“RES EST MISERA UBI JUS EST VAG UM ET INCERTUM”
“Vague and uncertain law results in misery”
Classification of commodity under the Punjab Value Added Tax Act, 2005, is a matter of utmost importance in the charging of tax at the time of sale and purchase and in the assessment, because the application of rates of tax, exemptions and concession deeply, largely on the classification of the commodities, it is not a mechanical because different goods are classified differently by the authorities according to the language of the statute or the notification concerned. That the courts clarified the goods not the rate of tax applicable would be that which has been fixed by the State Government time to time by notifications.
That under the Punjab Value Added Tax Act, 2005, Tax is levied at every stage of sale in the supply chain within the State simultaneously. Tax paid at earlier stage is deductible from the tax payable at subsequent stage and prior to Punjab Value Added Tax Act, 2005 sales tax was levied at a single point in the supply chain. But for small traders in order to provide them relief from VAT a scheme of turnover tax was introduced which allows payment of tax at a fixed percentage of turnover. The Punjab Value Added Tax Act, 2005 has 94 sections with 9 Schedules.
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SCHEDULE |
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RATE OF TAX |
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Schedule “A” |
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TAX FREE |
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Schedule “B” |
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5 per cent |
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Schedule “C” |
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1 per cent |
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Schedule “C-1” |
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4 per cent |
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Schedule “D” |
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20 per cent |
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Schedule “E” |
: |
Special Rate |
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Schedule “F” |
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12.5 per cent |
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Schedule “G” |
: |
List of Organizations entitled to tax refund |
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Schedule “H” |
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List of goods liable to purchase tax |
Schedule “B” goods are now taxable @5% vide Notification No.S.O. 11 / P.A.8 / 2005 / S.8 / 2010 dated 29.01.2010.
Schedule “C-1” goods was inserted vide Notification No.S.O. 12 / P.A.8 / 2005 / S.8 / 2010 dated 29.01.2010
GENERAL RATE OF TAX
Schedule “F” specifies general rate of tax at 12.5 per cent and is applicable to goods which are not covered by any of the Schedules i.e. “A”, “B”, “C”, “C-1”, “D” and “E”. That an item can be reasonably covered by one of the Schedule entry then the same Schedule not be put under the category of residue goods which is meant for only those goods which cannot be covered the specified entry by any stretch of imagination. Kind attention is invited towards the judgment of the Hon’ble Supreme Court of India in the case of Hindustan Poles Corporation vs. Commissioner of Central Excise wherein the following has been held:
“(3) The residuary entry in meant only for those categories of goods which clearly fall outside the ambit of specified entries. Unless the Department can establish that the goods in question can by no conceivable process of welding be brought under any of the tariff items, resort cannot be had to the residuary item.”
The Hon’ble Apex Court in the case of Commissioner of Sales Tax vs. Bharat Bone Mill has held as under:-
“11 Moreover, it is well known that the question as to whether a commodity would be exigible to sales tax or not must be considered having regard to its identity in common parlance. If, applying the said test, it is to be borne in mind that if one commodity is not ordinarily known as another commodity, normally, the provisions of taxing statute in respect of former commodity which comes within the purview of the taxing statute would be allowed to operate. In any event such a question must be determined having regard to the expert opinion in the field. We have noticed hereinabove the difference between “bone meal” and “crushed bone”. Different utilities of the said items has also been noticed by the Allahabad High Court itself. The High Court or for that matter, the Tribunal did not have the advantage of opinion of the expert to the effect as to whether crushed bones can be used only for the purpose of fertilizer or whether crushed bones are sold to the farmers for use thereof only as fertilizers.”
In the case of Bharat Forge & Press Industries vs. Collector of Central Excise the Hon’ble Apex Court held as under:-
“(3) The question before us is whether the Department is right in claiming that the items in question are dutiable under tariff entry no.68. This, as mentioned already, is the residuary entry and only such goods as cannot be brought under the various specific entries in the tariff should be attempted to be brought under the residuary entry. In other words, unless the department can establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items, resort cannot be had to the residuary item….”
In the case of Dunlop India Ltd & Madras Rubber Factory Ltd. Vs. Union of India the Hon’ble Supreme Court of India has held as:-
“37 …. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing.”
MAXIMUM RATE OF TAX:
As per Section 8(1) maximum permissible rate of tax leviable on any goods, OTHER THAN declared goods as defined under Section 14 of the Central Sales Tax Act, 1956, is 32 per cent. There are no goods leviable at this rate currently. The highest rate inclusive of surcharge at present is on Petrol i.e. 30.25 per cent.
SURCHARGE / ADDITIONAL TAX
A surcharge at the rate of 10%is payable on all goods w.e.f. 05.02.2010 (except liquor). The additional tax / surcharge on liquor is effective from 01.04.2010. In respect of the declared goods, the aggregate of tax and the surcharge payable is restricted to a maximum rate of 5 per cent.
All persons covered under this Act except persons registered for turnover tax are required to pay additional tax at the rate of 10 per cent of the tax payable by them. Taxable/VAT persons and Lumpsum persons both are required to pay surcharge / additional tax.
In case of declared goods, the aggregate of tax and additional tax / surcharge payable cannot exceed 5 per cent, the maximum rate fixed under Section 15 of the Central Sales Tax Act, 1956.
Tax paid in respect of surcharge / additional tax by the taxable person / VAT person is admissible as input tax credit.
SCHEDULE A – TAX FREE GOODS
The original Schedule “A” of the Punjab Value Added Tax Act, 2005, came into force vide Notification No. 13-Leg. / 2005 dated 12.04.2005 w.e.f. 01.04.2005. Subsequently, this was substituted by new Schedule “A” vide Notification No.S.O. 27 / P.A.8 / 2005 / S.8 / 2005 dated 16.05.2005 w.e.f. 05.05.2005. That at the start of VAT in the State of Punjab, Tax Free goods were 43 in numbers. Of all the goods listed earlier, almost all of them are present in the new substituted Schedule “A” Except One “cotton and silk yarn in hank”. The number of tax free goods increased to 79 from 43.
SCHEDULE B – TAXABLE AT THE RATE OF 5 PER CENT
The original Schedule “B” which was published along with the Punjab Value Added Tax Act, 2005, vide Notification No. 13-Leg. / 2005 dated 12.04.2005 w.e.f. 01.04.2005. Subsequently, this was substituted by new Schedule “B” vide Notification No.S.O. 27 / P.A.8 / 2005 / S.8 / 2005 dated 16.05.2005 w.e.f. 05.05.2005. Schedule “B” originally had 95 goods. Industrial inputs of Schedule “B” has 240 entries. Items such as “Chemical fertilizers”, “gypsum”, “pesticides”, “weedicides”, “insecticides”, “fungicides”, “gur”, “jaggery”, “green tea”, “Processed salt”, “Threshers” which were taxable at 4 per cent subsequently made tax free with the substitution of Schedule “B” w.e.f. 05.05.2005. Also Schedule “B” goods increased from 95 to 162.
In respect of articles which are typical to Indian Society it might not be safe to rely on the DICTIONARY MEANING given in Webster or Oxford. An item like “Tikuli” maybe unknown in European Society. To take guidance therefore, from dictionaries or Encyclopaedia Britannica would be falling into error. The use of “Tikuli” is typical to Hindu ladies. It might have been used by married ladies only in ancient times but it is not denied rather it has been found by appellate authority that in present times it is used both by married and unmarried women folk. That it is an item for beautification of appearance cannot be doubted. It must indeed be a very drab and dull sense which does not see attraction in a woman thing using “Tikuli”. It is normally sold in shops which sell items used by ladies for improving their appearance. Even otherwise one of the meaning given to cosmetics is that which alters appearance. Even otherwise one of the meaning given to cosmetics is that which alters appearance. It is for this reason that the full Bench in the case of C.S.T. vs. Jaishri Products used the word “ordinarily” while observing “A cosmetic as has beennoted above means a preparation and design to beautify hair, skin or complexion or to alter appearance of body or cleaning colouring, conditioning or protecting skin, nails, eyes or teeth. A preparation of this nature would ordinarily be used or consumed in process of application such as cream, toilet powder.”
The dictionary meaning of the words need not necessarily be applied invariably. Dictionaries are some times delusive guides in the construction of statutory terms. Where a word is statutorily defined or judicially interpreted, dictionary meaning cannot be looked into. Where there is no such definition or interpretation, the court may take the aid of dictionary… and select the meaning which is relevant to the context in which it has to interpret that word. Dictionaries give all the meanings of a word….The courts are to select the particular meanings which are relevant to the context in which the word is to be interpreted. Dictionary meaning is not a safe guide.
Some of the entries in Schedule “B” and many in “industrial inputs” are assigned heading numbers similar to Central Excise Tariff Act and Customs Tariff Act. The commodities in the Schedule are allotted with Code Numbers, which are developed by the International Customs Organization as HARMONIZED SYSTEM OF NOMENCLATURE (HSN) and adopted by the Tariff Act, 1975. Those commodities which are given with HSN Number should be given the same meaning as given in the Tariff Manual. While interpreting a commodity, if any inconsistency is observed between the meaning of a commodity without HSN number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number. HSN Numbers are allotted in the Schedules either in four digits or in six digits or in eight digits. The four digit numbers indicate the heading in the HSN classification, six digit numbers indicate the sub-heading and the eight digit numbers indicate the specific commodity number. These HSN numbers are approved by the Empowered Committee of State Finance Ministers.
In a taxing statute, an item has to be interpreted in its popular sense meaning, however, by the words “popular sense” that sense which the people conversant with the subject matter with which the statute is dealing with, would attribute to it. The commodity should be judged and analyzed on the basis of how these expressions are used in the trade or industry or in the market or in other words, how these are dealt with by the people who deal in them.
Where an expression has not been defined in the Act, its meaning should be understood in its popular or common sense and on the basis of how it is used in the common parlance. The test commonly applied is how the product is identified by the class of people dealing or using it. In fiscal statutes, words must be understood according to the popular sense. It is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted. In 36 STC 460, the Court held that it is generally accepted principle that in the matter of taxation laws, if a provision is lacking in clarity and no meaning is reasonably clear, that meaning which is more favorable to the subjects should be taken as its meaning.
In nutshell, the entries in the Schedules are to be interpreted in their entirety and not in isolation as it is only the entire entry which correctly reflects its precise meaning. The entire gamut of the entry reflects the intention to restrict the operation of the entry. So where a statue contains a general word and also specific word to describe a thing, the latter should be excluded the former. Sometime the specific words are used such as “namely”, “etc.”, “such as”, “including”, all these words used in the entry, restrict in the sense, so while interpreting the entries in the Schedule specific intention is required towards the words used in the entries.
N.S. Bedi,
Advocate
5/13, Central Town,
Jalandhar City
Cell: +91 9814066336
E-mail: bediadvocate@yahoo.co.in
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