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2013 DIGILAW 965 (KER)

COF AB v. Commissioner of Commercial Taxes

2013-11-07

A.M.SHAFFIQUE, MANJULA CHELLUR

body2013
JUDGMENT : Dr. Manjula Chellur, J. The present appeal is filed aggrieved by the orders of the authority for clarification which are at Annexures-E and H. The undisputed facts involved in the present case are as under: Appellant is a registered dealer in many commodities, including Air Bubble Film Rolls. According to the appellant, under the Kerala Value Added Tax (KVAT) Act, Harmonised System of Nomenclature (HSN) Code 3920 is assigned to entry No.60 of list A of 3rd schedule to the Act, therefore, the tax is only at 4%. This was not accepted by the department specifically on the ground that the commodity is subject to tax at the rate of 12.5%, as the commodity is described as packing material and can be classified only under Entry 103 of SRO 82 of 2006. In other words, according to them, the material being classified as packing material, it falls under residuary clause, as there is no specific entry so far as Air Bubble Film Rolls. The appellant approached the authority for clarification to confirm the correct classification of the commodity by producing relevant material as well. Initially by order at Annexure-E they opined that the Air Bubble Film is a packing material with HSN Code 3923.90.90. It further opined, since the eight digits HSN Code does not figure in schedule-III, it is taxable at 12.5% vide Entry 103 of SRO 82 of 2006. The appellant raised a grievance that Annexure-E is not a speaking order giving any clarification, therefore it is not binding on the appellant. Again, the matter was placed before the authority for clarification by producing relevant documents like invoices etc. including sample of the product, i.e., Air Bubble Film Rolls. The contention of the appellant was that the commodity is really a Poly Ethylene Air Bubble Film used for packing, which is a multi layer plastic sheet with trapped air bubble. There was difference of opinion amongst the members of authority for clarification, hence the matter was placed before the Commissioner, for final orders. On 13.4.2012 the Commissioner proceeded with the matter and opined ultimately that it can be classified only under Entry 103 of SRO 82 of 2006 and leviable to tax at the rate of 12.5%. There was difference of opinion amongst the members of authority for clarification, hence the matter was placed before the Commissioner, for final orders. On 13.4.2012 the Commissioner proceeded with the matter and opined ultimately that it can be classified only under Entry 103 of SRO 82 of 2006 and leviable to tax at the rate of 12.5%. Appellant contends, Annexure-H order though is a speaking order, ultimately the opinion at Annexures-E and H are one and the same indicating that the commodity is attracted to Entry 103 of SRO 82 of 2006. Aggrieved by these two decisions at Annexures-E and H, the present appeal is filed raising several grounds. 2. It is contended that the HSN Code numbers are allotted in the schedule either in four digits or six digits or in eight digits. The four number digits indicate the sub-heading and the eight digit numbers indicate the specific commodity number. Therefore, according to the appellant, the HSN Code is only in four digit number but again subdivided with reference to classification as well as with reference to particular commodity. They contend that the HSN Code of the product is 3920.10.92 and it shall come under the HSN Code for item 4 under the heading 'excise tariff' 3920. According to them, the rules of interpretation of schedules of the KVAT Act with reference to clause (i) of paragraph 2, the commodities which are given four digits HSN Code number shall include all those commodities coming under that heading of the HSN, therefore, it has to be seen first under which HSN Code number having four digits it would be attracted and thereafter depending upon the classification and a particular product one has to apply the test to know whether a particular rate of tax is leviable or not. According to them, though the product is used as packing material in the trade and industry, the commodity essentially having a poly ethylene film which is referred to as Air Bubble Film Rolls in the commercial practice. The product manufactured from poly ethylene granules can never fall under HSN Code 3923.90.90 and it has to be only under a particular classification with reference to a particular product attracting the product of poly ethylene. The product manufactured from poly ethylene granules can never fall under HSN Code 3923.90.90 and it has to be only under a particular classification with reference to a particular product attracting the product of poly ethylene. As against this, learned Government Pleader Sri.Bobby John Pulikkaparambil contends that a similar question arose before a learned Single Judge of this Court in Trends Polymer Pvt. Ltd. v. Assistant Commissioner-III ((2009)17 KTR 266 (Ker)), which has persuasive value though not binding as it was also with reference to commodity of polythene film, which was sold as packing material. According to learned Government Pleader, though this decision was rendered under the KGST Act, it is applicable to KVAT Act on account of schedule-III which refers to different HSN Codes depending upon the commodity. 3. We have gone through the contents of the above said judgment. However, the fact remains, if under a particular classification of HSN Code this particular commodity falls under them, such HSN Code alone would be applicable. If it is with reference to the functional value of the commodity which cannot be classified under any classification without reference to any particular commodity, then residuary clause has to be applied. 4. We have also gone through the HSN Code 3920 as well as HSN Code 3923. On going through the contents of HSN Code 3923, the main head of the Code is articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics. On perusal of the classification, HSN Code 3923.10 is with reference to boxes, case, crates and similar articles, HSN Code 3923.21.00. Under HSN Code 3923.10.90 general heading 'other' under which sacks and bags (including cones) made of polymers of ethylene and other plastics, including vinyl chloride are noted. HSN Code 3923.30 refers to carboys, bottles, flasks and similar articles. HSN Code 3923.50 is with reference to stoppers, lids, caps and other closures. Except sacks and bags, none of the description of other items are not even nearer to the product in question. The product herein though basically used for packing of goods, this is not the normal packing material used generally, unless the goods for which it is used is fragile or breakable. This is only to avoid damage being caused to the goods depending upon the nature of goods. If goods are otherwise air bubble film rolls are not used. The product herein though basically used for packing of goods, this is not the normal packing material used generally, unless the goods for which it is used is fragile or breakable. This is only to avoid damage being caused to the goods depending upon the nature of goods. If goods are otherwise air bubble film rolls are not used. Therefore, though this is used as a packing material for goods, it cannot be termed as packing material in general. 5. With reference to HSN Code 3920, we have to see whether the product in question gets attracted to any of the classification under HSN Code 3920 with reference to a particular product. None of the products referred to under this HSN Code 3920 indicates Air Bubble Film Rolls. Then we have to refer to the component used for making the Air Bubble Film Rolls, i.e., poly ethylene granules. HSN Code 3920.10 refers to polymers of ethylene sheets of poly ethylene. Though it has air bubbles having bubble layer, it is nothing but a sheet of poly ethylene. It attracts HSN Code 3920.10.92. In other words, the eight digits 3920.10.92 is attracted under classification 3920.10 under HSN Code 3920. Therefore, the contention of the appellant that HSN Code 3920 is applicable and not 3923 is to be accepted. Accordingly, the appeal is allowed quashing Annexures-E and H orders of the authority for clarification.