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Judgment
P.K. Jaiswal, J—This order shall also govern the disposal of W.P. No. 6667/2009, W.P. No. 6668/2009, W.P. No. 7424/2009, W.P. No. 8042/2009, W.P. No. 9285/2009, W.P. No. 9288/2009 and W.P. No. 4457/2013. Since these petitions involve the same issue on the same factual background, they are being heard together. For the sake of convenience the facts are borrowed from W.P. No. 4789/2005.
By this writ petition under Article 226 of the Constitution of India, the petitioner is praying for quashment of order dated 15.7.2005 (Annexure P/5), passed by the respondent No. 1, the Commissioner of Commercial Tax, M.P. Indore, in exercise of his powers under Section 68 of M.P. Commercial Tax Act, 1994 (hereinafter referred as ''the Act'') by which he decided that ''Chlorinated Paraffin Wax'' is a chemical product different from chemical would be covered by residuary Entry No. 39 of Schedule II, Part IV and not by Entry No. 3 of Schedule II, Part V, to the Act and liable to be taxed at @ of 8%.
The petitioner is a private limited Company duly incorporated and registered under the provisions of Companies Act, 1956. The Company is engaged mainly in the business of manufacture and sale of a chemicals known as '' Chlorinated Paraffin Wax''. In addition to the above, in the process of manufacture of the said product, Hydrochloric Acid is also generated as a by-product, which is undoubtedly a chemical. The petitioner is a duly registered dealer under the provisions of the Act as well Central Sales Tax Act and is being regularly assessed to the Commercial Tax Act.
According to the petitioner the "Chlorinated Paraffin Wax" being an Industrial Organic Chemical having its used in various fields like Industrial and Mineral Oil, Lubricating Oils and Greases, Paints and Lacquers, Leather, Rubber and Textiles etc., and is also used as a raw material in the Plastic Industry as a flexiblising additive, the said product is nothing but a kind of chemical, rather a chemical compound.
The petitioner, therefore, while filing returns for the purpose of Commercial Tax Act, for the periods after the expiry of exemption, claimed that the said product is liable to tax as one of the kind of chemical under Entry No. 3, Part V, Schedule II @ 4%.
A dispute arose about the classification of the above product viz., Chlorinated Paraffin Wax (CPW), the petitioner approached to the Commissioner of Commercial Tax, M.P. Indore, for determination of rate of tax by filing an application under Section 68 of the Act. The respondent No. 1 by order dated 15.7.2005, has held that the product Chlorinated Paraffin Wax, which is a Plasticizer has been classified under Entry No. 38, Serial No. 38.12 of Central Excise Act as a chemical product is distinct from chemicals and accordingly liable to tax under the residuary Entry 39 of Part IV Schedule II @ 8%.
Learned counsel for the petitioner submits that the order passed by the Commissioner artificially distinguished present product from the kind of chemicals and classifying it as a chemical product and taking it out of the entry, which levy tax on all kind of chemicals constitute an error apparent on the face of the record and deserves to be quashed for the reason that the Entry No. 3, Part V Schedule II of the Act is itself a comprehensive entry and covers within its sweep all kinds of chemicals and even the chemical products. He submits that the State Legislature in M.P. has not made any distinction between chemical and chemical product and hence so long as the chemical product retains the character as a chemical, even a chemical product would continue to fall in the same entry. He further submits that even Exporter is also governed by the Foreign Trade Policy of Government of India, which in turn obliges an Exporter to obtain the requisite registration cum membership certificate, from the competent authority viz., Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Councils set up by the Minister of Commerce, Government of India, as a precondition for the permission to export. The said council has also classified and treated the present product as a kind of chemical, such treatment cannot be thrown open to challenge by any other authority, much less by Revenue Authority. He further contended that the learned Commissioner without considering the technical literature, the process of manufacture, the use of the product as a chemical etc., and without bringing on record any contrary material to show that the product in question is not a kind of chemical, is vitiated in law and suffers from an error apparent on the face of record.
To support the aforesaid, he has drawn our attention to the decision of the Allahabad High Court in the case of Commissioner, Sales Tax, U.P., Lucknow Vs. Prayag Chemical Works, Naini, Allahabad, AIR 1970 All 191 : (1970) 25 STC 85 , decision of the High Court of Gujarat in the case of Quality Chemicals Vs. State of Gujarat , decision of Madras High Court in the case of India Oil Corporation Ltd. v. State of Tamil Nadu, passed on February 15, 1990, decision of Allahabad High Court in the case of Har Narain Purshottam Dass v. Commissioner, Sales Tax, Uttar Pradesh, Lucknow, passed on February 11, 1969, decision of High Court of M.P. in the case of Commissioner of Commercial Tax Vs. Dabar India Ltd., (2000) 119 STC 37 , decisions of the Apex Court in the case of Mauri Yeast India Pvt. Ltd. Vs. State of U.P. and Another, (2008) 3 CLT 653 : (2008) 225 ELT 321 : (2008) 13 JT 657 : (2008) 6 SCALE 241 : (2008) 5 SCC 680 : (2008) 14 VST 259 : (2008) AIRSCW 2837 : (2008) 3 Supreme 9 , in the case of Rajaram & Brothers v. Commissioner of Commercial Tax, M.P. & Ors., (2010) 16 STJ 105 (MP) , decision of the Kerala High Court in the case of Lazarus Alosius Vs. State of Kerala, (2005) 3 CTC 254 : (2005) 2 ILR (Ker) 16 : (2005) 2 KLT 604 : (2006) 144 STC 210 , decision of the Apex Court in the case of State of Maharashtra Vs. Bradma of India Ltd., AIR 2005 SC 956 : (2005) 2 JT 310 : (2005) 2 SCC 669 : (2005) 140 STC 17 : (2005) AIRSCW 894 : (2005) 2 Supreme 56 , decision of Andhra Pradesh High Court in the case of Asian Reprographics Pvt. Ltd. Vs. State of A.P., (2000) 119 STC 313 , decision of the High court of Allahabad in the case of Saurashtra Chemicals Vs. Commissioner of Sales Tax, (2006) 143 STC 368 , decision of Madras High Court in the case of Hardcastle, Waud & Co. Ltd., 89 STC 352, Vijay Foundry & Machinery Works v/.s State of Gujarat, 84 STC 152 , decision of the High Court of Allahabad in the case of Commissioner, Sales Tax Vs. Banaras Chemicals, (1967) 20 STC 246 , decision of the Gujarat High Court in the case of State of Gujarat v. Bhagwati General Agency (Import), 83 STC 347 , and the decision of the Andhra Pradesh High Court in the case of State of Andhra Pradesh Vs. Synthetic Fibre and Fabrics, (1991) 34 ECC 195 : (1991) 80 STC 217 and prayed for quashment of the order and issuance of writ of mandamus directing the respondents to classify the commodity ''Chlorinated Paraffin Wax'' as a chemical and direct them to levy the tax @ of 4% under Entry No. 3, Part V Schedule II of the said commodity.
Per contra, Shri P.M. Bhargava, learned Dy. Advocate General submits that specific finding has been recorded by the Commissioner, Commercial Tax, Indore, under Section 68 of the Act that the product is a chemical product, different from chemical and would fall under the residuary entry. It is submitted that it is a intermediate product and would come under the residuary Entry No. 39 of Schedule II, Part IV of the Act. It is also contended that in common parlance and in trade Chlorinated Paraffin Wax are not known as chemicals. To support the aforesaid contention, he has drawn our attention to the decision of the Gujarat High Court in the case of Quality Chemicals Vs. State of Gujarat and prayed for dismissal of the petition.
The question involved in this writ petition is whether "Chlorinated Paraffin Wax" is a chemical, within the meaning of Entry No. 3 of Schedule II, Part V or is covered by residuary entry No. 39 of Schedule II, Part IV of the Act.
For appreciating the contentions raised by the learned counsel for the parties, it would be necessary to refer to Entry No. 3 of Schedule II, Part V and Entry No. 39 of Schedule II, Part IV of the Act, as they existed at the relevant point of time are as:--
SCHEDULE - II Part IV
SCHEDULE - II Part V
Sub - heading No. 38.12 of Heading No. 38 of Central Excise Act, 1944 is also relevant which reads as under:--
The Apex Court in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Jaswant Singh Charan Singh, AIR 1967 SC 1454 : (1967) 2 SCR 720 : (1967) 19 STC 469 , reiterated that while interpreting item in statute like the Sales Tax Act, resort should be had not to the scientific or technical meaning of the terms used but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, in their commercial sense. In that case, the Supreme Court interpreted Entry No. 1 Part II of Schedule II to the Madhya Pradesh General Sales Tax Act, 1958, which provided for coal including coke in all its forms. The Supreme Court approved the view taken by the High Court that charcoal would be included in the word "Coal" considering its commercial and popular meaning.
The broad outline of manufacturing process is as under:--
"''Chlorinated Paraffin Wax'' is produced by chlorination of Heavy Normal Paraffin (HNP) at controlled temperature in the presence of catalyst.
HNP would be fed into a MS jacketed melter, where steam at pressure of 3 kg/cm 2 would be passed into the jacket for providing heat in put. The temperature would be maintained at 65 to 70 deg. C in the melter.
The molten HNP would be transferred to a MS lead bonded chlorinator. Chlorine gas would be kept in cylinder connected to headers. Liquid chlorine gas would be blended slowly through MS pipe line upto the chlorinator. In the line, the chlorine would be transferred as gas all the time.
The transfer of liquid HNP to the melter can be carried out either by vacuum or by the pump. When the transferring is complete, the chlorine gas would be charged to the chlorinator slowly at a low rate. As the chlorine gas would react with HNP, the reaction would be exothermic and would be vigorous. Chlorine flow would be gradually increased, so that the reaction temperature is maintained between 50-70 deg. C. Once the chlorination would start, as the reaction is exothermic, the contents would always remain in the liquid form.
During process of reaction, HCL gas would evolve from the Chlorinator, which would be scrubbed in a absorber for recovering the Hydrochloric acid.
For ever tonne of Chlorinated Paraffin Wax, 1.5 tonnes of HCI would be generated in the process."
"Chlorinated Paraffin Wax" is used as a secondary plasticiser for
"(i) PVC Resins, Plasticiser extender in synthetic rubber, Chlorinated rubber, Nitrocellulose Polystyrene etc.
(ii) It is used in plastic and rubber industry as an indispensable compound for Rubber and Plastic industries in the manufacture of Rubber belt, cable compound etc.
(iii) It is used in flame retardant for impregnating textiles and fabric of all kinds. Used as a substitute for Chlorinated Naphthalene in flame proof electric wire industries.
(iv) It is used in paint industry for the manufacture of fire proof paints.
(v) Also used in Foundry as core binder."
Chlorinated paraffins are manufactured by passing pure chlorine gas into a liquid paraffin at a temperature between 80 and 100 deg C. depending on the chain length of the paraffin feedstock. At these temperatures chlorination occurs exothermically and cooling is necessary to maintain the temperature at around 100 deg C. Catalyst are not usually necessary to initiate chlorihation, but manufactures may assist the process with ultraviolet light. Failure to control the reactive exotherm during chlorination may lead to a colored and unstable product. The reaction is terminated by stopping the flow of chlorine when the desired degree of chlorination has been achieved. This is estimated by density, viscosity or refractive index measurements. The reactor is then purged with air or nitrogen to remove excess chlorine and hydrochloric acid gas. Small quantities of a storage stablizer, typically epoxidized vegetable oil, may be mixed in at this stage or later in a blending vessel.
Chlorinated paraffins are versatile materials and are used in widely differing applications. As cost-effective plasticisers, they are employed in plastics particularly PVC, rubbers, surface coatings, adhesives, and sealants. Where required they impart the additional features of fire retardance, and chemical and water resistance. In conjunction with antimony trioxide, they constitute one of the most cost-effective fire-retardant systems for polymeric materials, textiles, surface coatings, and paper products. Chlorinated paraffins are also employed as components in fact liquors used in the leather industry, as extreme pressure additives in metal-working lubricants, and as solvents in carbonless copying paper.
In the case of The State of Gujarat Vs. Jayant Chemical Works Pvt. Ltd., (1975) 36 STC 112 , the Apex Court referred to the definition of word "Chemical" occurring in Webster''s New Twentieth Century Dictionary of the English Language, Unabridged (2nd Edition, 1979), wherein the meaning of the term "chemical" is given as follows:
"Chemical - any substance used in or obtained by a chemical process or processes".
The Division Bench of Gujarat High Court in the case of Gujarat Distributors Vs. The State of Gujarat, (1975) 36 STC 116 held that the question was as to whether products know as aldrex, dieldrex and endrex, which are sold by the applicant, are the "chemicals" covered by entry 4 of Schedule C to the Bombay Sales Tax Act, 1959, or are the articles which fall within the residuary entry 22 of Schedule E of the Act. In that case, the assessee admitted that the articles referred in that case were insecticides which were used for the production of agricultural products. The Division Bench in that case applied the common parlance test and arrived at the conclusion that, since the articles are germicides, they would not be known in the commercial world as mere "chemicals", which would obviously represent a very wide category of articles. For this purpose, the Division Bench posed a question as to whether if a consumer of the articles which are disputed in that case goes to the market and asks for a "chemical" from a dealer of those articles, would he be supplied any of those articles. The court referred to Encyclopaedia Britannica wherein under the caption "chemical industry" three general classes of chemical products are discussed. They are as under:
"(1) basic chemicals such as acids, alkalies, salts and organic chemicals;
(2) chemical products to be used in further manufacture such as man-made fibres, plastic materials, crude animal and vegetable oils, dry colours and pigments; and
(3) finished chemical products to be used for ultimate consumption, such as drugs, cosmetics and soaps, or to be used as materials or supplies in other industries, such as paints, fertilizers and explosives."
The Division Bench thereafter negatived the contention of the assessee that all the end-products in the manufacture of which chemicals are used would be covered by entry 4 of the Schedule C. It was held if that contention was accepted then it would follow that all end-product in the manufacture of which chemicals are used would fall within the ambit of that entry, provided there is no specific entry covering such product. The court further observed, "This view would be patently wrong because that would render the mention of dyes in this entry quite redundant. As already pointed out by us, even a dye is an intermediary chemical product and if the word ''chemicals'' is held to have been used in the most comprehensive sense covering all the three categories of chemicals, namely, basic chemicals, intermediary chemical products and end-products then obviously the product known as dye would be covered by the wider category and there would not have been any necessity of making a special mention of dye in this entry. It cannot be disputed that chemical is a wider term and since this wider term is used in collocation with a term of narrower meaning, namely, a dye, the said wider term must take its colour and meaning from the meaning which could be attributed to the narrower term". The court further held that since the articles, namely, aldrex, dieldrex, or endrex were germicides, they would not be known in the commercial world as mere "chemicals", which would obviously represent a very wide category of articles and, therefore, the said articles would not be covered by the disputed entry 4 of Schedule "C".
From the aforesaid decisions of this Court with regard to entry in question, it can be stated:
"(i) It takes in its purview all types of dyes and chemicals which are not specifically mentioned in other entries. That means, it is a residuary entry as far as dyes and chemicals are concerned;
(ii) For being covered by the said entry, it need not simultaneously be a product of chemical process and be used to produce a chemical effect. It would suffice if it is obtained by a chemical process or, in the alternative, it produces a chemical effect;
(iii) If it is end-product known in the market by different names such as drugs, cosmetics, soaps for ultimate consumption, then it would not be covered by the said entry."
In the case of Dunlop India Ltd. and Madras Rubber Factory Ltd. Vs. Union of India (UOI) and Others, AIR 1977 SC 597(1) : AIR 1977 SC 597 : (2003) 90 ECC 483 : (1983) 13 ELT 1566 : (1976) 2 SCC 241 : (1976) 2 SCR 98 , it was reiterated that where the reason given by the authorities for classification of an article under a particular item is foreign to such determination, the Court would interfere.
The Supreme Court in the case of Atul Glass Industries (Pvt.) Ltd. Vs. Collector of Central Excise, AIR 1986 SC 1730 : (1986) 10 ECC 1 : (1986) 25 ELT 473 : (1986) JT 41 : (1986) 2 SCALE 15 : (1986) 3 SCC 480 : (1986) 3 SCR 126 : (1986) 63 STC 322 a case arising under the Central Excises and Salt Act, 1944 - where, the learned counsel says, applying the functional test, it was held that mirrors and wind screens, rear screens, and door screens manufactured for motor vehicles, do not and cannot fall within the entry "glass or glasswares", within the meaning of time 23A(4) of Schedule I to the Central Excises and Salt Act. It was held that while "glass mirrors" fall within the residuary item, i.e., wind screens, rear screens and door screens manufactured from sheet glass for fitting in motor vehicles must be treated as motor vehicle parts, and they fell under item 34A until the amendment of the said item by the Finance Act, 1979. Inasmuch as the Finance Act, 1979 restricted item 34A to certain commodities specified therein, it was held, these goods which are not specified in that item, must fall under the residuary item, i.e., item 68, thereafter.
In the present case, applying the aforesaid tests, CPW, would be covered by entry 39 as it is a chemical product. It is also used as raw material in plastic and rubber industries, paint industries, foundry, PVC industries as a secondary plasticiser for (i) PVC Resins, Plasticiser extender in synthetic rubber, Chlorinated rubber, Nitrocellulose Polystyrene etc. In this view of the matter, it is difficult to accept the contention of Shri P.M. Choudhary, learned counsel for the petitioner''s product is a chemical.
In this view of the matter, we hold that the Commissioner was justified in holding that Chlorinated Paraffin Wax is a chemical product, which is different from chemical and was covered by Schedule II, Part IV Entry No. 39 (Residuary Entry). Thus, we uphold the order of the Commissioner dated 15/07/2005 and dismiss the writ petition.
However, there shall be no order as to costs.