Banglore Agarbatti House vs Commissioner, Commercial Tax

Pankaj Mithal, J.—The revisionist is a registered dealer u/s 17 of the U.P. Value Added Tax Act, 2008 (hereinafter referred to as an Act). It deals in sale and purchase of "agarbatti" (incense stick) which is said to be exempt from tax under the U.P. Trade Tax Act/U.P. Value Added Tax Act, 2008. A consignment of 60 bags of "agarbatti" of the revisionist coming from Bihar to Varanasi and duly accompanied by bills was detained by the mobile squad, Commercial Tax at Chandauli on April 20, 2011 on the ground that there was no import declaration form XXXVIII along with the goods. A show-cause notice dated May 20, 2011 was issued, in reply to which, the revisionist submitted that no import declaration form is required as "agarbatti" is exempt vide entry 41 of the First Schedule to the Act read with section 7(b) of the Act. Thereafter, a seizure order was passed on April 21, 2011. Petitioner''s representation against the same u/s 48(7) of the Act was rejected on April 25, 2011. The appeal of the petitioner to the Tribunal was also dismissed on April 28, 2011 and the seizure was affirmed.

The revisionist in the aforesaid circumstances filed the present revision challenging the seizure order on the ground that the goods could not have been seized as u/s 50 of the Act no import declaration form is necessary in respect of exempted goods and "agarbatti" is exempt from tax under the Act. The revision was connected to Sales/Trade Tax Revision No. 324 of 2011 (Mehndipur Balaji Impex (P) Ltd. v. Commissioner of Commercial Taxes) wherein the question as to whether the validity of the seizure order passed under the Act can be challenged in revision u/s 58 of the Act before the High Court in view of the specific bar contained u/s 60(b) of the Act was referred for adjudication to the larger Bench.

A Division Bench of this Court in Writ Tax No. 756 of 2011 ( Shiv Shakti Trading Co. Vs. State of U.P. and Others, ), and other vide judgment and order dated May 24, 2011 laid down that a writ petition directly challenging seizure order passed under the Act is not ordinarily maintainable in view of alternative statutory remedy of appeal as well as revision provided under the Act.

Following the aforesaid decision the same Division Bench answered the reference in Mehndipur Balaji Impex vide order dated May 30, 2011 and held that the validity of the seizure order can be considered in proceeding in appeal or revision as that directly reflect on the issue of issuance of direction under the proviso to sub-section (7) of section 48 of the Act.

Accordingly this revision was sent back for disposal on the merits.

This is how the revision has again been placed before me.

The only question of law now required to be answered in this revision is whether the goods seized are actually "agarbatti" and exempt from taxation under the Act and as such require no import declaration form rendering the seizure invalid.

Section 50 of the Act provides that any person who intends to bring, import or otherwise receive, into the State from any place outside the State any goods other than the goods named and described in the First Schedule in connection with business, shall obtain a prescribed form of declaration from the assessing authority having jurisdiction over the area. In other words, such declaration form is required only for importing those goods which are not mentioned in the First Schedule to the Act. First Schedule of the Act consists of the list of goods exempted under the Act in view of section 7(b) of the Act. Section 7(b) of the Act provides for goods on which no tax is leviable on sale and purchase.

Section 7(b) and entry 41 of the First Schedule to the Act reads as under:

Tax not to be levied on certain sales and purchases.--No tax under this Act shall be levied and paid on the turnover of--

(a) . . .

(i) to (iii) . . .

(b) sale or purchase of any goods named or described in column (2) of the First Schedule; or

(c). . .

Entry 41--Schedule-I:

Incense sticks commonly known as agarbatti, dhukathi or dhupbatti, hawan samagri including dhoop agarbatti, sambrani or lohbana, rudraksh, rudraksh mala, tulsi kanthi mala.

It is thus clear that "agarbatti" is exempt from tax under the Act as per entry 41 of the First Schedule read with section 7(b) of the Act. Therefore, no import declaration form u/s 50 of the Act is required while bringing "agarbatti" in the State of U.P. from outside the State.

The learned counsel for the parties fairly agree to the above position. However, learned standing counsel submits that the consignment seized is not that of "agarbatti" but raw material for making "agarbatti" as the so-called incense sticks were found to be smell-less.

In the light of the above submission an ancillary question about the nature of the goods seized also arises for consideration. The New Modem Encyclopedia describes "incense" as mixture of aromatic gums and spices, giving of a sweet odour when burned. The World Book Encyclopedia also describes "incense" as mixture of sweet smelling gums and balsams which on burning gives a delicate fragrance. Incense are usually in powder form or in sticks. The Webster''s New Collegiate Dictionary describes "incense" to mean a material used to produce fragrance odour when burned. In short, material which on burning gives fragrance is incense (agarbatti). Therefore, any substance in some form which on burning gives a sweet odour is an "incense".

It is therefore to be examined whether the consignment of goods seized contains material which on burning gives fragrance or is otherwise scented so as to cover it within the meaning of incense. According to the Revenue the material seized was not scented and therefore it has not been treated as "agarbatti".

The order of the Joint Commissioner dated April 25, 2011, passed u/s 48(7) of the Act records that though material in the form of a stick which on burning gives fragrance is "agarbatti" but from a glance to the seized material, it is apparent that there is no smell in it and as such is not "agarbatti" entitle to exemption. The said finding is not based upon any enquiry or chemical test of the seized material. It has been recorded only on the basis of just looking at the sample of the seized goods and not by smelling it or burning it.

The Tribunal has recorded that the sample was examined and as no smell was found therein, the seized substance cannot be treated as "agarbatti".

The learned standing counsel was asked to inform as to whether any enquiry or test was conducted to examine the fragrance in the goods seized. He fairly on instructions conceded that no test was conducted and the reference to the enquiry in the order of the Tribunal is only to the physical examination as mentioned in the order of the Joint Commissioner. He as such was unable to produce any enquiry report before the court and the affidavit filed on behalf of the Department was confined to the stand that unscented sticks are not "agarbatti".

It may be noted that there is nothing on record to show that the so-called incense sticks seized were chemically tested so as to give a clear picture as to whether they are scented or not. There is no material also to the effect that the said sticks were burned and on burning they have not emitted any sweet smell or fragrance. When none of the aforesaid two tests have been applied, on bare physical examination that too without applying the test of smelling it cannot be said that the said sticks were unscented or were not likely to emit any sweet smell on burning. In such circumstances, the Department fell in error in holding the seized material not to be "agarbatti". Once the Department failed to prove that there was no smell or fragrance likely to be emitted on burning, the material which was in the shape of incense sticks, could not have been seized inasmuch as "agarbatti" is exempt from tax under the Act for which no import declaration form is required.

In view of the above, the question framed above is answered in affirmative in favour of the assessee-revisionist and against the Department. The seizure is held to be bad.

Accordingly, the order of seizure dated April 21, 2011 and the consequential orders dated April 25, 2011 and April 28, 2011 are set aside. Revision is allowed. No costs.