Transcript for PCPM - The Institute of Cost Accountants of India Navi

Classification of Commodities
by
Sanjay K Agarwal
Contents
• Relevance
• Indirect Taxes
• Direct Taxes
• Regulation of trade
• Consumer protection
• Export incentives
There is no general fit for all rule for
classification
Transactions
•
-Dictionary meaning
•
-Advertisement
•
Availability on a particular type of shop
•
User Test
•
Function Test
•
Predominance by material; weight
•
Common Parlance
Classification
•
Classification of product makes lot of difference in indirect
taxes
•
Being trader, classification is dictated by vendor
•
VAT is liability at every point of sale – classification by
vendor would not impress upon Court at the time of dispute
•
For CST purchased / Stock transferred-in material
classification by vendor is not available
Common Parlance Meaning
•
popular sense, the sense being that in which people conversant
with the subject matter with which statute is dealing would
attribute to it. Words of every day use must be construed not in
their scientific sense but as understood in common parlance. Ramavatar Budhaiprasad v. The Assistant Sales Tax Officer, Akola
And Another [1961] 12 STC 286 (SC) – Judgment dated March 14,
1961 repeatedly affirmed in subsequent Judgments by the SC
Common Parlance Meaning
•
The particular use to which an article can be applied in the hands of a
special consumer is not determinative of the nature of goods
•
Mahamaya Agencies v. State of Tripura [2008] 12 VST 529 (Gauhati
HC)- Judgment dated January 7, 2008 – In view of specific entry for
‘Bearings’ it can not be taxed as Motor Vehicle Parts
Common Parlance Meaning
•
Functional test, i.e. the design of the product itself can be a decisive
test for some class of products.
•
‘Diesel Engines And Diesel Generator Sets’. Diesel engines and
diesel generator sets are machinery when used in commercial
activities. However, diesel engine and diesel generator which are
designed to be used exclusively for domestic purpose cannot be taxed
as plant and machinery - Kasaban Services v C.S.T., Kolkata which
in turn is quoted in Premier Diesel Pvt Ltd v Commissioner of Sales
Tax, Kolkata [2009] 25 VST 195 (West Bengal Taxation Tribunal –
WBTT) Judgment dated September 5, 2008
Common Parlance Meaning
•
where a contest exists between the scientific and technological
connotation of the word on the one hand and its understanding in
common parlance on the other. In interpreting the entries of taxing
statutes, preference should be given to the common parlance meaning
over the one as defined in a dictionary
•
Commissioner of Sales Tax v Suraj Rubber Industries [2008] 11 VST
480 (Allahabad HC) – Rickshaw is not understood as tri-cycle in
common parlance.
Specific Entry v residuary entry
•
Recourse to a residuary entry should be taken by way of last resort.
•
- Maruti Yeast India Pvt Ltd v State of U P [2008] 14 VST 259/ 5
SCC 680
•
Specific entry will exclude general entry
•
-Shree Ram Industries v State of Gujarat [1974] 34 STC 153
(Gujarat); State of Tamil Nadu v Blue Star Engineering Co. Madras
Private Limited [1977] 39 STC 194 (Madras); State of Tamil Nadu v
Anikal Corporation [1992] 87 STC 167 (Madras HC)
Specific Entry v residuary entry
•
Specific entry will exclude general entry
•
An electronically operated survey instrument would be classified
under entry talking about ‘survey instruments’ and not under the entry
talking about ‘electronic instruments’ - Electro Optics (P) Ltd v State
of Tamil Nadu And Others [2010] 30 VST 23 (Madras HC) Judgment
dated September 29, 2009
Specific Entry v residuary entry
•
If there are two competing entries for taxing an article, the entry
which is beneficial to the assessee ought to be preferred
•
Anhydrous ammonia (a term applied to a chemical substance free
from water) was held to be chemical not gas. - Ammonia Supply
Company v Addl Comm, Trade Tax [2010] 30 VST 587 (Allahabad
HC), Judgment dated March 30,2010.
•
Also CIT v Vegetable Products Limited [1973] 88 ITR 192;
S.Raghuram Reddy v Commissioner of Commercial Taxes [2004]
134 STC 598.
Definition of one statute would not
automatically apply to another statute
•
Dant Manjan Lal manufactured by Baidyanath Ayurved Bhawan
Ltd
•
Drug as per definition of ‘Ayurvedic, Siddha or Unani Drug’ as
contained in section 3(a) of the Drugs and Cosmetics Act, 1940
was held to be not applicable in a classification dispute under
Central Excise - Commissioner of Central Excise, Nagpur v
Shree Baidyanath Ayurved Bhawan Ltd [2010] 1 GSTR 1 (SC)
Judgment dated April 13, 2009
•
Central Excise Duty cannot be equated with sales tax. They
have different connotations and apply in different situations.
Central Excise duty is chargeable on the excisable goods and
not on the goods which are not excisable. - Commissioner of
Central Excise v Acer India Limited [2004] 137 STC 596/ 8 SCC
173
Definition of one statute would not
automatically apply to another statute
•
Contemporaneous exposition by the administrative
authorities is a very useful and relevant guide to the
interpretation of the expressions used in a statute.
•
Pepsico India Holdings Pvt Ltd v State of Assam And Others
[2009] 25 VST 41 (Gauhati HC) Judgment dated April 28, 2009
•
Potato Wafers classified as preparation of vegetables under
CE Act, Potato Chips treated as vegetable-based product by
Ministry of Food Processing – Logic would apply to VAT also.
Different classification may be claimed in
different years
•
Municipal Corporation of City of Thane v. Vidyut Metallics Ltd.
And Another [2009] 20 VST 680 (SC) – Matter involving
classification of Stainless Steel Strips for manufacturing safety
Razor Blades – A long list of precedence for Direct and Indirect
Taxes.
•
Shree Metallic Yarn Industries v. Commercial Tax Officer, Ajmer
[2009] 19 VST 270 (Rajasthan High Court) Judgment dated
August 8, 2007 – In Registration application commodity claimed
to be falling under one entry and in assessment claimed to be
falling in another entry
burden/onus to prove the classification of a
particular product is upon the Revenue
•
Union of India v Garware Nylons Ltd AIR 1996 SC 3509
•
Commissioner of Central Excise v Sharma Chemical Works
[2003] 132 STC 251 (SC); [2003] 5 SCC 60
•
Dabur India Ltd v Commissioner of Central Excise, Jamshedpur
[2005] 5 RC 50; [2005] 4 SCC 9 a three-judge Bench
Cosmetics and Medicines
•
sugar of milk i.e.saccharum lactis – Whether bulk drug or
residuary goods as a mere vehicle of homeopathic medicine.
•
Held a component of homoeopathic medicine and hence a drug
like empty gelatin capsules. - Sujit Kumar Datta v Commercial
Tax Officer [2009] 26 VST 307 (WBTT) Judgment dated July 11,
2008
•
Held falling entry for ‘Sugar including khandasai and boora’ State of Haryana v Swiss French Laboratories [2010] 29 VST 254
(P&H High Court) - having used sugar to the extent of 90 percent
or more
Cosmetics and Medicines
•
Surgical gloves and examination gloves
• are surgical equipments not rubber goods
• Kanam Latex Industries Pvt Ltd v State of Kerala [2010] 27
VST 172 (Kerala HC) Judgment dated February 12, 2009
•
Hajmola Candy is confectionery - Dabur India Limited And
Another v. ACCT Corporate Division And Others [2007] 5 VST
190 (WBTT)
•
Kajal is Ayurvedic medicine and not a product for
beautification of eyes - State of Kerala v. Tips & Toes Cosmetics
India Limited [2008] 11 VST 74 (Kerala High Court) Judgment
dated August 22, 2003
Cosmetics and Medicines
Twin Test
CCE V. Richardson Hindustan Ltd. 2004 (9) SCC 156
Whether the item is commonly understood as a medicament
which is called the common parlance test
Are the ingredients used in the product mentioned in the
authoritative text books on Ayurveda
percentage of medicaments in the product is not
determinatitive.
Vicks Vaporub has only 2 per cent of medicament
element.
Cosmetics and Medicines
•
Cotton bandage is textile; medicated cotton bandage is Drugs
& Medicines
•
Vaseline white petroleum jelly is drug - Ponds India Ltd. v.
Commissioner Trade Tax, Lucknow [2008] 15 VST 256 (SC)
Judgment dated May 16, 2008 Entries under consideration were
cosmetics and drug
•
Petroleum jelly would not fall under entry for chemical but
would be a residuary item. - M.Vijayan v. Comm.Tax Officer
[2009] 22 VST 117 (Kerala HC) Judgment dated August 26, 2008
Entries under consideration were chemical and petroleum
products
Electrical and Electronic Goods
•
Such articles the use of which cannot be had except with the
application of electrical energy are called electrical goods.
•
An electronic device can be an electrical device but an electrical
device cannot be an electronic device.
•
Electrical goods involve the consumption of electricity, whereas
an electronic device functions through the creation of an electron
vacuum in the semi conductor material.
Electrical and Electronic Goods
•
The fact that the electronic goods cannot be used without the aid
of electricity is not the only criterion to determine whether those
goods can be treated as electrical goods.
•
The really important criterion is whether those goods are regarded
as electrical goods in common parlance.
Electrical and Electronic Goods
•
Laundry machine is not an electric goods - Asst.Commercial Tax
Officer v. Puran Lal Dry Cleaners And Another [2008] 16 VST
537 (Rajasthan HC) Judgment dated April 26, 2007
•
Diesel Generating sets are to be classified as machinery. Despite
their generating electricity they are not electrical goods.Venkateshwara Engineering Works v. Additional Commissioner
of Commercial Taxes [2006] 146 STC 681 (Karnataka HC)
Electrical and Electronic Goods
•
Automatic washing machines electronically programmed will fall
under ‘electronic goods’, even though specific entry was provided
for electrically operated washing machines.
•
•
BPL Ltd. v. State of Andhra Pradesh [2001] 121 STC 450
(SC)
Voltage Stabilizer is an ‘electronic goods’.
•
Commissioner of Trade Tax v Parikh Gramodyog Sansthan
[2010] 34 VST 1 (SC) Judgment dated August 11, 2010.
Branded and unbranded goods
•
General definition in CE adopted in Maharashtra VAT Act
•
‘brand name’ when used in the schedule means a brand name,
(whether registered or not), that is to say, a name or a mark
such as symbol, monogram, label, signature or invented
words or any writing which is used in relation to a product for
the purpose of indicating, or so as to indicate, a connection in
the course of trade between the product and some person
using such name or mark with or without any indication of the
identity of that person.’ – Section 3-a
Branded and unbranded goods
•
States of Gujarat, Rajasthan, Tamilnadu and Kerala have
confined meaning of branded with reference to Trade marks
Act 1999
•
Label is different than Trade Mark.
•
A Trade mark cannot exist in vacuum. It can only exist in
connection with the goods in relation to which it is used or
intended to be used - American Home Products V Mac
Laboratories AIR 1986 SC 137, 154
Branded and unbranded goods
•
If the assessee opts not to take advantage of the brand name in
its trade, it could at least have the benefit of the rate of duty
applicable to unbranded product
•
Tarai Food Ltd v CCE 2006 (198) ELT 323 (SC)
Packed and unpacked
The container is considered to be a sealed container if it is
closed in a manner that it is not possible to access the
contents or remove the contents without breaking either
the container or fastening if it is closed. In cases of both
stapling and crimping, the staples and pins can be
removed by the customer without breaking anything.
Undoing the fastening cannot amount to breaking the
fastening.
Packed and unpacked
Dressed chicken sold by the appellant in polythene bags, were
closed either by stapling or by crimping and fastening.
Stapling was done by using ordinary stapler. Crimping
and fastening was done by using a crimping machine. The
name and address of the appellant and the description of
the contents were printed on polythene bag. Dressed
chicken so packed and sold were held not to be a ‘sale in a
sealed container’. Balkrishna Hatcheries v Clarification
and Advance Ruling Authority, Karnataka [2007 UPTC 80
SC] Judgment dated September 11, 2006
Packed and unpacked
Packing material means a container in which goods may be
found and it is usually referred in ordinary parlance to
mean to place together the things, prepare for
transportation so that the goods can be used by the user.
Thus, packing material of any kind which serves this
purpose will continue to be a packing material. – State of
Karnataka v Jyothi Gas (P) Ltd [2010] 3 VST 289
(Karnataka Hc) Judgment dated February 26, 2010.
Packed and unpacked
Even inner packing used to protect fragrance etc of the
product would fall within the definition of term packing
material.
Supreme Packaging Pvt Ltd v Commissioner Trade
[2009] 26 VST 385 (All HC) Judgment dated August 5,
2008
Hangers are not packing material for readymade garments.
These are not such items but for which packing cannot be
done and delivery cannot be made.
Thakur Das Chotrani v. Sales Tax Officer [2009] 19 VST
518 (WBTT) Judgment dated June 27, 2008
Parts, Component and accessory
‘Accessory’ is something supplementary or subordinate in
nature and need not be essential for the actual functioning
of the product.
– CCE v Insulation Electrical (P) Ltd 2008 (224) ELT 512
(SC).
Car seat covers and upholstery are accessories to motor
vehicles
-Mehra Brothers v. Joint Commercial Tax Officer [1991]
1 SCC 514
Parts, Component and accessory
Name plates put on electric fans are parts of fan and not
accessory. Fan does not become marketable without name
plate. –
Jay Engineering [1989] 75 STC 313 (SC)
An article is a component of another when it forms a
constituent part of the other and is essential for
completing it.
Agarwala Brothers v Commissioner of Sales Tax [1969]
23 STC 306 (All HC)
Parts, Component and accessory
A component may be an independent product also. A tanker
mounted on chassis of a vehicle is not a component of
motor vehicle. – Facts in this case revealed that tanker
was capable of being used for different purposes including
after mounting on chassis of motor vehicle.
Commissioner of Sales Tax v Jayanand Khira & Co
Private Ltd [1975] 36 STC 242 (Bombay HC) Judgment
dated February 4, 1975
Other border line cases
Milk and flavoured milk
Butter Milk and spiced butter milk
Edible oil and hair oil
Insecticides and disinfectants
Bread and Hippo (Parle Product)
Utensiles and coated utensiles
Promo configuration
Buy X and get y free
Buy X and get Y at discounted price (Rs 1)
Buy one and get one free
Buy two at the price of one
Stock Transfers
Basic Value
Haryana
100
Punjab
100
Delhi
100
Tax
14
14
14
Reversal on ST
14
4
2
)
Entry Tax on Capital Goods
Storage Hubs should be in State where
there is no entry tax
Material should be brought in State only when required
for use
Thank you !