MRF Limited Vs State of Kerala (Kerala High Court)
Summary: The Kerala High Court allowed the writ petition filed by M/S. MRF Limited concerning its entitlement to sales tax exemption for “compound rubber” under S.R.O. No.1729/1993. The petitioner, which was running a Medium-Scale Industrial Unit engaged in the manufacture and sale of tyres, tubes, tread rubber, etc., had claimed exemption in respect of additional investments and modernization carried out in its unit. Eligibility certificates were issued by the Director of Industries and Commerce in respect of the additional investment and modernization, following which orders granting exemption were issued. However, insofar as “compound rubber” was concerned, the benefit was restricted up to 14.01.1998 by relying on the amendment to S.R.O. No.1729/1993 made through S.R.O. No.38/1998 with effect from 15.01.1998. The State Level Committee rejected the petitioner’s appeal, resulting in the present writ petition.
The petitioner relied upon S.R.O. No.1729/1993 and the negative list introduced by S.R.O. No.38/1998 and contended that a Division Bench of the Kerala High Court had already examined a similar exclusion contained in S.R.O. No.642/1981, as amended by S.R.O. No.1516/1990, in State of Kerala v. M.R.F Limited., [(2016) 90 VST 304 (Ker)]. According to the petitioner, the Division Bench had specifically considered the manufacturing process of compound rubber and held that it could not merely be treated as a product subjected to processing so as to deny the exemption. The State contended that the notification examined in the earlier Division Bench judgment and S.R.O. No.1729/1993 involved in the present proceedings were different and, therefore, the earlier ruling could not govern the present claim.
The Court examined clause (h) inserted into S.R.O. No.1729/1993 by S.R.O. No.38/1998. The clause excluded, inter alia, treating raw rubber in any form with chemicals to form a compound of rubber from activities deemed to constitute manufacture for purposes of the exemption notification. The Court also examined the Explanation inserted by S.R.O. No.1516/1990 into S.R.O. No.642/1981 defining “finished rubber product”. That Explanation similarly excluded forms of rubber subjected to processing by mixing with chemicals, gas, fumigation or other similar processes to make a compound of rubber.
The Court noted that the Division Bench in MRF had extensively considered expert certificates and the manufacturing process followed by the petitioner. The Division Bench had found that the overwhelming scientific opinion from experts in rubber and polymer technology established that compound rubber was itself a finished rubber product and was not merely the result of mixing rubber with chemicals, gas, fumigation or similar processes. The finished product produced at the petitioner’s Kerala unit could itself be put to use or purchased as such. The expert evidence supporting that conclusion had not been rebutted by evidence of greater evidentiary value from the State.
The High Court observed that the Explanation introduced by S.R.O. No.1516/1990 and clause (h) introduced by S.R.O. No.38/1998 were “more or less worded similarly”. Therefore, although the earlier Division Bench judgment had been rendered with reference to S.R.O. No.1516/1990, the principles laid down therein were applicable to the petitioner’s eligibility for exemption under S.R.O. No.1729/1993 as well. The State Level Committee had considered the Division Bench ruling but had not examined the issue specifically by comparing the wording of the two notifications.
Accordingly, the Court held that the petitioner was entitled to succeed. Ext.P10 proceedings of the State Level Committee were set aside to the extent that exemption for compound rubber was denied. The Court declared that the petitioner was entitled to exemption under S.R.O. No.1729/1993 in respect of compound rubber and that such entitlement could not be curtailed by reference to clause (h) of the negative list introduced by S.R.O. No.38/1998. The competent authority was directed to issue consequential orders as expeditiously as possible and, in any event, within two months.
Cases Discussed
- State of Kerala v. M.R.F Limited., [(2016) 90 VST 304 (Ker)] — relied upon for the finding, based on expert evidence and the manufacturing process, that compound rubber is a finished rubber product and is not merely the result of mixing rubber with chemicals or similar processing.
- Collector of Central Exercise, Baroda v. Ambalal Sarabhai Enterprise (P.) Ltd., [1990] 77 STC 190 (SC); [1990] 185 ITR 87 (SC); [1989] 43 ELT 214 — referred to in the reproduced Division Bench reasoning regarding the evidentiary value of expert evidence and the requirement of rebuttal through evidence of superior evidentiary value.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner is a company engaged in running a Medium-Scale Industrial Unit, stated to be engaged in the manufacture and sale of “tyres, tubes, tread rubber”, etc. The petitioner sought for the benefit of exemption from payment of tax as provided under the provisions of S.R.O. No.1729/1993, representing the “additional investments” carried out in its unit, as well as “modernization”. As regards the additional investment carried out in the unit, Ext.P2 is the eligibility certificate issued by the Director of Industries and Commerce (DIC) – 3rd respondent. As regards the modernization carried out, Ext.P5 is the eligibility certificate issued by the DIC. On the basis of Exts.P2 and P5 issued as above, the Deputy Commissioner (General) sought to issue Exts.P3 and P6 orders granting exemption. A reference to Ext.P3 would show that with respect to “compound rubber” manufactured by the petitioner among other items, the benefit of exemption is sought to be restricted upto 14.01.1998, seeking to place reliance on the amendment to S.R.O. No.1729/1993 carried out pursuant to S.R.O. No.38/1998 with effect from 15.01.1998. The orders of the Deputy Commissioner (General) were further challenged by the petitioner before the State Level Committee (SLC). The SLC by the proceedings at Ext.P10 considered the appeal filed also with reference to the judgment of a Division Bench of this Court in State of Kerala v. M.R.F Limited., [(2016) 90 VST 304 (Ker)], seeking to reject the appeal filed as above. It is in the afore circumstance, the petitioner has filed the captioned writ petition seeking to challenge Ext.P10 order issued by the SLC.
2. Sri. Kuryan Thomas, the learned counsel for the petitioner, sought to rely on the notification issued under S.R.O. No.1729/1993, as well as the negative list introduced pursuant to S.R.O. No.38/1998, and would point out that even with respect to a similar interdiction contained under S.R.O. No.642/1981, as amended by S.R.O. No.1516/1990, a Division Bench of this Court had considered the issue specifically with reference to the product in question and found that “compound rubber”, manufactured by the petitioner, could not be considered to be a product which is only subjected to a processing activity so as to deny the benefit of exemption. Therefore, according to him, the principles laid down by the Division Bench in MRF (supra) has to apply as regards the claim under S.R.O. No.1729/ 1993 also.
3. Per contra, Smt.Harima Hariharan, the learned Government Pleader for the respondents, would point out that the notification considered by the Division Bench in MRF (supra) and the notification on the basis of which exemption is claimed by the petitioner in the case at hand are, different. Hence, the principles laid down would not have any application to the facts of the case at hand, according to her.
4. I have considered the rival contentions, as well as the connected records.
5. It is not in dispute that S.R.O. No.1729/1993, was sought to be amended by S.R.O. No.38/1998, including a negative list with respect to certain processes which shall not be deemed as “manufacture” for the purpose of notification so as to avail the benefit. Clause (h) is added by S.R.O. No.38/1998 and the same reads as under:-
“(h) conversion of rubber latex into centrifugal latex, raw rubber sheet, ammoniated latex, crepe rubber, crumb rubber, or any other item falling under entry 110 of the First Schedule to the Kerala General Sales Tax Act, 1963 or treating the raw rubber in any form with chemicals to form a compound of rubber by whatever name called.”
6. Straight away, reference may also be made to the provisions of S.R.O. No.1516/1990, which sought to amend S.R.O. No.642/1981 by explaining what is “finished rubber product” in the following lines:-
“Explanation – Finished rubber product for the purpose of the notification shall mean any goods manufactured, utilising rubber in any form coming under entry 161 of the First Schedule to the Act as one of the raw materials and includes tread rubber coming under entry 200 of the First Schedule of the Act, but shall not include any form or rubber taxable at the point of last purchase in the State or which are subjected to processing by mixing with chemicals, gas, fumigation or any other similar process to make any compound of rubber”
It is with reference to these negative clause and the explanation, the question as to whether the product manufactured-compound rubber- is to be extended the benefits of exemption requires to be considered.
7. At the first blush, from a reading of clause (h) introduced by S.R.O. No.38/1998 in S.R.O. No.1729/1993, the contention raised by the revenue appears to be attractive.
8. At the same time, this Court notices that the Division Bench in MRF (supra) had elaborately considered the question as to whether the compound rubber manufactured by the petitioner could be considered to be a “finished product” with specific reference to the exclusion pursuant to the explanation added under S.R.O. No.1516/1990. The Division Bench, considered the certificates issued by various persons in the industry as also the manufacturing process carried out by the petitioner, for the manufacture of “compound rubber” and found as under:-
“Having regard to the materials produced by both the sides after the order of remand, it cannot but be said that the overwhelming scientific opinion coming through the experts in the field of rubber and polymer technology is that compound of rubber or rubber compound, which is the product of the assessee’s unit in question, is a finished rubber product. It is a product made by bringing together all of the ingredients required to make a component, according to the required properties. The component is essentially a finished rubber product and is not merely one which is a result of mixing with chemicals, gas, fumigation, etc., or any other process similar to mixing with chemicals, gas, fumigation, etc. As would be reflected from the affidavit filed on behalf of the Department after remand and referred to in paragraph No.11 above, what the Department appears to suggest is that whatever comes out of the process in the assessee’s unit within the State is only an intermediary product to be ultimately utilised in the manufacturing process of the assessee in its business of production of tyres and tubes, which activity is carried out outside the State. If this suggestion is to be accepted, we have to dispel the credibility and evidentiary value of the view of the experts that the processing of rubber in such manner as is noted in those affidavits is a process of manufacture and such activity need not by itself conclude in the production of tyres and tubes. The product that comes out of the process in the assessee’s unit in Kerala is itself a rubber product which has to be treated as finished one for the purpose for which it is put to use, including by person who purchase it as such. The evidence by way of affidavits of experts tendered on behalf of the assessee corroborates each other and the evidentiary value of such evidence of experts clearly outweighs the views in annexure A5 certificate. When evidence of experts are tendred and when the expertise of the persons tendering such evidence is also established, such materials can be rebutted only through such contra evidence as could be held to be of more evidentary value on comparison by competitive evaluation by a duly informed adjudicator. See for support, the decision of the honourable Supreme Court of India in Collector of Central Exercise, Baroda v. Ambalal Sarabhai Enterprise (P.) Ltd. [1990] 77 STC 190 (SC); [1990] 185 ITR 87 (SC); [1989] 43 ELT 214. There is no rebuttal evidence from the side of the State discharging its burden which it carried following the clear terms of the order of remand made by the apex court.”
Thus, it is categorically found by the Division Bench that “compound rubber” is essentially a finished rubber product and is not merely one which is a result of mixing with chemicals, gas, fumigation etc., or any other similar process so as to take it out of the benefit of exemption under S.R.O. No.1516/1990. It is categorically found that compound rubber in itself is a finished product, which can be used by the petitioner herein or similarly placed persons in the manufacture of other products.
9. Thus, with reference to S.R.O. No.1516/1990, this Court categorically found that compound rubber cannot be considered to be covered by the negative clause introduced by S.R.O. No.1516/1990.
10. As already noticed the explanation introduced under S.R.O. No.1516/1990 and the negative list introduced as per clause (h) pursuant to S.R.O. No.38/1998 are more or less worded similarly.
11. When that be so, I am of the opinion that the principles laid down by the Division Bench in MRF (supra) though with reference to S.R.O. No.1516/1990 would have to apply as regards the eligibility of the petitioner for the benefit of exemption under S.R.O. No.1729/1993 also.
12. Though the State Level Committee had also taken into account the principles laid down by the Division Bench in MRF (supra), the issue has not been addressed with specific reference to the wordings of these two notifications as noticed above.
13. Therefore, I am of the opinion that that the petitioner is entitled to succeed. Hence, this writ petition would stand ordered as under:-
i. Ext.P10 proceedings of the State Level Committee, to the extent, the benefit of exemption claimed as regards “compound rubber” manufactured by the petitioner is denied, is set aside.
ii. it is held that the petitioner would also be entitled for the benefit of exemption pursuant to S.R.O. No.1729/1993 as regards “compound rubber” and the said claim is not to be curtailed with reference to negative list at clause (h) introduced by S.R.O. No.38/ 1998.
iii. Consequential orders to be issued by the competent authority on the basis of the afore directions, as expeditiously as possible, at any rate, within a period of two months from today.
