Commissioner of Commercial Taxes V. M/S A.R. Thermosets (Pvt.) Ltd., Civil Appeal No. 2650 of 2016, dated 6th September, 2016, SC

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VAT- Classification of Goods – Bitumen Emulsion- Is Bitumen- Taxable at 4%, Entry 22 of Part A of Schedule II of the Uttar Pradesh Value Added Tax Act, 2008.

Facts:
Respondent company 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 sale 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. The Company filed appeal before the Tribunal where it was dismissed. The High Court, in appeal filed by the company, allowed the appeal. The revenue filed appeal before the SC against the decision of High Court allowing appeal of the respondent company.

Held:
The principal controversy, involved is “whether “bitumen emulsion” is covered within Entry 22 of Schedule II of the VAT Act which only refers to “bitumen”.

The 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 added 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, crumble 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. To this the SC clarified that bitumen is a generic expression which would include different types of bitumen. Revenue, however, 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.

The nature and composition of the product or the goods and the particular entry in the classification table is important. Matching of the goods 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 goods and its comparison with the Entry is applied.

The Entry in question uses the word “bitumen” without any further stipulation or qualification. Therefore, it would include any product which shares the composition identity, and in common and commercial parlance is treated as bitumen and can be used as bitumen. Applying the three tests, namely, identity, common parlance and end use of 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.

It is perceivable that the legislature has used the word “bitumen” and treated it as a separate entity. 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.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.

Accordingly, the SC dismissed the appeal filed by the revenue and up held the judgment of High Court holding bitumen emulsifier is bitumen within the meaning of the entry 22 of part A of Schedule II of the act and taxable at 4%.