Classification of Steam for imposition of Sales Tax

Case: Gopalanandan Rasayan v/s State of Maharashtra

Citation: 2011 (263) E.L.T. 381 (Bom.)

Issue:- Whether for the purpose of levying tax under the BST Act, 1959, the steam falls under the Notification Entry No.233 or Schedule Entry No.CII102? If the steam falls under the Notification Entry No.233 then it is taxable @ 4% and if under the Schedule Entry No.CII102 then @ 10%.

Brief Facts:- Applicant is a manufacturer of Sulphuric Acid and other chemicals and products. During the process of such manufacturing activity, the steam is generated which is being sold by the Applicant as a byproduct on which the Applicant collected the tax @ 4% on the footing that the steam was a chemical under the Bombay Sales Tax Act, 1959 and thus, taxable @ 4% under the Notification Entry No.233 issued under Section 41 of the BST Act, 1959 during the material period 01.01.1988 to 31.03.1989, 01.04.1989 to 31.03.1990 and 01.04.1990 to 31.03.1991.

The Assessing Authority held that the steam was covered by Entry No. 102 of Schedule C Part II and as such was not classifiable as chemical and therefore, tax @ 10% was applicable.

Applicants filed appeals before the Deputy Commissioner of Sales Tax which were dismissed.

Applicant preferred the Second Appeals before the Maharashtra Sales Tax Tribunal, Mumbai. Those appeals were partly allowed by the Tribunal holding that the steam is not chemical for the purpose of Notification Entry No. 233 and levy of tax under the Schedule Entry No. CII102 at the rate 10% is proper. However, the interest was reduced under Section 36(3)(b) of the BST Act, 1959.

Being aggrieved by the orders of the Tribunal, the Applicants have referred the matter to the High Court.

Applicant’s Contentions:- Applicants submitted that the steam is classifiable as chemical and therefore, the same is liable to be covered under Entry No. 233, as such the Applicant is liable to pay the sales tax @ 4% only.

They relied upon the meaning of the word "steam" given in "Twentieth Century Chambers Dictionary (1972 Edition)" as "a substance obtained by Chemical means or used in chemical operations". They further submitted that the steam is chemical as per the science of chemistry and chemical technology. It is, therefore, covered by Notification Entry No.233 calling for levy of tax @ 4% only. They submitted that both the authorities below failed to consider the dictionary meaning of the term "chemical" and also various extracts produced by them from the books of chemistry.

Applicants submitted that they had also produced before the Authority a note given by Mr. Sunil C. Bhagwat of Chemical Engineering Division, Department of Chemical Technology, and University of Bombay dated 10.02.1992. They further submitted that though the Tribunal held that scientifically the steam is a chemical as much as water, however, failed to classify the same under Notification Entry No.233.

They submitted that ice is water in solid form; whereas the steam is gaseous form of water. It is also known as vapour. The difference between vapour and steam perhaps lies in the energy contents. According to him, these facts were not even disputed by the Assessing Authority and did not object to refer the steam as chemical in its scientific sense.

In support of their contention that the steam is chemical, applicant relied on the following judgments and submitted that in all these cases the Apex Court and various High Courts held that at the time of classifying the particular product it is necessary to consider its scientific meaning:

State of Orissa & others Vs Titaghur Paper Mills Co. Ltd. and another [60 STC 213 (SC)]
Atul Glass Industries (P) Ltd. Vs. Collector Central Excise [63 STC 322 (SC)]
Mineral & Metals Trading Corpn. of India Ltd. Vs. Board of Revenue, Kerala [(HC) 69 STC 38 (Kerala)]
Nat Steel Equipment Pvt.Ltd. Vs. Collector Central Excise [69 STC 58 (SC)]
State of Haryana Vs. Prithvi Raj Aggarwal Oil Mills [79 STC 361 (HC-Punjab & Haryana)]
State of Haryana Vs. Rattan Optical Works [(HC) 80 STC 422]
Milk Food Limited and another Vs. Commercial Tax Officer, Bhowanipur Charge & others [81 STC 67 (West Bengal Tax Tribunal)]
State of Gujarat Vs. Bhagwati General Agency (Import) [(HC Gujarat) 83 STC 347]
Vijay Foundry & Machinery Works Vs. State of Gujarat [84 STC 152 (HC-Gujarat)]
Brooke Bond India Limited Vs. State of Kerala [(HC-Kerala) 84 STC 334]
Televista Electronics (P) Ltd. Vs. Commissioner of Sales Tax [(HC-Delhi) 87 STC 410]
Hardcastle, Waud & Co. Ltd. Vs. Stte of Tamil Nadu [(HC) 89 STC 352]
MysoreAgro Service Centre Vs. State of Karnataka [(HC) 90 STC 401]
MysoreAmmonia (P) Ltd. Vs. State of Karnatka [(HC) 90 STC 439]
Haran D. Manufacturing Co. Vs. State of Gujarat [(HC) 91 STC 130]
N. Sundareswaran Vs. State of Kerala [(HC) 91 STC 476]
Gupta Agencies Vs. State of Punjab [(HC) 92 STC 543]
Quality Chemicals Vs. State of Gujarat [(HC) 94 STC 450]
Union Carbide India Ltd. Vs. State of A.P. [98 STC 01 (SC)]
Electro Enterprises Vs. Commissioner of Sales Tax, [(HC) 98 STC 116]
BombayChemical Pvt.Ltd. Vs. Collector of Central Excise [99 STC 339 (SC)]
State of Tamil Nadu Vs. Lilaram Shewaram (India) [(HC). 104 STC 300]
Hindustan Ferodo Ltd. Vs. Collector of Central Excise, Mumbai [106 STC 214 (SC)]
West Coast Paper Mills Ltd. Vs. Commercial Tax Officer [(HC-Madras) 127 STC 53]
Commissioner of Central Excise Vs. Sharma Chemical Works [132 STC 251 (SC)]
Marbles India Vs. State of Kerala [133 STC 405 (HC)]
Mauri Yeast India Pvt.Ltd. Vs. State of UP & another [(2008) 14 VST 259 (SC)]

The Applicant further submitted that the Tribunal having accepted that technically and scientifically the steam is a chemical, it ought not to have rejected the contention only on the ground that there was no common parlance evidence. Such a view of the Tribunal is erroneous in as much as a controversy of the nature relating to classification of a term, technically used, as such it cannot be resolved solely on the basis of common parlance. According to applicant, it is by now well established that there are several other tests which in absence of common parlance evidence have been considered and applied by the various High Courts and the Apex Court. According to them the recognized tests are (i) Source definition test, (ii) Functional test, (iii) Character & composition test, (iv) Dictionary meanings, (v) Technical or scientific meaning and (vi) User test. It was submitted that the Tribunal ought to have considered that the term "chemical" is a generic term like many others used in the BST Act, 1959 and there can be no common parlance evidence for the term "chemical". In other words, common parlance can be resorted to only for a specific time and that too only in regard to the words of day to day use by a common man.

Applicant further submitted that the Tribunal overlooked the position that the steam dealt with by them was not used by the common man and therefore, the insistence of the common parlance evidence by the Tribunal was not justified. In commercial transaction/use, the steam is to be understood as chemical and thus, the Authorities Below erred in coming to the conclusion that for the purpose of sale tax the meaning of common parlance is to be taken into consideration.

Lastly, Applicant submitted that the Tribunal in Second Appeal No.101/1992 vide its judgment dated 31.01.1994 had held that the steam is chemical and therefore, the Applicant is entitled for the same benefit in the present case also. Applicant further submitted that the Government of Maharashtra issued Notification dated 07.10.1995 and enlisted certain goods on the basis of excise tariff to be chemicals. This list of chemicals contains an item 28.11.90 which pertains to steam sold by the Applicant and that steam was considered as a chemical by the State Government.

Respondent’s Contentions:- Revenue submitted that the judgment in Second Appeal No. 101/1992 was considered by the Tribunal in the latter judgment wherein the Tribunal observed that the scientifically speaking the steam is chemical as much as water. Ice is water in the solid form whereas the steam is gaseous form of water also called as vapour. According to respondent, the Tribunal held that the test of common parlance is applicable when the application of sales tax laws are concerned. The sales tax laws are not much concerned with the chemistry and the use of scientific definitions and technical manner of an item are hardly of common use while applying the sale tax laws. Respondent, therefore, submitted that in short, the Tribunal never said that the steam is not a chemical but for the purpose of sales tax laws, the test of common parlance is inevitable. Thus, the alleged steam is nothing but a steam commonly understood and not a chemical.

Respondent further submitted that for the purpose of sales tax laws it is not necessary to consider the chemistry and/or scientific definitions and/or technical meanings of a particular item. The terms and names used in the sales tax laws have to be understood and construed in their popular sense or in commercial parlance. In the present case so far as the classification of the steam is concerned, the steam is not classified in any item under the Sales Tax Laws during the relevant period, therefore, the steam is to be read in Schedule Entry No.CII102 i.e. residuary one and therefore, the Applicant is liable to pay sales tax @ 10%.

Respondent further submitted that the Tribunal has correctly held by applying the common parlance test and ruled that the steam is nothing but a common steam and not a chemical. He submitted that in the case of New Prasanthi Automobiles Co. Vs. State of Kerala [91 STC 565 (Kerala)], it has been held that the Sales Tax enactment is one which touches the common man and his everyday life and therefore, must be understood in the way in which a common man will understand it. In other words, the test is as to what a common man viewing or dealing with, the article will understand it to be. Respondent also relied upon Haran D. Manufacturing Co. Vs. State of Gujarat [91 STC 130].

Respondent also submitted that applying this test where a word has a scientific or technical meaning and also an ordinary meaning then the ordinary meaning must be given consideration while deciding the classification under the Sales Tax Laws.

Respondent further submitted that the Applicant has laid much stress on scientific definitions of the words and the expert opinion. According to him, under the Sales Tax laws the common man's view has to be preferred but there is no bar to refer to technical or scientific character and in large number of cases the dictionary meaning or technical literature were considered by the courts while interpreting the schedule entries. But in all those cases before applying this test the Court held that while construing the word which was of technical or scientific character, its scientific or technical meaning required to be assigned. The steam is not a word of scientific or technical character, but commonly understood as a steam.

As per respondent in the Sales Tax Laws, the words which are not of technical expressions or words of art, but are words of everyday use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance. The particular terms used by the legislature in the determination of articles are to be understood according to the common commercial understanding of those terms used and not in their scientific and technical sense. For this purpose, respondent relied on the judgment in case of Mukesh Kumar Agarwal & Company Vs. State of Madhya Pradesh & others [1988(68) STC 324].

Respondent further submitted that while deciding whether a particular commodity is a chemical, it must be determined not by the use for which a particular purchaser purchases it but with reference to the general property which makes it saleable to the entire range of a prospective buyers. In similar way the Apex Court in the matter of Ramavatar Budhaiprasad Vs. The Assistant Sales Tax Officer, Akola [(12 STC 286)] held that "betel leaves" are not vegetables and would not be exempted from the sales tax. Similarly, in the case of Rallis India Ltd. Vs. State of Tamil Nadu (112 STC 203(SC)), it is held that gelatine is not chemical. Respondent further relied on the judgment in the matter of T. V. L. Nilsin Industries Vs. State of Tamil Nadu, (106 STC 598) wherein the Apex Court held that Ultra Marine Blue (Nil) is not Dyes or chemical but a pigment. On the basis of these rulings, respondent submitted that all these rulings suggest that in case of a word which is not scientific or technical in character but of day to day use then the most appropriate test would be the common parlance test. Considering this test the steam cannot be considered as a chemical. If it has to be considered as a chemical then under the statute number of goods will be classified as chemicals. For example water having its chemical formula H2O, common salt called sodium chloride, sugar as sucrose and these items will also have to be treated as chemicals. Respondent, therefore, submitted that for proving the steam as chemical in the common parlance, the Applicant failed to produce the cogent evidence on record. Except extract from dictionary and opinion of experts, the Applicant failed to produce any other document or evidence to show that in common parlance the steam is treated as chemical.

Respondent further submitted that the second line of argument advanced by the Applicant that w.e.f. 07.10.1995 the Government has issued a list of chemicals for the purpose of BST Act, 1959 and in that list the description of the goods at 28.11.90 pertains to the steam. Therefore, according to the Applicant the steam is considered as a chemical by the Government even prior to the date of the said notification. In this regard, the Tribunal observed that this notification is not having retrospective effect and the Applicant cannot take help of subsequent amendment to interpret the prior entry, so the subsequent amendment cannot be read into the earlier entries. In support of this submission, respondent relied on the judgment in the case of M/s National Engineering Company Pvt. Ltd. Vs. State of Tamil Nadu, (84 STC 457).

Respondent further submitted that in any case the subsequent amendment cannot be used to decide the assessment of the prior years because the subsequent amendment has not been given retrospective effect.

Reasoning of the Judgment:- The High Court noted that the Sales Tax enactment is one which touches the common man and his everyday life. Therefore, the terms in the said enactment must be understood in the manner in which a common man will understand them. In other words, the test is as to what a common man viewing or dealing with the article will understand it to be. In doing so, the particular use to which a particular customer may put it should be eschewed from consideration.

It was held that generally, the steam includes all liquid and frozen surface water, groundwater held in soil and rock and atmospheric water vapour. In common speech, the steam most often refers to the visible white mist that condenses above boiling water as the hot vapour mixes with the cooler air. This mist consists of tiny droplets of liquid water. Pure steam emerges at the base of the spout of a steaming kettle where there is no visible vapour. In other words, as the temperature increases and the water reaches its boiling condition, some molecules attain enough kinetic energy to reach velocities that allow them to momentarily escape from the liquid into the space above the surface before falling back into the liquid, called steam. In common sense, the steam is treated as byproduct of water and for preparation of the steam the process is just to boil water. Therefore, the common man always treats the steam as part and parcel of water. It is a fact that in taxing statute the words which are not of technical expressions or words of art but are words of everyday use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance.

The High Court perused the judgments given in the following cases:

New Prasanthi Automobiles Company Vs. State of Kerala [1993 (91) STC 565]
Haran D. Manufacturing Company Vs. State of Gujarat [1993 (91) STC 130]
Mukesh Kumar Aggarwal & Company Vs. State of Madhya Pradesh and others [1988(68) STC 324]
Ramavatar Budhaiprasad Vs. Assistant Sales Tax Officer, Akola [1961 (12) STC 286]
M/s Trutuf Safety Glass Industries Vs. Commissioner of Sales Tax, UP [2007 (7) SCC 242]
Bakelite Hylam Limited Vs. Collector of Central Excise, Hyderabad [1998(5) SCC 621]

It was held that it is clear from the above mentioned judgments that in the absence of meaning of any term given in the enactment, the meaning of that term in common parlance or commercial parlance must be adopted. In the present case though the Assessee had produced the experts' opinion, some articles published in the magazine viz. Outlines of Chemical Technology, opinion of Dr. Sunil Bhagwat from the Chemical Engineering Department of the University of Bombay and extract from the Chamber Dictionary, in support of its contention that the steam is chemical, but there is nothing to indicate that the term steam in common parlance or commercial parlance is considered or treated as chemical. Therefore, for the purpose of taxing under the Sales Tax laws it is not possible to hold that the steam is chemical.

Accordingly, the High Court was of the opinion that the Tribunal has rightly held that the steam cannot be classified under the Notification Entry No.233 as the same is not chemical. Both the questions referred answered in favour of Revenue and against the Assessee.

Decision:- References disposed off, accordingly.

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