CLASSIFICATION OF GOODS UNDER EXCISE VIS-A-VIS SALES …

1 CLASSIFICATION OF GOODS UNDER EXCISE VIS A VIS SALES TAX 69 CLASSIFICATION OF GOODS UNDEREXCISE VIS-A-VIS SALES TAXPrem T. ChhatparChartered AccountantINTRODUCTIONC lassification of GOODS UNDER any statute has always been a subject matter of heated debate anddiscussion over the years. The task at hand is all the more difficult as it involves a comparativeanalysis of two equally complex statutes. The complexities UNDER the EXCISE Act were initiallyimported into SALES tax laws with the definition of Fabrics/Sugar/Tobacco in Sch. A 15 and off latewhile notifying certain inputs and packing material with effect from 15-8-2000 as being entitled toconcessional rate of tax at 4% UNDER Sch.

2 Entry C-I-29. Further, certain information technologyproducts have also been notified for concessional rate of tax (Notfn. entry A-131) and that Notificationalso requires the CLASSIFICATION to be done on the basis of central EXCISE tariff entries. Theclassification UNDER the proposed VAT regime would also be with reference to the CET ostensiblywith a view to bring homogeneity and harmony in CLASSIFICATION across all importance of CLASSIFICATION of GOODS UNDER the EXCISE law has diminished due to reduction inthe slab rates and the fact that full CENVAT credit is available. However, its ramifications UNDER Salestax laws are important because of the high difference in rates and full set off not being the circumstances, it has become essential to gain exposure to the CLASSIFICATION process underExcise laws.

3 This paper may be treated as a humble attempt to highlight the similarities anddifferences in CLASSIFICATION of GOODS UNDER the two Acts and where possible, to resolve thecontradictions and conflicts in this paper, it is proposed to deal with the following legislation no reference to another statute is invited, Common parlance meaning would beparamount and reference to an allied Act would not be permitted for interpretation ofthe of definition UNDER one statute to to a provision of another overview of the central EXCISE of Sections and of CLASSIFICATION in central of the central EXCISE Tariff basis of the central EXCISE Tariff Harmonised System of Nomenclature (HSN) CLASSIFICATION can be changed?

4 Digit CLASSIFICATION code EXCISE bill introduced10th Non Residential Refresher Course 70 of Interpretation of the central EXCISE TariffD. Some peculiar characteristics of CLASSIFICATION UNDER EXCISE Tariff Act, of Parts procedure for dispatch of heavy machinery in knocked down condition forreassembly at site Its Impact on CLASSIFICATION , etc. UNDER SALES how made is use relevant only in limited and should have marketability of packing material after emptying of contents is not are not GOODS literature useful but not conclusive in the CLASSIFICATION of CLASSIFICATION on the ENTRY C I for interpretation of Notification packing material 15-8-2000 to packing materials wef.

5 1-4-2001 to packing material wef. 10-5-2002 Section Notes and Chapter Notes relating to Notified for prospective of Res Judicata whether applicable?G. Implication of CLASSIFICATION UNDER Sch. C I 29H. Whether PT u/s 13AA payable on all types of packing material? of products in Sch. C-I-29 and Schedule of Printed Cartons and Printed Labels Whether within the ambit of Works ContractAct or BST Act? Entry A 131 relating to Information Technology where CLASSIFICATION of GOODS varies in accordance with their definition UNDER theExcise laws from time to time. fabrics, tobacco, Made up OF GOODS UNDER EXCISE VIS A VIS SALES TAX 71 M. Whether provisions relating to CLASSIFICATION of medicines UNDER EXCISE and SALES Tax lawsare in pari materia?

6 N. Levy of EXCISE / SALES tax on Designs & LEGISLATION no reference to another statute is invited, Common parlance meaning would beparamount and reference to an allied Act would not be permitted for interpretation of theentryIt is a settled law that as far as taxing statutes are concerned, unless a term is otherwisespecifically defined, words must be understood in the manner a common man wouldunderstand them and terms must be given a meaning which is given in the commercial of dictionary meanings was not justified when a word or a term is of common useand well understood. For example, sugar is a well-known commodity both in commonparlance and in the commercial world.

7 By no stretch of imagination, can icing sugar be termedas sugar. It is also a cardinal principle of interpretation of statutes that unless it is necessary orspecifically provided, definition in one statute cannot be applied to construe a word or a termin another statute. Thus, sugar was defined UNDER the central SALES Tax Act, it was for thepurposes of that Act and not the local Act. The word, Sugar as used in the local Act in Entry9 of the Second Schedule must be understood to be sugar which is understood to thatcommodity by the common man or by a shopkeeper or a trader or a customer. Therefore, ifunder the local Act, tax is to be imposed on sale of sugar, it cannot be more than what isprovided by section 15 of the central Act but as far as exemption is concerned, the position isdifferent.

8 The item which can be considered to be exempted is sugar simpliciter and not sugarwith any additives like icing sugar which has an additive of starch vs. Puran Chand &Sons (1981) 48 STC 284 (Del.) of definition UNDER one statute to anotherWhere GOODS enumerated in the Schedule are defined in accordance with their definitionunder another statute, the definition given in the other statute along with all its amendmentsand variations from time to time should be read into the first statute. For example, fabrics,sugar and tobacco in Sch. Entry A 15 have been defined by their description from time to timein column (3) of the First Schedule to the Additional Duties of EXCISE ( GOODS of Specialimportance) Act, 1957.

9 In such a case, one has to go by the exclusive definition in the otherstatute at the relevant point of time State of Kerala vs. Attessee (Agro Industrial TradingCorporation) (1989) 72 STC 1 ( ).While on the issue of CLASSIFICATION of book-binding cloth , the Gujarat High Court in ShahTextile Mills P. Ltd. vs. State of Gujarat 85 STC 515, held that it continued to be a cottonfabric UNDER Entry 37 of the First Schedule to the Gujarat SALES Tax Act, 1969 which hadadopted the definition given UNDER Entry 19 of the First Schedule to the central Excises andSalt Act, 1944. The fact that cotton fabric was purchased and thereafter subjected to processesof bleaching, starching and calendering and was sold as a book-binding cloth capable of beingput to use for specific purpose was not decisive in view of the fact that cotton fabric was verywidely defined by item 19 of the First Schedule to the central EXCISE & Salt Act and Entry 37of Schedule I to the Gujarat SALES Tax Act being a referential piece of legislation must carrythe same meaning.

10 The Court also held that it was not legal and permissible for the Tribunalto apply the common parlance test and hold that bookbinding cloth was a distinct and10th Non Residential Refresher Course 72 separate commercial commodity after undergoing the above processes. The Referentiallegislation contained in Entry 37 of Schedule I to the Gujarat Act was supplemental to theExcise Act, the amendments made in the original incorporated provision must necessarilyproject and must be read as a part of the referential legislation contained in Entry to a provision of another statuteIn State of Kerala vs. Attessee (Agro Industrial Trading Corporation) (1989) 72 STC 1( ), the Supreme Court also drew a distinction between the forms of referential times, referential legislation may merely consist of a reference to or citation of a provisionof another statute.