4. Hot Casserole, Deluxe H Tiffin and Hot Pot are covered by entry No. 33(a) of Schedule C or Entry E-I of Maharashtra Value Added Tax Act 2002?

Covered by Entry 33(a) of Schedule C.

The applicant paused a question before the Commissioner of Sales Tax under section 56 of the Maharashtra Value Added Tax 2002 as to the products “Hot Casserole, Deluxe Tiffin and Hot Pot are covered by Entry 33(a) of Schedule C or Entry E-I of the Value Added Tax 2002.

The appellant deals in domestic utensils covered by Entry 33(a) of Schedule C to the Maharashtra Act, 2002. The said entry read as under:

“Ferrous and non-ferrous utensils, whether coated with any material or not other than those made from precious metals”

The submission of the applicant before the Commissioner was that these three items viz. Casserole, Deluxe H Tiffin and Hot Pot are stainless steel domestic utensils and they would be covered by Entry 33(a) of Schedule C. The applicant also relied on the certificates issued by Stainless Steel Merchants Association, All India Stainless Steel Association and Veermata Jijabai Techgnological Institute. The Commissioner however held the products as covered by Entry E-I by his order dated 6-5-2006. Aggrieved by the said order the applicant has preferred First Appeal before the Tribunal.

According to the appellant domestic utensils covers anything connected with preparation of food, preservation of food after preparation and service at the stage of consumption. The revenue argued that the coating referred in the manufacturing process is between the outer and inner casing and is not visible from outside. The coating is for added quality as regards keeping food hot for hours. It is a special type serve-ware and entry 33(a) seeks to cover only main domestic utensils.

While deciding the case the Commissioner has also referred to the Bombay High Court decision in Neelam Appliances (S.T.R No.1 of 2000 dated 21-10-2005). However, the Tribunal found that the facts in Neelam Appliances was not comparable with the present issue. Before the High Court the issue was whether the stainless steel water filter can be said to be an appliance and not a utensil and the High Court has held that the stainless steel water filter which functions as a filtering device is different than the stainless utensil for household purposes as contemplated under entry 145 (i) of Notification issued under section 41. The appellant has also produced common parlance test to the effect that all the products are domestic utensils and those are used for storing and or carrying food in hot condition at home or in the office.

The appellant has also placed reliance on the judgment of the Karnataka High Court in Stovekraft Pvt.Ltd. vs. The State of Karnataka (14 STC 329). In the said case the Court was deciding an issue under the Karnataka Value Added Tax Act, 2003 as to the rate of tax leviable to stainless steel LPG Stove, stainless steel vacuum flask, wick stove etc. The High Court in the said case has observed that merely because a stove or flask is used outside the house also and in hotels and restaurants and in commercial enterprises, it cannot be said that it does not fall within the word utensil. The Court also observed that stainless steel vacuum flask which is used for storing beverages like coffee, tea, milk etc. At a particular temperature cannot be said it does not fall within the word “utensil”.

The Tribunal observed that the facts in the present case are found identical with that of the Karnataka High Court. In the present case also the products of the appellant are made of stainless steel and those are used to keep food and beverages at a particular temperature.

In view of the above discussions and the case law laid down by the Apex Court and various High Courts, the Tribunal held that the Commissioner of Sales Tax has erred in holding that Hot Casserole, Delux H Tiffin and Hot Pot are covered by Schedule entry E-I of Maharashtra Value Added Tax Act 2002. The Tribunal held those products as covered by Entry C-33 (a) of the said Act attracting tax @ 4%.

Appeal No. 47 of 2006 dated 2nd January 2007 – Vinod Stainless Steel Works vs. The State of Maharashtra. The Judgment is delivered at the Second Bench by Hon'ble Member S.N. Ranade. The appellant was represented by Mr. G. S. Jetly, Advocate.

Rectification of Rectification before the Tribunal

This case has a chequered history. In determination proceedings under section 52, the Commissioner of Sales Tax has held that “twist locks” and “bridge fittings” are self sufficient units and are different commercial commodities conforming to the specifications of American Bureau of Shipping as container devices. According to the Commissioner the activity carried on by the appellant brings into existence a new different article having distinct name, character or use and therefore held that the activity would amount to manufacture under section 2(17) of the Bombay Sales Tax Act, 1959.

Aggrieved by the said order the appellant preferred an appeal before the Tribunal. The appellant explained before the Tribunal that the impugned products are supplied to shipping companies. They are used in cargo ships for tying or holding containers. These are patented products under the appellant’s brand name MSA. It is said that as far as twist locks are concerned, the corresponding purchases of twist lock castings and un-machined forgings of twist forgings of twist lock were effected from Indian Smelting and Refining Company Ltd. on payment of sales tax @ 4%. So far as the bridge fittings are concerned, they are stated to be shaft parts the purchases of which are effected from Bihar Alloy Steel Ltd. on payment of 4 % sales tax. According to the appellant these arts are simply galvanized and screwed together without effecting any change in the shape, size or character of the goods purchased. On the basis of the facts narrated above the Tribunal accepted the contention of the appellant and held the activity would not amount to manufacture.

Subsequent to the decision of the Tribunal, the revenue filed a Rectification and Reference before the Tribunal. According to the revenue some mistakes have crept in while deciding the appeal. After hearing both the sides the 2nd Bench of the Tribunal agreed with the view of the department and came to the conclusion that while deciding the original appeal there is some inaccuracy in recording the facts insofar as bridge fittings are concerned. In the appeal it was stated that bridge fittings shaft parts were purchased by the appellant from Bihar Alloy Steel Ltd., Thane. The Second Bench while deciding the rectification found that the appellant had not purchased parts, but it had purchased EN-8 Steel from Bihar Steel & Alloys Ltd., and the same was delivered to M. A. Cutting Works of Tilaknagar. The judgment of the Tribunal in Appeal No.126 dated 3-1-1998 was on the footing that the appellant had a purchased shaft parts. The Second Bench therefore felt that the appellant having purchased EN-8 steel from Bihar Steel Alloys Ltd. has been carrying on some manufacturing and it was imperative to ascertain and bring on record the correct facts of the case and to take appropriate decision on such correctly ascertain facts. It therefore restored the appeal No.126 on the file of the Tribunal by exercising powers under section 62 of the Bombay Sales Tax Act 1959 by its order and judgment dated 18-1-2003.
 
Against the said order of the Tribunal, the present rectification application is filed by the original appellant, stating that on careful consideration of the fact of the case, the Tribunal when decided the matter on 3-1-1998 had considered all the facts and circumstances of the case and came to a conscious decision that the activity carried on by the appellant does not amount to manufacture under section 2(17) of the Act and in view thereof according to the appellant the Second Bench has made glaring mistake in holding that the judgment dated 3-1-1998 contains an apparent error rectifiable under section 62. According to the appellant the Second Bench of the Tribunal had transgressed its powers in directing to set aside the first Bench judgment and ordering a retrial.

After hearing both the sides, the Tribunal felt that the important question to be decided in this case is whether the 2nd Bench was legally justified in directing the rehearing of the matter on the accurately recorded facts and whether the prayer to set aside such decision will itself fall within the scope of rectification under section 62 of the Bombay Act. According to the Tribunal in the appellate hierarchy under the Bombay Sales Tax Act, the Tribunal is the last fact finding machinery which ought to ascertain and bring on record the correct facts and base its decision on such facts. It is therefore not correct to say that the Tribunal should restrict its decision only to the case put up by the parties and it should not make any attempt to ascertain the material facts which have the potentiality of having a bearing on the final decision. It therefore, justified the action of the 2nd Bench in ordering a retrial of the matter. The Tribunal further dealt with the facts of the case. It observed that the judgment was given on the footing that un-machined forgings of bridge fittings and shaft parts were purchased from Bihar Steel Alloys Ltd., a dealer registered under the Act. However, it is now seen that the purchases from Bihar Steel Alloys Ltd., are of EN 8 steel; i.e., iron and steel covered by Schedule B-6. It therefore felt a retrial in the matter is essential to avoid miscarriage of justice. The Tribunal in support has also referred to its decision in Bharat Petroleum Corporation Ltd. In view of the aforesaid discussion the Tribunal dismissed the rectification.

Mercantile Shipping Agencies vs. The State of Maharashtra (Rectification Application No.54 of 2003 in Rectification Application No.29 of 1998 dated 18-1-2003 which was in Appeal No.126 of 1996 dated 3-1-1998.The judgment was delivered at 3rd Bench by Hon'ble Member G.G. Kochrekar. The applicant was represented by Mr. J.V. Chhabria, Advocate.

Package Scheme of Incentive

5. Whether limitation under section 62 of the Bombay Sales Tax Act, 1959 applies to Entitlement Certificate issued under the provisions of Incentive Scheme?

Held : No.

The appellant is an Entitlement Certificate holder. The appellant was originally given the deferment of 1.63 crores under the 1983 Scheme for the period 1-8-1989 to 31-7-1998. For modernization of the plant the appellant approached Sicom and by virtue of it the appellant was issued EC under the 1993 Scheme for an additional amount of 102.27 crores for the period 1-11-1998 to 31-10-2009. Accordingly the appellant was issued Entitlement Certificate by the Deputy Commissioner of Sales Tax. However, while issuing the certificate, the Deputy Commissioner has incorporated a condition regarding pro rata availment of incentives. By virtue of it the appellant was entitled for 34.19% of the total production shall alone be eligible for deferment whereas in respect of 65.81% of the total production the unit has to discharge the tax liability on pro rata basis.

The appellant has been enjoying the benefit. The appellant has become disentitled to claim any benefit on the existing unit from 1-7-2005 onwards due to the condition regarding the pro rata availment of incentives obtaining in the Entitlement Certificate of the Expansion Unit. The appellant therefore moved the Sales Tax department stating that the condition of pro rata availment of incentive put in the Entitlement Certificate of the Expansion unit is unjustified and therefore it should be deleted from 1-7-2005. The said application was rejected by the Joint Commissioner of Sales Tax on the ground that it being a rectification application is time barred. The said rejection letter is challenged before the Tribunal.

The appellant also filed an appeal against the Entitlement Certificate issued to the Expansion Unit for deleting the condition of pro rata availment. The Entitlement Certificate having been issued in August 1999, there is a delay of about 7b years for filing appeal and therefore he has also preferred a Misc. Application for condonation of delay.

The Tribunal then considered the validity of the rejection letter issued by the Joint Commissioner and held that the Entitlement Certificate is not issued under the provisions of Bombay Sales Tax Act, 1959. The Entitlement Certificate is issued under the Incentive Scheme as embodied in the Govt. Resolution issued by the Industries Department and therefore the question of limitation under section 62 does not arise. The application made by the appellant, according to the Tribunal should be treated as a simple application seeking an amendment in the Entitlement Certificate. The Tribunal held that on this count the rejection is liable to set aside. The Tribunal has also held that an appeal against the decision in the context of an application for amendment of such Entitlement Certificate has to be held as maintainable under the Bombay Sales Tax Act.

The Tribunal has already decided in the case of Pee Vee Textiles & Others (Appeal No.48 of 2000 dated 17-3-2001) that the condition put by the department for pro rata availment of incentive in respect of expansion unit covered under 1993 Scheme is not consistent with the Scheme and hence not justified. The Government has brought an amendment to the Bombay Act, thereby introduced section 41BB by Maharashtra Tax Laws (Levy & Amendment) Act, 2001 for proportionate incentive to an eligible unit in certain contingencies. According to the Tribunal since the Rule relating to the said amendment is not yet introduced the provisions of section are not effectively implemented. In view of the above circumstances the ratio of Pee Vee Textiles has to be followed. In view of the fats and circumstances narrated above the Tribunal directed that the condition (m) in the entitlement Certificate regarding pro rata availment of incentive shall stand deleted with effect from 1-7-2005.

On the question of filing Misc. application, the appellant has referred to the decision of MST Katiji & Others (66 STC 228) and prayed for condonation of delay. The Tribunal held that it has already held in the appeal against the entitlement Certificate that the department’s action to put the impugned condition is contrary to the provisions of the incentive scheme and such condition is liable to deleted. According to the Tribunal; such 100 per cent meritorious case should not be allowed to be thrown out of the court merely because of delay. It has therefore condoned the delay in filing the appeal.

Sunflag Iron and Steel Co.Ltd. vs. The State of Maharashtra (Appeal No.84 of 2005, Appeal No.72 of 2006 and Misc. Application 297 of 2006 dated 12-12-2006). The judgment of the Tribunal was delivered at Third Bench by Hon'ble Member Shri G.G.Kochrekar. The applicant was represented by Mr.N.V. Tapre, Advocate.

6. Whether Purchase Tax under section 13 can be levied on the amount paid as per agreement by treating it as an amount of purchase of “technical know how”?

Held : No.

The short question came up for consideration before the Tribunal was whether the Appellate Deputy Commissioner of Sales Tax was justified in confirming the levy of purchase tax under section 13 of the Bombay Sales Tax Act, 1959, on an amount paid by the appellant to one Shri Sanjay Ghodawat as per the terms of the agreement dated 15-4-1998 by treating it as an amount of purchase of technical know how from him?

The appellant is a manufacturer of “pan masala and gutkha”. While assessing the appellant for the periods 1998-99, 2000-2001 and 2001-02, amounts paid by the appellant to Sanjay Ghodawat as treated as an unregistered purchase of technical know covered under Entry C-I-26 and levied tax @ 4%. The assessment orders came to be confirmed by the Appellate Deputy Commissioner.

The contention of the appellant was that the amount in question was paid for allowing the appellant to use the brand name “STAR-555” which was owned by the said Sanjay Ghodawat (HUF). According to the appellant it had not purchased anything from Mr. Sanjay Ghodawat nor did Mr. Sanjay Ghodawat sell any beneficial rights to the appellant. The transaction according to the appellant does not involve sale of any goods much less technical know how. It was submitted that the amount was paid by way of royalty in terms of the agreement at a fixed percentage of 1.5 of the turnover of sales of Ghutkha. Payment of royalty is most common in pharmaceutical companies and the term “technical know how” is not defined under the Bombay Act. Alternatively it was the submission of the appellant that the provisions of Bombay Sales Tax Act is not applicable , but it may be covered by the provisions of Maharashtra Sales Tax on the Transfer of Right to use any Goods for any purpose Act 1985 (Lease Act). Under which it can be said that Shri Sanjay Ghodawat allowed the appellant to use his formula with trade mark STAR-555 to be used by the appellant during the validity of the agreement. According to the appellant, in view of the above position Mr. Sanjay Ghodawat may become liable to pay tax at 4% on the amount received by him under the Lease Act as the tax is payable by the seller/owner of the goods.

It was the submission of the appellant that “Royalty” is not covered by entry 26 of Schedule C Part I appended to the Bombay Sales Tax Act, 1959. Further Entry 26 uses the expression, “that is to say” and therefore intangible goods not mentioned in the entry cannot be subjected to tax.

Revenue submitted that “technical know how “is incorporated in entry 26 of Schedule C Part I by treating this as goods of incorporeal or intangible character. According to the department section 35AB of he Income-tax Act provides definition of “know how”. Suffice it to say, the departmental submission was “know-how” means knowledge to know to do a particular thing and “technical know how” is generally pertaining to mechanical arts and applied sciences and something peculiar or specially belonging to the art or subject referred to, as observed by the CGEAT Spl. Bench, New Delhi in Collector of Central Excise, Calcutta vs. Eastern Che-Mofarb Limited (1996) 81 ELT 341. According to it on this backdrop one has to ascertain the nature of transactions in question. It was further submitted that the consideration received by Mr. Sanjay Ghodawat by way of royalty is not for any other purpose but parting with know how possessed by him within the ambit of Schedule entry C-I-26.

The Tribunal found that there is no dispute that the HUF consisting of Shri Sanjay D. Ghodawat and other had agreed to furnish to the appellant Company with know how i.e. the formula of ghutkha and Pan masala during the period 1-5-1998 to 31-3-2002. It is also observed by the Tribunal that there is no serious dispute that the said know how; i.e., method and formula of gutkha and pan masala can be said as a technical know how; i.e., an intangible goods which is covered by entry 26 of Schedule C Part I. However, according to the Tribunal, it is therefore needless to say that it is exigible to sales tax or purchases tax, if it is proved that nature of a transaction is a sale or purchase. According to it, it may not be sufficient to prove that an information agreed to be furnished can be termed as a technical know how but it must be further proved that the said property of technical know how has been transferred and the transferee has become exclusive owner of the same.
 
The Tribunal in the appellant’s own case in Second Appeal No., 658 of 2004 pertaining to the period 1999-2000 had considered this issue and allowed the appellant’s plea and held no purchase tax is payable under section 13 of the Act. The Tribunal while deciding the issue had then referred to the agreement entered by the appellant with the said Sanjay Ghodawat and came to the conclusion that “it is very clear from this agreement and particularly the clauses referred to above that the HUF has allowed the appellant to use the formula with trade mark “STAR-555” to be used by the appellant during the validity of agreement. There is no absolute transfer; ownership is remained with the HUF.” It has further observed that the contract in question does not fulfill all the conditions of sale in the present set of facts. The Tribunal was of the view that it is squarely covered by the provisions of the Lease Act being right to use is transferred and not the property is transferred. In view of the above the HUF would become liable to pay tax at the rate of 4 per cent on the amount received by it under the Lease Act as the tax is payable by the seller/owner of the goods and not by the person who has been allowed to use the formula. The purchase tax under section 13 was set aside.

Reference filed by the Department in Second Appeal No.658 of 2004 is allowed; but the Tribunal did not find any reason to deviate from the decision taken. Accordingly, the present second Appeal was allowed and the purchase tax under Section 13 was set aside.

Second Appeal Nos.1727 of 2004, S.A.319 and 1337 of 2005 dated 12th January 2007 – M/s Ghodawat Pan Masala Products (I) Limited vs. The State of Maharashtra. The judgment of the case was delivered at the First Bench by
Honourable President Shri G.D.Parekh. The appellant was represented by Mr.P.V. Surte, Advocate.