen emulsion. The Commissioner of Commercial Taxes, vide
order dated 23.1.1999 opined that bitumen emulsion is an unclassified
commodity and, therefore, is excisable to tax at the rate of 12.5% as it
would fall under the residuary Entry.
3. Being aggrieved by the order dated 23.1.1999, the respondent
preferred Appeal No. 6 of 2009 under the VAT Act before the Tribunal
Commercial Taxes, U.P., Lucknow (for short ‘the tribunal’) which was heard
by the Full Bench. It was contended before the tribunal by the assessee-
appellant therein that bitumen as a commodity is taxed at 4% under Serial
no. 22 Part A of Schedule II to the VAT Act and bitumen is found in solid
state and to bring it in the liquid form, water is added to it and very
little quantity is used in the process. Elaborating the said submission,
it was urged that when bitumen is available in the liquid form, it is known
as bitumen emulsion and is commonly known as bitumen when it is available
in the solid form; and both the commodities are understood in the same
manner in the commercial world and the end use is the same and, therefore,
the rate of tax to be determined has to be the same as prescribed for
bitumen.
4. Be it stated, as per Notification No. 100 dated 15.1.2000 issued
under the erstwhile U.P. Trade Tax Act, 1948, bitumen was taxed at 20%.
Under the VAT Act, bitumen has been classified under Part A of Schedule II
and the tax leviable is 4%. Before the tribunal, the assessee-appellant
produced reports from Harcourt Butler Technical Institute, Kanpur to
bolster the stand that there is no difference between the two commodities
and they are to be categorised as one item, if common parlance test is
applied. To buttress the submissions, the assessee relied upon
CST v. Ashok Grah Udyog Kendra Private Ltd.[1], CST v. Bechu Ram Kishori
Lal[2], and M/s Indodan Milk Products v. Commissioner Sales Tax[3]. The
tribunal referred to one of its earlier decisions in appeal no. 17 of 2000
decided on 3.4.2009 and on the basis of reasons ascribed therein dismissed
the revision.
5. The dissatisfaction caused by the said adjudication, constrained the
assessee to approach the High Court in Commercial Tax Revision no. 1156 of
2009. The High Court formulated the point in issue which reads as follows:-
“Whether the Bitumen and Bitumen Emulsion are one and the same commodity
for the purposes of interpretation of Entry No. 22 Schedule II Part A of
the U.P. Value Added Tax Act, 2002 as was originaly enacted i.e. upto
enforcement of notification no. 2758 dated 29.9.2008?
6. The learned Single Judge took note of the various technical materials
from the Government approved laboratory which had been brought before the
tribunal, and opined that the controversy had not been appositely
appreciated by the tribunal, for the materials clearly establish that
bitumen and bitumen emulsion is the same thing. The High Court analysed
the concept of end use, i.e. the end result of bitumen emulsion and came to
hold that bitumen emulsion makes the bitumen easily usable in its
emulsified form and both the items are used in the construction of road,
etc. It further opined that the identity, commercial character and use of
both the things are the same, though the tribunal, despite having the
material before it, proceeded to record findings otherwise. That apart,
the High Court took note of the decision of this Court in Commissioner of
Central Excise, Bangalore v. Osnar Chemical Private Limited[4] and
ultimately ruled that it could not be said that mixing of some material
would amount to manufacture unless it results in a change when the
commodity concerned cannot be recognised as an original commodity but
rather new and distinct article emerges having different commercial use and
identity. On the basis of the aforesaid analysis, the High Court allowed
the revision and set aside the orders of the forums below.
7. We have heard Mr. Pawan Shree Agarwal, learned counsel for the
appellant and Mr. Kavin Gulati, learned senior counsel along with Mr. Avi
Tandon, learned counsel for the respondents.
8. Criticising the view of the High Court, it is submitted by Mr.
Agarwal that it has erred in opining that bitumen in its emulsified form
also remains bitumen. He has drawn inspiration from the language used in
Section 2(t) of the VAT Act to structure the submission that in the process
of conversion, manufacturing takes place. It is his further argument that
the decision in Osnar Chemical Private Limited (supra) is not applicable to
the present controversy as the said decision was rendered in the context of
the Central Excise Act, 1944 whereas the lis herein hinges on the
definition of manufacturing. For the said purpose, he has relied upon the
authority in Sonebhadra Fuels v. Commissioner, Trade Tax, U.P., Lucknow[5].
Learned counsel for the Revenue contends that when the view expressed by
the lower authorities is neither perverse nor arbitrary, the High Court in
exercise of its revisional jurisdiction should not have interfered with the
findings and for the said purpose he has commended us to the authority in
N. Eswari v. K. Swarajya Lakshmi[6]. Mr. Agarwal has canvassed that the
intention of the legislature, as is manifest, is to charge a particular
rate of tax on bitumen and it remotely does not conceive of bitumen
emulsion and the Court should not enlarge the scope of legislation or the
intention of it by adding a word to the term in the statute, which is not
permissible, for a taxing statute has to be understood what is clearly
stated therein and not what is intended to be said.
9. Mr. Gulati, learned senior counsel appearing for the assessee in
support of the view expressed by the High Court would contend that four
principles relating to interpretation of entries and taxing statute are
required to be considered in the present case. According to Mr. Gulati,
they are (a) plain meaning to be given to the taxing provision; (b) burden
to prove classification in a particular Entry is always on the Revenue; (c)
any ambiguity has to be resolved in favour of the assessee; and (d) resort
to residuary Entry is to be taken as a last measure. He would put forth
that in the instant case, the Revenue, prior to taxing the respondent under
the residuary Entry, did not place any evidence before the Commissioner or
the tribunal to show that the emulsified bitumen is not covered by the
expression bitumen as found in Entry 22 of Part A of Schedule II to the VAT
Act. It is urged by him, whether the activity of mixing water with bitumen
amounts to manufacture under Section 2(t) of the VAT Act is wholly
irrelevant for deciding the issue at hand. It is, according to Mr. Gulati,
where goods are purchased on paying tax and process thereafter is
undertaken, a question often arises as to whether such process amounts to
manufacture or not, and if it amounts to manufacture, then it would enable
the department to levy tax again as the commodity in different, a new one,
for the purposes of this Act and the tax can be imposed as a single point
levy again, but in the case at hand, that is not the situation. Learned
senior counsel further submits that every process involved in the
manufacture of a commodity does not relate to manufacture of a new product
as the end product continues to retain the character of the original
product. According to him, solely because some process has been carried
out, it cannot be held that a new product has come into existence.
Expatriating the said submission, it is put forth that the process of
heating on high degree temperature and then adding water to it to obtain
emulsified bitumen does not alter the basic nature of bitumen but only
brings a change in physical appearance of the product. He has heavily
relied on Osnar Chemical Private Limited (supra) to highlight that bitumen
would include bitumen emulsion.
10. The principal controversy, as we perceive, is “whether “bitumen
emulsion” is covered within Entry 22 of Schedule II of the VAT Act which
only refers to “bitumen””. According to Academic Press Dictionary of
Science and Technology, “bitumen” means:-
“Bitumen Geology and naturally occurring flammable substance mainly of a
mixture of hydrocarbons such as petroleum or asphalt.
Materials 1. Originally, a type of asphalt occurring naturally in Asia
Minor. 2. Any similar black, sticky mixture of hydrocarbons occurring
naturally or pyrolytically in the atmosphere and completely soluble in
carbon disulfide: obtained mainly from natural oxidized petroleum products
or from a petroleum distillation process.”
11. The McGraw-Hill Concise Encyclopedia of Science & Technology (Third
Edition) defines “bitumen” as under:-
“Bitumen A term used to designate naturally occurring or pyrolytically
obtained substances of dark to black color consisting almost entirely of
carbon and hydrogen with very little oxygen, nitrogen, and sulphur. Bitumen
may be of variable hardness and volatility, ranging from crude oil to
asphaltites and is largely soluble in carbon disulfifde.”
12. The above definitions when appreciated clearly show that they
expressively define the word “bitumen” as a commodity and explain its
chemical composition, colour or appearance and qualities and the process by
which it comes into existence.
13. Bitumen emulsion, as per Indian standards ICS 293.08.0.20 published
by the Bureau of Indian Standards is a destruction of very fine particles
in an aqueous medium. Harcourt Butler Technological Institute, Kanpur, in
its report dated 11.4.2008 states that:-
“The components derived from fractional distillation of petroleum, at
various temperature levies, are (I) Gas (II) Naphtha, (III) Kerosene, (IV)
Diesel and lubricating oil, (V) Bitumen and furnace oil, and (VI) residue.
This bitumen is known as penetration grade bitumen because the
specification, by which it is designated, is obtained from the penetration
test. There could be two other forms of Bitumen: Namely (I) Emulsion and
(II) Cutback. In the emulsion, bitumen is in the suspension from as small
globules in water, whereas in cutback, the bitumen is dissolved in suitable
solvent. In bituminous construction, the choice between penetration grade
bitumen and the bitumen emulsion is made depending upon the factors like,
weather conditions, availability, economy and available construction time.”
14. The said report discussing about its composition explicates:-
“Bitumen is basically a hydrocarbon with 10% by weight of atoms of sulphur,
nitrogen and oxygen, attached to hydrocarbon molecules. The carbon content
in bitumen is 80-87%. Three basic components of bitumen are (I)
asphaltene, (II) maltene and (III) carbine. The chemical bonds in bitumen
are weak and break when heat is applied. When it is cooled, it comes back
to its original structure, but not necessarily the same as before.”
15. The said report has further proceeded to state that emulsion is a two
phase system consisting of two immiscible liquids, one being dispersed as
finite globules in the other. In bitumen emulsion, bitumen globules are
suspended as emulsion in water with the help of emulsifiers, which are used
to stabilize the emulsion. Emulsifiers break into ions and charge the
bitumen particles. Charged particles repel each other and the suspension
remains stable and this stability remains as long as water does not
evaporate, freeze or emulsifier does not break.
16. About the characterization of the bitumen, report states:-
“Bitumen materials have certain characteristics such as (I) waterproofing
(II) durability, (III) resistance to strong acids and (IV) cementing
properties. At normal temperature, bitumen is semi-solid and takes time to
flow. At higher temperatures, it behaves like a viscous liquid, whereas at
very low temperature, is brittle as glass. Bitumen is believed to behave
‘viscoelastically’ at the standard operating temperature at highways.”
17. According to the report when a state of liquefaction is achieved and
the same is constant for a longer period, it can be used under diverse
moisturic conditions and has a very wide range of applications such as
surface dressing of low volume roads, curing purposes base for high volume
roads, surface dressing, tack coat, premix carpets, soil stabilization,
etc. The report has clearly stated that the use of bitumen is because of
its characteristics which includes cementing properties. Be it noted, the
use of both bitumen and bitumen emulsion is similar, that is, surface
dressing, tack coat, premix carpets, soil stabilization, etc. The
concluding remarks of the report is extracted below:-
“Bitumen and Emulsion are two forms of bituminous binders which serve some
common purposes in road construction and maintenance. Bitumen and emulsion
are selected for various applications depending upon some parameters like
weather conditions, availability of material, economic aspects and
availability of construction time. Bitumen needs preheating whereas
emulsion is ready to use. It has been observed from previous studies that
the physical properties of the emulsion after natural sun drying are almost
similar to that of bitumen as the water present. In the binder evaporates
and makes the matrix harder as obtained with the bitumen. It may,
therefore, be concluded that bitumen and emulsion may be treated at par as
far as their significance for application. In their respective area is
concerned.”
18. A reading of the aforesaid definitions and the scientific text
clearly reveal that bitumen in its original form is solid but melts when
heated, for it is used in molten stage. There is no difficulty to
appreciate that bitumen emulsion comes into existence when bitumen is
treated with emulsifiers and other chemicals to attain a liquid form. It
has a huge advantage and add benefit because it is not to be heated and
detained in its liquid form and has better stability and thus, saves time
and cost components. That apart, it ensures its use at the stage of
application. Needless to say it is comparatively less hazardous. Bitumen
consists of four forms of variants, namely, solid bitumen, polymer bitumen,
crumbler rubber modified bitumen and bitumen emulsion. The stand of the
Revenue is that the word “bitumen” must be conferred a narrow meaning for
the reason that the legislature has not thought it appropriate to use the
prefix or suffix like “all”, in all forms or of all kinds. It may be
immediately clarified that bitumen is a generic expression which would
include different types of bitumen. Revenue, however, as stated earlier,
intends to apply it restrictively. The said submission has a fundamental
fallacy. Entry 22 does not exclude or specify that it would not include
bitumen of all types and varieties. This is not the principle or precept
applied to interpret the entries under the Schedule of the Act. We will be
deliberating in detail on the said aspect at a later stage. Prior to that,
we would like to advert to certain other aspects.
19. At the very inception, we think it absolutely seemly to state that
the nature and composition of the product or the good and the particular
entity in the classification table is important. Matching of the good with
the Entry or Entries in the Schedules is tested on the basis of identity of
the goods in question with the Entry or the contesting entries and by
applying the common parlance test, i.e., whether the goods as understood in
commercial or business parlance are identical or similar to the description
of the Entry. Where such similarity in popular sense of meaning exists,
the generic entity would be construed as including the goods in question.
Sometimes on certain circumstances the end use test, i.e., use of the good
and its comparison with the Entry is applied.
20. The Entry in question uses the word “bitumen” without any further
stipulation or qualification. Therefore, it would, in our opinion, include
any product which shares the composition identity, and in common and
commercial parlance is treated as bitumen and can be used as bitumen. When
we apply the three tests, namely, identity, common parlance and end use to
the goods and the Entry in question, bitumen emulsion would be covered by
the Entry bitumen. It is worthy to note that bitumen emulsion matches the
Entry as it is only one of the varieties of bitumen. Bitumen emulsion is
processed bitumen, but the process has not changed its composition,
commercial identity or its use. Bitumen emulsion is regarded and performs
the same function as bitumen. As a result of processing, neither the
primary character nor the composition is lost. Emulsification only eases
and provides proficiency to the use of application of bitumen. Hence, in
popular and commercial sense, bitumen emulsion is nothing but bitumen,
which is in liquid form and is user friendly.
21. It is perceivable that the legislature has used the word “bitumen”
and treated it as a separate entity. As we notice, it has not indicated
that this was done with the intention and purpose to exclude some type or
variety of bitumen. All bitumen products, which share and have common
composition and commercial entity, and meet the popular parlance test, is,
therefore, meant to be covered by the said Entry. In the instant case, even
the end use test is satisfied. There is nothing in the Entry to suggest and
show that the Entry is required to be given a restrictive and a narrow
meaning.
22. In this regard, another aspect needs to be noted. The Revenue does
not rely upon another Entry under which bitumen emulsion can be taxed. The
Revenue relies upon the residuary Entry which would only include goods,
which cannot be covered under any other Entry in the schedule on
application of the three-fold criteria. In the State of Maharashtra v.
Bradma of India Limited[7], the Court had observed that the general
principle is that specific Entry would override a general Entry. Referring
to the decisions in the case of Collector of Central Excise, Shillong v.
Wood Craft Products Ltd.[8], it has been ruled that resort can be made to a
residuary heading only when by liberal construction the specific Entry
cannot cover the goods in question. Referring to Entry No. 90 in the said
case, which covered tabulating, calculating, cash registering, indexing and
data processing, etc, other than computer machines, it was held that the
words did not contain words of limitation and would cover every species of
cash registering machines, irrespective of their mode of operation. In the
absence of any limitation or qualification as to the different kind of cash
registering machines, there was no reason for such qualification and limit
the Entry to a particular kind of cash registering machine. However,
computers had been specifically excluded and were separately dealt with in
Entry 97(a). The assessee, who was manufacturing electronic cash registers
would, therefore, be covered by Entry 90 and not by the Entry relating to
computers. A similar opinion has been expressed in Hindustan Poles Corpn.
v. Commissioner of Central Excise, Calcutta[9] stating that residuary Entry
is made to cover only those category of goods which clearly fall outside
the ambit of the main Entry. The opinion proceeds further to state that
unless the Revenue can establish that the goods in question can by no
conceivable process of reasoning be brought under any of the tariff items,
resort cannot be made to the residuary Entry.
23. In this context, reference to the authority in Commercial Taxes
Officer v. Jalani Enterprises[10] would be profitable. While dealing with
the question of sales tax/VAT under the Rajasthan Sales Tax Act, it was
held that if from records it was established that the product in question
could be brought under a specific Entry, then there was no reason to take
resort to the residuary Entry. Revenue cannot be permitted to travel to
the residuary Entry when a product can be covered under a specific Entry.
24. In the present context, when the word “bitumen” has been used as a
generic expression, it would be erroneous not to cover a product that is
only a type or form of bitumen and retains all its essential
characteristics, and treat it as covered by the residuary Entry by some
kind of ingenuous reasoning. Taking it outside the purview of the specific
Entry is incorrect.
25. At this juncture, we may refer to certain pronouncements commended to
us by the learned counsel for the appellant. In Collector of Customs and
others v. Kumudam Publications (P) Limited and others[11], while adverting
to the issue of classification it has been held that it would not be
correct to say that in no case can the end use or function of the goods be
relevant in the question of classification, as was held in Indian Tool
Manufacturers v. Asstt. Collector of Central Excise, Nasik and others[12].
The decision in Commissioner of Central Excise, Cochin v. Mannampalakkal
Rubber Latex Works[13] emphasizes and holds that in the matters of
classification, “composition test” is important test and the “end user
test” would only apply if the Entry says so. We have referred to the
aforesaid authorities for sake of completeness only because we have applied
the “composition test” as well as the “commercial or common parlance” test
in addition to the “end use test”.
26. Reliance placed by the Revenue on the decision in the case of
Hindustan Aluminium Corporation Ltd. v. State of Uttar Pradesh and
another[14], is of no assistance, for in the context of the particular
notification it was held that aluminium ingots, billet, roll products,
extrusion, etc. would not be covered by the exemption, which was granted to
all kinds of minerals, ore, metals or alloys, including sheets and circles
used in the manufacture of brasswares and scraps. In this context,
referring to Section 3A of the U.P. Sales Tax Act and the notification as
applicable, it was held that the earlier notifications issued from time to
time would show that the expression “metal” had been employed with
reference to metal in its primary sense. The principle laid down in the
said authority is in the context in issue and is based upon the schematic
arrangement indicated and specified in the notification under consideration
therein. That apart, the said decision also emphasizes that a word
describing a commodity in a sales tax statute should be interpreted
according to its popular sense and words of everyday use must be construed
not in their scientific or technical sense, but as understood in common
parlance.
27. We have also been commended to a judgment of the Customs, Excise and
Service Tax Appellate Tribunal in Allied Bitumen Complex (India) Private
Limited v. Collector of Central Excise, Calcutta – 1[15], which holds that
conversion of bitumen into bitumen aqueous emulsion amounts to manufacture.
Per contra, the respondent-assessee has relied on judgment of the
Karnataka High Court in SR Projects Limited v. Commissioner of Commercial
Taxes[16]. However, it is not necessary to dilate on the said aspect for
there is a distinction between what can be regarded as manufacture under
the Excise Act and what is the sale or transfer of property in goods under
the Sales Tax Act and the Value Added Tax Act. In M.P. Agencies v. State
of Kerala[17], it has been held that the decisions under the Excise Act may
have some play and relevance, but the question of manufacture by itself
would not be per se relevant under the Sales Tax or Value Added Tax Act.
Thus, there is a distinction between what is exigible to tax under the
excise law and the incidence of tax when the legislation relates to sales
or value added tax. What is relevant is the classification. In this
context, the verdict in Osnar Chemical Private Limited (supra) is
significant. The said authority refers to two other variants of bitumen,
namely, polymer modified bitumen and crumbled rubber modified bitumen which
are created by the process of mixing of polymer and additive to bitumen.
It has been held that the aforesaid processes result in improvement of the
quality of bitumen and there is no change in the characteristics or
identity of bitumen so as to transform bitumen into a new product having an
identity, characteristic and use. It has been ruled therein that there is
a fallacy in the argument raised by the Revenue that bitumen per se would
only include its solid hard form which melts at high temperature and not
bitumen emulsion. The two varieties and types carry the same composition,
do not differ in character and have the same commercial identity i.e.
bitumen. That apart, the use or end use test is also satisfied.
28. In view of the aforesaid analysis, we find the view expressed by the
High Court to be absolutely flawless and, accordingly, we concur with it.
Our concurrence with the view of the High Court entails dismissal of the
appeal and, accordingly, it is so directed. There shall be no order as to
costs.
.............................J.
[Dipak Misra]
............................J.
[Prafulla C. Pant]
New Delhi
September 6, 2016
-----------------------
[1] (2004) UPTC 1827
[2] (1976) 36 STC 236
[3] (1974) 33 STC 381
[4] (2012) 2 SCC 282
[5] (2006) 7 SCC 322
[6] (2009) 9 SCC 678
[7] (2005) 2 SCC 669
[8] (1995) 3 SCC 454
[9] (2006) 4 SCC 85
[10] (2011) 4 SCC 386
[11] (1998) 9 SCC 339
[12] (1994) Supp (3) SCC 632
[13] (2007) 217 ELT 161 (SC)
[14] (1981) 3 SCC 578
[15] (1997) 90 ELT 374 (Tribunal)
[16] (2013) 63 VST 49 (Kar)
[17] (2015) 7 SCC 102
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2650 OF 2016
[Arising out of SLP(C) No. 22191 OF 2013]
Commissioner of Commercial Tax, U.P. ... Appellant
Versus
M/s. A.R. Thermosets (Pvt.) Ltd. ... Respondent
J U D G M E N T
Dipak Misra, J.
In this appeal, by special leave, the Revenue has called in question
the legal sustainability of the judgment and order passed by the High Court
of Judicature at Allahabad in Commercial Tax Revision no. 1156 of 2009
preferred by the assessee-respondent under Section 11 of the U.P. Trade Tax
Act, 1948 (for brevity, ‘the 1948 Act’) read with Sections 81 and 58 of the
VAT Act, 2008 (for short, ‘the VAT Act’) whereby the learned Single Judge
has allowed the revision negativing the stand put forth in opposition by
the State to the stance highlighted by the assessee.
2. The facts on which the controversy rests is in a narrow compass. The
respondent manufactures “bitumen emulsion”. It filed an application before
the Commissioner, Commercial Taxes, Lucknow, U.P. under Section 59 of the
VAT Act seeking a clarification about the rate of tax applicable to the
sales of bitumen emulsion. The Commissioner of Commercial Taxes, vide
order dated 23.1.1999 opined that bitumen emulsion is an unclassified
commodity and, therefore, is excisable to tax at the rate of 12.5% as it
would fall under the residuary Entry.
3. Being aggrieved by the order dated 23.1.1999, the respondent
preferred Appeal No. 6 of 2009 under the VAT Act before the Tribunal
Commercial Taxes, U.P., Lucknow (for short ‘the tribunal’) which was heard
by the Full Bench. It was contended before the tribunal by the assessee-
appellant therein that bitumen as a commodity is taxed at 4% under Serial
no. 22 Part A of Schedule II to the VAT Act and bitumen is found in solid
state and to bring it in the liquid form, water is added to it and very
little quantity is used in the process. Elaborating the said submission,
it was urged that when bitumen is available in the liquid form, it is known
as bitumen emulsion and is commonly known as bitumen when it is available
in the solid form; and both the commodities are understood in the same
manner in the commercial world and the end use is the same and, therefore,
the rate of tax to be determined has to be the same as prescribed for
bitumen.
4. Be it stated, as per Notification No. 100 dated 15.1.2000 issued
under the erstwhile U.P. Trade Tax Act, 1948, bitumen was taxed at 20%.
Under the VAT Act, bitumen has been classified under Part A of Schedule II
and the tax leviable is 4%. Before the tribunal, the assessee-appellant
produced reports from Harcourt Butler Technical Institute, Kanpur to
bolster the stand that there is no difference between the two commodities
and they are to be categorised as one item, if common parlance test is
applied. To buttress the submissions, the assessee relied upon
CST v. Ashok Grah Udyog Kendra Private Ltd.[1], CST v. Bechu Ram Kishori
Lal[2], and M/s Indodan Milk Products v. Commissioner Sales Tax[3]. The
tribunal referred to one of its earlier decisions in appeal no. 17 of 2000
decided on 3.4.2009 and on the basis of reasons ascribed therein dismissed
the revision.
5. The dissatisfaction caused by the said adjudication, constrained the
assessee to approach the High Court in Commercial Tax Revision no. 1156 of
2009. The High Court formulated the point in issue which reads as follows:-
“Whether the Bitumen and Bitumen Emulsion are one and the same commodity
for the purposes of interpretation of Entry No. 22 Schedule II Part A of
the U.P. Value Added Tax Act, 2002 as was originaly enacted i.e. upto
enforcement of notification no. 2758 dated 29.9.2008?
6. The learned Single Judge took note of the various technical materials
from the Government approved laboratory which had been brought before the
tribunal, and opined that the controversy had not been appositely
appreciated by the tribunal, for the materials clearly establish that
bitumen and bitumen emulsion is the same thing. The High Court analysed
the concept of end use, i.e. the end result of bitumen emulsion and came to
hold that bitumen emulsion makes the bitumen easily usable in its
emulsified form and both the items are used in the construction of road,
etc. It further opined that the identity, commercial character and use of
both the things are the same, though the tribunal, despite having the
material before it, proceeded to record findings otherwise. That apart,
the High Court took note of the decision of this Court in Commissioner of
Central Excise, Bangalore v. Osnar Chemical Private Limited[4] and
ultimately ruled that it could not be said that mixing of some material
would amount to manufacture unless it results in a change when the
commodity concerned cannot be recognised as an original commodity but
rather new and distinct article emerges having different commercial use and
identity. On the basis of the aforesaid analysis, the High Court allowed
the revision and set aside the orders of the forums below.
7. We have heard Mr. Pawan Shree Agarwal, learned counsel for the
appellant and Mr. Kavin Gulati, learned senior counsel along with Mr. Avi
Tandon, learned counsel for the respondents.
8. Criticising the view of the High Court, it is submitted by Mr.
Agarwal that it has erred in opining that bitumen in its emulsified form
also remains bitumen. He has drawn inspiration from the language used in
Section 2(t) of the VAT Act to structure the submission that in the process
of conversion, manufacturing takes place. It is his further argument that
the decision in Osnar Chemical Private Limited (supra) is not applicable to
the present controversy as the said decision was rendered in the context of
the Central Excise Act, 1944 whereas the lis herein hinges on the
definition of manufacturing. For the said purpose, he has relied upon the
authority in Sonebhadra Fuels v. Commissioner, Trade Tax, U.P., Lucknow[5].
Learned counsel for the Revenue contends that when the view expressed by
the lower authorities is neither perverse nor arbitrary, the High Court in
exercise of its revisional jurisdiction should not have interfered with the
findings and for the said purpose he has commended us to the authority in
N. Eswari v. K. Swarajya Lakshmi[6]. Mr. Agarwal has canvassed that the
intention of the legislature, as is manifest, is to charge a particular
rate of tax on bitumen and it remotely does not conceive of bitumen
emulsion and the Court should not enlarge the scope of legislation or the
intention of it by adding a word to the term in the statute, which is not
permissible, for a taxing statute has to be understood what is clearly
stated therein and not what is intended to be said.
9. Mr. Gulati, learned senior counsel appearing for the assessee in
support of the view expressed by the High Court would contend that four
principles relating to interpretation of entries and taxing statute are
required to be considered in the present case. According to Mr. Gulati,
they are (a) plain meaning to be given to the taxing provision; (b) burden
to prove classification in a particular Entry is always on the Revenue; (c)
any ambiguity has to be resolved in favour of the assessee; and (d) resort
to residuary Entry is to be taken as a last measure. He would put forth
that in the instant case, the Revenue, prior to taxing the respondent under
the residuary Entry, did not place any evidence before the Commissioner or
the tribunal to show that the emulsified bitumen is not covered by the
expression bitumen as found in Entry 22 of Part A of Schedule II to the VAT
Act. It is urged by him, whether the activity of mixing water with bitumen
amounts to manufacture under Section 2(t) of the VAT Act is wholly
irrelevant for deciding the issue at hand. It is, according to Mr. Gulati,
where goods are purchased on paying tax and process thereafter is
undertaken, a question often arises as to whether such process amounts to
manufacture or not, and if it amounts to manufacture, then it would enable
the department to levy tax again as the commodity in different, a new one,
for the purposes of this Act and the tax can be imposed as a single point
levy again, but in the case at hand, that is not the situation. Learned
senior counsel further submits that every process involved in the
manufacture of a commodity does not relate to manufacture of a new product
as the end product continues to retain the character of the original
product. According to him, solely because some process has been carried
out, it cannot be held that a new product has come into existence.
Expatriating the said submission, it is put forth that the process of
heating on high degree temperature and then adding water to it to obtain
emulsified bitumen does not alter the basic nature of bitumen but only
brings a change in physical appearance of the product. He has heavily
relied on Osnar Chemical Private Limited (supra) to highlight that bitumen
would include bitumen emulsion.
10. The principal controversy, as we perceive, is “whether “bitumen
emulsion” is covered within Entry 22 of Schedule II of the VAT Act which
only refers to “bitumen””. According to Academic Press Dictionary of
Science and Technology, “bitumen” means:-
“Bitumen Geology and naturally occurring flammable substance mainly of a
mixture of hydrocarbons such as petroleum or asphalt.
Materials 1. Originally, a type of asphalt occurring naturally in Asia
Minor. 2. Any similar black, sticky mixture of hydrocarbons occurring
naturally or pyrolytically in the atmosphere and completely soluble in
carbon disulfide: obtained mainly from natural oxidized petroleum products
or from a petroleum distillation process.”
11. The McGraw-Hill Concise Encyclopedia of Science & Technology (Third
Edition) defines “bitumen” as under:-
“Bitumen A term used to designate naturally occurring or pyrolytically
obtained substances of dark to black color consisting almost entirely of
carbon and hydrogen with very little oxygen, nitrogen, and sulphur. Bitumen
may be of variable hardness and volatility, ranging from crude oil to
asphaltites and is largely soluble in carbon disulfifde.”
12. The above definitions when appreciated clearly show that they
expressively define the word “bitumen” as a commodity and explain its
chemical composition, colour or appearance and qualities and the process by
which it comes into existence.
13. Bitumen emulsion, as per Indian standards ICS 293.08.0.20 published
by the Bureau of Indian Standards is a destruction of very fine particles
in an aqueous medium. Harcourt Butler Technological Institute, Kanpur, in
its report dated 11.4.2008 states that:-
“The components derived from fractional distillation of petroleum, at
various temperature levies, are (I) Gas (II) Naphtha, (III) Kerosene, (IV)
Diesel and lubricating oil, (V) Bitumen and furnace oil, and (VI) residue.
This bitumen is known as penetration grade bitumen because the
specification, by which it is designated, is obtained from the penetration
test. There could be two other forms of Bitumen: Namely (I) Emulsion and
(II) Cutback. In the emulsion, bitumen is in the suspension from as small
globules in water, whereas in cutback, the bitumen is dissolved in suitable
solvent. In bituminous construction, the choice between penetration grade
bitumen and the bitumen emulsion is made depending upon the factors like,
weather conditions, availability, economy and available construction time.”
14. The said report discussing about its composition explicates:-
“Bitumen is basically a hydrocarbon with 10% by weight of atoms of sulphur,
nitrogen and oxygen, attached to hydrocarbon molecules. The carbon content
in bitumen is 80-87%. Three basic components of bitumen are (I)
asphaltene, (II) maltene and (III) carbine. The chemical bonds in bitumen
are weak and break when heat is applied. When it is cooled, it comes back
to its original structure, but not necessarily the same as before.”
15. The said report has further proceeded to state that emulsion is a two
phase system consisting of two immiscible liquids, one being dispersed as
finite globules in the other. In bitumen emulsion, bitumen globules are
suspended as emulsion in water with the help of emulsifiers, which are used
to stabilize the emulsion. Emulsifiers break into ions and charge the
bitumen particles. Charged particles repel each other and the suspension
remains stable and this stability remains as long as water does not
evaporate, freeze or emulsifier does not break.
16. About the characterization of the bitumen, report states:-
“Bitumen materials have certain characteristics such as (I) waterproofing
(II) durability, (III) resistance to strong acids and (IV) cementing
properties. At normal temperature, bitumen is semi-solid and takes time to
flow. At higher temperatures, it behaves like a viscous liquid, whereas at
very low temperature, is brittle as glass. Bitumen is believed to behave
‘viscoelastically’ at the standard operating temperature at highways.”
17. According to the report when a state of liquefaction is achieved and
the same is constant for a longer period, it can be used under diverse
moisturic conditions and has a very wide range of applications such as
surface dressing of low volume roads, curing purposes base for high volume
roads, surface dressing, tack coat, premix carpets, soil stabilization,
etc. The report has clearly stated that the use of bitumen is because of
its characteristics which includes cementing properties. Be it noted, the
use of both bitumen and bitumen emulsion is similar, that is, surface
dressing, tack coat, premix carpets, soil stabilization, etc. The
concluding remarks of the report is extracted below:-
“Bitumen and Emulsion are two forms of bituminous binders which serve some
common purposes in road construction and maintenance. Bitumen and emulsion
are selected for various applications depending upon some parameters like
weather conditions, availability of material, economic aspects and
availability of construction time. Bitumen needs preheating whereas
emulsion is ready to use. It has been observed from previous studies that
the physical properties of the emulsion after natural sun drying are almost
similar to that of bitumen as the water present. In the binder evaporates
and makes the matrix harder as obtained with the bitumen. It may,
therefore, be concluded that bitumen and emulsion may be treated at par as
far as their significance for application. In their respective area is
concerned.”
18. A reading of the aforesaid definitions and the scientific text
clearly reveal that bitumen in its original form is solid but melts when
heated, for it is used in molten stage. There is no difficulty to
appreciate that bitumen emulsion comes into existence when bitumen is
treated with emulsifiers and other chemicals to attain a liquid form. It
has a huge advantage and add benefit because it is not to be heated and
detained in its liquid form and has better stability and thus, saves time
and cost components. That apart, it ensures its use at the stage of
application. Needless to say it is comparatively less hazardous. Bitumen
consists of four forms of variants, namely, solid bitumen, polymer bitumen,
crumbler rubber modified bitumen and bitumen emulsion. The stand of the
Revenue is that the word “bitumen” must be conferred a narrow meaning for
the reason that the legislature has not thought it appropriate to use the
prefix or suffix like “all”, in all forms or of all kinds. It may be
immediately clarified that bitumen is a generic expression which would
include different types of bitumen. Revenue, however, as stated earlier,
intends to apply it restrictively. The said submission has a fundamental
fallacy. Entry 22 does not exclude or specify that it would not include
bitumen of all types and varieties. This is not the principle or precept
applied to interpret the entries under the Schedule of the Act. We will be
deliberating in detail on the said aspect at a later stage. Prior to that,
we would like to advert to certain other aspects.
19. At the very inception, we think it absolutely seemly to state that
the nature and composition of the product or the good and the particular
entity in the classification table is important. Matching of the good with
the Entry or Entries in the Schedules is tested on the basis of identity of
the goods in question with the Entry or the contesting entries and by
applying the common parlance test, i.e., whether the goods as understood in
commercial or business parlance are identical or similar to the description
of the Entry. Where such similarity in popular sense of meaning exists,
the generic entity would be construed as including the goods in question.
Sometimes on certain circumstances the end use test, i.e., use of the good
and its comparison with the Entry is applied.
20. The Entry in question uses the word “bitumen” without any further
stipulation or qualification. Therefore, it would, in our opinion, include
any product which shares the composition identity, and in common and
commercial parlance is treated as bitumen and can be used as bitumen. When
we apply the three tests, namely, identity, common parlance and end use to
the goods and the Entry in question, bitumen emulsion would be covered by
the Entry bitumen. It is worthy to note that bitumen emulsion matches the
Entry as it is only one of the varieties of bitumen. Bitumen emulsion is
processed bitumen, but the process has not changed its composition,
commercial identity or its use. Bitumen emulsion is regarded and performs
the same function as bitumen. As a result of processing, neither the
primary character nor the composition is lost. Emulsification only eases
and provides proficiency to the use of application of bitumen. Hence, in
popular and commercial sense, bitumen emulsion is nothing but bitumen,
which is in liquid form and is user friendly.
21. It is perceivable that the legislature has used the word “bitumen”
and treated it as a separate entity. As we notice, it has not indicated
that this was done with the intention and purpose to exclude some type or
variety of bitumen. All bitumen products, which share and have common
composition and commercial entity, and meet the popular parlance test, is,
therefore, meant to be covered by the said Entry. In the instant case, even
the end use test is satisfied. There is nothing in the Entry to suggest and
show that the Entry is required to be given a restrictive and a narrow
meaning.
22. In this regard, another aspect needs to be noted. The Revenue does
not rely upon another Entry under which bitumen emulsion can be taxed. The
Revenue relies upon the residuary Entry which would only include goods,
which cannot be covered under any other Entry in the schedule on
application of the three-fold criteria. In the State of Maharashtra v.
Bradma of India Limited[7], the Court had observed that the general
principle is that specific Entry would override a general Entry. Referring
to the decisions in the case of Collector of Central Excise, Shillong v.
Wood Craft Products Ltd.[8], it has been ruled that resort can be made to a
residuary heading only when by liberal construction the specific Entry
cannot cover the goods in question. Referring to Entry No. 90 in the said
case, which covered tabulating, calculating, cash registering, indexing and
data processing, etc, other than computer machines, it was held that the
words did not contain words of limitation and would cover every species of
cash registering machines, irrespective of their mode of operation. In the
absence of any limitation or qualification as to the different kind of cash
registering machines, there was no reason for such qualification and limit
the Entry to a particular kind of cash registering machine. However,
computers had been specifically excluded and were separately dealt with in
Entry 97(a). The assessee, who was manufacturing electronic cash registers
would, therefore, be covered by Entry 90 and not by the Entry relating to
computers. A similar opinion has been expressed in Hindustan Poles Corpn.
v. Commissioner of Central Excise, Calcutta[9] stating that residuary Entry
is made to cover only those category of goods which clearly fall outside
the ambit of the main Entry. The opinion proceeds further to state that
unless the Revenue can establish that the goods in question can by no
conceivable process of reasoning be brought under any of the tariff items,
resort cannot be made to the residuary Entry.
23. In this context, reference to the authority in Commercial Taxes
Officer v. Jalani Enterprises[10] would be profitable. While dealing with
the question of sales tax/VAT under the Rajasthan Sales Tax Act, it was
held that if from records it was established that the product in question
could be brought under a specific Entry, then there was no reason to take
resort to the residuary Entry. Revenue cannot be permitted to travel to
the residuary Entry when a product can be covered under a specific Entry.
24. In the present context, when the word “bitumen” has been used as a
generic expression, it would be erroneous not to cover a product that is
only a type or form of bitumen and retains all its essential
characteristics, and treat it as covered by the residuary Entry by some
kind of ingenuous reasoning. Taking it outside the purview of the specific
Entry is incorrect.
25. At this juncture, we may refer to certain pronouncements commended to
us by the learned counsel for the appellant. In Collector of Customs and
others v. Kumudam Publications (P) Limited and others[11], while adverting
to the issue of classification it has been held that it would not be
correct to say that in no case can the end use or function of the goods be
relevant in the question of classification, as was held in Indian Tool
Manufacturers v. Asstt. Collector of Central Excise, Nasik and others[12].
The decision in Commissioner of Central Excise, Cochin v. Mannampalakkal
Rubber Latex Works[13] emphasizes and holds that in the matters of
classification, “composition test” is important test and the “end user
test” would only apply if the Entry says so. We have referred to the
aforesaid authorities for sake of completeness only because we have applied
the “composition test” as well as the “commercial or common parlance” test
in addition to the “end use test”.
26. Reliance placed by the Revenue on the decision in the case of
Hindustan Aluminium Corporation Ltd. v. State of Uttar Pradesh and
another[14], is of no assistance, for in the context of the particular
notification it was held that aluminium ingots, billet, roll products,
extrusion, etc. would not be covered by the exemption, which was granted to
all kinds of minerals, ore, metals or alloys, including sheets and circles
used in the manufacture of brasswares and scraps. In this context,
referring to Section 3A of the U.P. Sales Tax Act and the notification as
applicable, it was held that the earlier notifications issued from time to
time would show that the expression “metal” had been employed with
reference to metal in its primary sense. The principle laid down in the
said authority is in the context in issue and is based upon the schematic
arrangement indicated and specified in the notification under consideration
therein. That apart, the said decision also emphasizes that a word
describing a commodity in a sales tax statute should be interpreted
according to its popular sense and words of everyday use must be construed
not in their scientific or technical sense, but as understood in common
parlance.
27. We have also been commended to a judgment of the Customs, Excise and
Service Tax Appellate Tribunal in Allied Bitumen Complex (India) Private
Limited v. Collector of Central Excise, Calcutta – 1[15], which holds that
conversion of bitumen into bitumen aqueous emulsion amounts to manufacture.
Per contra, the respondent-assessee has relied on judgment of the
Karnataka High Court in SR Projects Limited v. Commissioner of Commercial
Taxes[16]. However, it is not necessary to dilate on the said aspect for
there is a distinction between what can be regarded as manufacture under
the Excise Act and what is the sale or transfer of property in goods under
the Sales Tax Act and the Value Added Tax Act. In M.P. Agencies v. State
of Kerala[17], it has been held that the decisions under the Excise Act may
have some play and relevance, but the question of manufacture by itself
would not be per se relevant under the Sales Tax or Value Added Tax Act.
Thus, there is a distinction between what is exigible to tax under the
excise law and the incidence of tax when the legislation relates to sales
or value added tax. What is relevant is the classification. In this
context, the verdict in Osnar Chemical Private Limited (supra) is
significant. The said authority refers to two other variants of bitumen,
namely, polymer modified bitumen and crumbled rubber modified bitumen which
are created by the process of mixing of polymer and additive to bitumen.
It has been held that the aforesaid processes result in improvement of the
quality of bitumen and there is no change in the characteristics or
identity of bitumen so as to transform bitumen into a new product having an
identity, characteristic and use. It has been ruled therein that there is
a fallacy in the argument raised by the Revenue that bitumen per se would
only include its solid hard form which melts at high temperature and not
bitumen emulsion. The two varieties and types carry the same composition,
do not differ in character and have the same commercial identity i.e.
bitumen. That apart, the use or end use test is also satisfied.
28. In view of the aforesaid analysis, we find the view expressed by the
High Court to be absolutely flawless and, accordingly, we concur with it.
Our concurrence with the view of the High Court entails dismissal of the
appeal and, accordingly, it is so directed. There shall be no order as to
costs.
.............................J.
[Dipak Misra]
............................J.
[Prafulla C. Pant]
New Delhi
September 6, 2016
-----------------------
[1] (2004) UPTC 1827
[2] (1976) 36 STC 236
[3] (1974) 33 STC 381
[4] (2012) 2 SCC 282
[5] (2006) 7 SCC 322
[6] (2009) 9 SCC 678
[7] (2005) 2 SCC 669
[8] (1995) 3 SCC 454
[9] (2006) 4 SCC 85
[10] (2011) 4 SCC 386
[11] (1998) 9 SCC 339
[12] (1994) Supp (3) SCC 632
[13] (2007) 217 ELT 161 (SC)
[14] (1981) 3 SCC 578
[15] (1997) 90 ELT 374 (Tribunal)
[16] (2013) 63 VST 49 (Kar)
[17] (2015) 7 SCC 102
