4. Whether the sale of the product ‘Terry Towel’ is exempted under Entry 134 of Group A under the notification issued u/s 41 of the BST Act, 1959?

Transaction Date: 11-1-2005. Held – Yes, the product is exempted, rate of tax NIL.

Facts in issue

The applicant company is engaged in the manufacture and export of the product known as ‘Terry Towel’. The applicant has no resources to manufacture yarn and is therefore purchasing yarn from the market and then weaving the towels on its weaving machines. The notification entry 134 of Group A pertains to towels, chaddars and wall hangings produced on handlooms or powerlooms not being a composite mill. The applicant is of the view that the towels manufactured and sold by him are exempted from whole of tax since the notification entry specifically includes items produced on handlooms or powerlooms but excludes items produced in a composite mill.

Further the applicant has submitted Certification from Superintendent of Central Excise certifying therein that the applicant is not a composite mill and are having weaving and processing facilities.

Submissions of the applicant

The applicant submits that:

1. The product ‘Terry Towel" is included in the word "Towel" for the purpose of Notification entry A-134.

2. The applicant’s unit can be described as a powerloom unit and not a composite mill.

The applicant further stated that his unit cannot be branded as a composite mill, as a composite mill is supposed to be a full-fledged composite textile unit manufacturing yarn and then fabrics and involving processing activities.

Views of the department

The Commissioner looked at all the relevant Notifications u/s 41 of the Act, and observed that the exemption
was subject to certain conditions such as:–

1. The transaction was made during the period from 1-4-1999 to 31-3-2005.

2. The exemption was restricted only to towels produced on handloom or powerloom, not being a composite mill.

3. The claimant dealer should not have collected tax separately in the bill.

4. If the tax is paid or recovered in full, then no exemption shall be granted.

5. If the tax is paid or recovered in part, then the exemption shall be restricted to the extent of unpaid tax.

Thus, tax on towels, if produced on handloom/ powerloom was nil, subject to fulfilment of conditions as mentioned above.

The Commissioner further stated that the notification entry pertains to towels and towels would include all types of towels unless they are specifically excluded from the scope of towels meant for the purpose of the said notification entry. The notification entry has no such exclusion clause. Under Central Excise, towels are covered by the tariff heading 6304 – Other furnishing articles, excluding those of heading 9404. The tariff heading 6304 92 50 covers-Terry towel while the heading 6304 92 60 covers towels, other than terry towel. Thus towels are classified under the same tariff heading. There actually is no relevance of this treatment under the Central Excise Act as under the Bombay Sales Tax Act, 1959. The item notified is ‘Towels’ which includes in its fold all types of towels.

The applicant has produced a Certificate from the Superintendent of Central Excise, certifying therein that the applicant is not a composite mill and that they are having weaving and processing facilities. In this regard, the Commissioner looked at the meaning of a composite mill with reference to the following case laws.

Case Laws relied upon

1. Collector vs. Kohinoor Mills-1995 (77) ELT 42 (S,C.).

2. Notification No. 52/2001-C.E. (N.T.) dated 29-6-2001 as amended by Notification No. 8/2003-C.E. (N.T.) dated 1-3-2003.

In the context of the present case, the fact that the applicant’s unit does not manufacture yarn, but purchases from the market and then the towels are woven on their weaving machines as well as the certificate by the Superintendent of Central Excise prove that the applicant’s unit cannot be regarded as a composite mill.

Held

The Commissioner held that the product "Terry Towel" was covered by entry 134 of Group A under the notification issued u/s 41 of the BST Act,1959 and attracted Nil rate of tax.

[M/s. Santogen Exports Ltd. DDQ No. DDQ-11/2005/Adm-5/4/B-6 dated 27-3-2006]

5. Whether the product "Terry Towel" is covered by Schedule Entry A-51 (vii) or Schedule Entry E-1 under MVAT Act, 2002?

Transaction date : 5-5-2005.
Held: Covered by A-51 from 1-5-2005 to 31-3-2006, covered by E-1 from 1-4-2006 onwards

Facts in issue

The applicant is a public limited company manufacturing various items of fabrics. The goods so manufactured are cleared under the Regulations of the Central Excise Act.

The applicant has sold the goods ‘dyed terry towel’ for which the determination is sought, after 1st May, 2005.

Submissions of the applicant

The applicant is of the opinion that his product "Terry Towel" falls under Schedule Entry A-51(vii) of the Maharashtra Value Added Tax Act, 2002.

The wording of the Schedule Entry is ‘Towel’. Hence, the applicant is of the opinion that the word ‘towel’ would cover all varieties of towels.

Views of the department

The Commissioner observed that a ‘Towel’ as per Webster’s Dictionary means ‘a piece of absorbent material used to dry something and a "Terry cloth" as per Webster’s Dictionary means "a cotton pile fabric made of uncut loops, used e.g. for toweling".

The Schedule Entry pertains to towels and towels include all types of towels unless some of them are specifically excluded from the entry. The schedule entry has no such exclusion clause. Thus, towels include all types of towels.

The Schedule A-51(vii) was introduced with effect from 1-5-2005 and the period specified is 1-5-2005 to 31-3-2006. Thus from 1-4-2006 onwards Schedule entry A-51(vii) does not exist and the product gets covered by Schedule entry E-1 attracting tax at 12.5%.

For the period 1-4-2005 to 30-4-2005, the applicant may claim administrative relief under the Circular 34T dated 26-10-2005.

Held

The Commissioner held as follows:

1. The rate of tax on product "Dyed Terry Towel" would be NIL for the period from 1-5-2005 to 31-3-2006.

2. For the period from 1-4-2005 to 30-4-2005, the applicant may avail of administrative relief under Circular 34T dated 26-10-2005.

3. For the period from 1-4-2006 onwards, the goods would be covered by Schedule Entry E-1 attracting tax @ 12.5%.

[M/s The Century Textiles & Industries Ltd. DDQ No. DDQ-11/2005/Adm-5/20/B-5 dated March 2006]

6. What is the classification and rate of tax of the product ‘Printing paste’ ?

Transaction date: 25-6-2005
Held: C-54, rate of tax is 4%.

Facts in issue

The applicant is an importer of "Textile printing inks". The product is known in the trade as "Printing Paste" which is used for printing various designs, logos, pictures, etc. on fabrics and readymade garments with the help of screens.

The product is cleared from customs and customs duty is assessed under customs tariff head No. 3215.90. However, the foreign supplier disputes the said classification and considers the Customs Code No. 38099.9100 which pertains to finishing agents and dye carriers for fixing of dyestuffs as the correct code for the goods in question.

Submissions of the applicant

The applicant submits that the product is covered under Central Excise Tariff heading 3215.90. He further states that the other Indian manufacturers are clearing the goods under the same Central Excise tariff.

He also contends that since the excise heading 3215.90 is covered by the notification issued for the purpose of Schedule entry C-54, the goods are covered by Schedule entry C-54 relating to industrial inputs. Chapter heading 32.15 pertains to printing, writing or drawing and other inks, whether or not concentrated or solid.

The applicant states that in the alternative, the product may be covered by entry C-77 relating to printing and writing inks including toner and cartridge.

Views of the department

The Commissioner observed that the scope of printing inks as described in notes to HSN describes it under the heading 32.15(A) as pastes of varying consistency obtained by mixing finely divided black or coloured pigment with a vehicle.

The applicant’s product is used for printing on textiles with the help of screens. This activity is called "screen printing".

The entry 38.09 under the Customs Tariff relates to finishing agents and dye carriers. The applicant’s product is not a finishing agent and therefore is not covered by heading 38.09.

The appropriate classification is 32.15 of the Customs Tariff Act.

Further, the product is covered both by notification dated 1-4-2005 and notification dated 1-9-2005 issued for the purpose of entry C-54 pertaining to industrial inputs.

Held

The Commissioner held that the product ‘printing paste’ is covered by Schedule entry C-54 which pertains to industrial inputs, attracting tax at 4%.

[M/s Karan Enterprises. DDQ No. DDQ-11-2005/Adm-5/46/B-9 dated 31-3-2006]

7. Whether the applicant is liable to tax in respect of sale of ‘old obsolete discarded textile machinery’ and if so, what is the rate of tax ?

Transaction date: 10-1-2005
Held : Liable to tax

1. Iron & Steel scrap – 4%

2. Non-ferrous scrap – 4% + 1% + 4%

3. Machinery – 13% + 1 % + 1.3%

Facts in Issue

The applicant is a dealer in scrap of electrical goods, ferrous and non-ferrous goods which include machineries, cables, motors, etc.

The applicant purchases scrap on ‘lot’ basis and ‘as is where is’ basis in auction from Government organization, public sector undertaking and private companies. The goods so purchased are dismantled by the applicant and the segregated material; i.e., iron, aluminum, copper, brass, plastic, is then sold for melting or re-processing.

The recovery officer of Employees Provident Fund organisation attached one of the company’s properties due to the company’s default in making payment of provident fund dues. It disposed of the property through action. The machinery which was offered for auction was old, rusted and unusable.

The applicant purchased all the old machineries and paid tax on these sales. Since the Employees Provident Fund organisation was a non-dealer, the purchases of the applicant become purchases from unregistered dealer and therefore liable to tax.

Submissions of the applicant

The applicant contended that the Employees Provident Fund organisation cannot be treated as a dealer for a single transaction. Since they are unregistered dealers, the applicant has rightly paid the taxes on such purchases. The goods, being old, obsolete and discarded machineries the rate of tax was 4% on such sales of scrap material.

Views of the department and case laws relied upon

The Commissioner did not entertain the comment on rate of tax on auction sale since the transaction was already assessed. Section 52(3) restricted the scope of determination only to questions not arising from any order passed under the act.

For deciding on the classification of sale of the applicant, it was necessary to find out the seller. In this case, there was no privity of contract between the applicant and the owner of the goods. The Provident Fund Organisation is also not the owner of the goods. The auctioneer, being a party to the auction sale is a deemed dealer u/s. 2(11) of the Act. Thus, the auctioneer is a seller in this transaction of auction sale.

For deciding on the rate of tax on sale of goods by the applicant, the Commissioner referred to the following judgments.

1. State of Tamil Nadu vs. Raman & Co. and Other (In the Supreme Court of India) (93 STC 185)

2. Commissioner of Sales Tax, Maharashtra State, Bombay vs. Delhi Iron and Steel Co. (Bombay High Court-98 STC 202)

3. M/s. Prakash Metal Co. vs. The State of Maharashtra (S.A. No. 190 of 1979 decided on 14-3-1980)

4. M/s. Exide Industries Ltd. (Appeal No. 115 of 1996 dt. 15-6-2002)

5. M/s. The Brihan Mumbai Electric Supply & Transport Undertaking (No. DDQ-11-200/Adm-5/117/B-2, Mumbai dated 1-3-2001).

6. Rainbow Steels Ltd. & Another vs. The Commissioner of Sales Tax, Uttar Pradesh, Lucknow and Another (47 STC 298)

7. Trade Circular No. DDQ-10-2001/Adm-5/79 Cir. No. 8-T of 2001 Mumbai, dt. 25-6-2001.

The above judgments are summarized as follows:

1. The sale after dismantling is second sale and hence not taxable.

2. Old items which are reusable are not scrap and which are not reusable can be treated as scrap.

3. The rate of tax to be levied on the sale of scrap depends on the major material content of the scrap.

4. d. Any old item which is in working condition or reusable is covered by its schedule entry itself.

The Commissioner observed that the goods did not undergo a change so as to amount to manufacture and therefore, the applicant’s activity was that of resale. However, to constitute resale, the applicant must have a valid purchase bill with certificate as per section 12A of BST Act, 1959.

Such a valid purchase bill was not available and therefore the applicant was liable to tax.

Held

The Commissioner held as follows:

1. The applicant was liable to pay tax.

2. Rate of tax is as follows:

1. Iron & Steel scrap B(6)(i) 4 %

2. Non ferrous scrap C-I-23 4 % + 1 % + .4%

3. Sale of machinery C-II-135 13 % + 1 % +1.3 %

(M/s. M.D. Lokhandwalla, DDQ No. DDQ-11-2005/Adm-5/45/B-7 dated 31-3-2006]

8. Whether the product ‘Nitrous oxide’ can be considered as a ‘drug’ covered by Schedule entry C-29 under MVAT Act, 2002 ?

Transaction date : 14-6-2005 Held: Not a drug, covered by E-1, 12.5% w.e.f. 1-2-2006, covered by C-29, 4%.

Facts in issue

The applicant is a manufacturer of industrial gases such as oxygen, hydrogen, medical oxygen, etc. It also manufactures ‘Nitrous Oxide’ under the licence granted under the Drugs & Cosmetic Act, 1940. The applicant considers the product ‘Nitrous Oxide’ as a drug covered by Schedule Entry C-29 of MVAT Act, 2002.

Submissions by the applicant

The applicant contends that the product qualifies as ‘a medicinal formulation or preparation ready for use internally or on the body of human beings, for diagnosis, treatment, mitigation or prevention of any diseases’. Nitrous oxide is a colourless gas used by inhalation as a general anesthetic. It is a drug used in operation theatre as an anesthetic agent. Thus, Nitrous oxide being a drug used for treatment at the time of operation is liable to tax @ 4% under Schedule entry C-29 of the Maharashtra Value Added Tax Act, 2002.

Alternatively, the applicant prays that the determination order be given prospective effect.

Views of the department and case laws relied upon

The Commissioner observed that the applicant’s contention was that the product was manufactured under the drug licence given by Food & Drug Administration under the Drugs & Cosmetics Act, 1940 and was used by hospitals and dispensaries for treatment at the time of operation and thus qualified as a drug.

A similar case has been decided in the case of M/s. Sunny Industrial Gases No. DDQ-11-2002/Adm-5/18/B-7, Mumbai dated 31-1-2003 where the product was held as covered by residual entry and not a drug under the BST Act.

In order to qualify as drug, the product has to fulfil the following conditions:

1. It should be a formulation or preparation ready for use internally or externally on the human body.

2. It should be used for diagnosis, treatment, mitigation or prevention of any disease or disorder.

3. It should be manufactured or imported into India, stocked, distributed or sold under a licence under the Drugs & Cosmetics Act, 1940.

The product ‘Nitrous oxide’ is a preparation used internally when inhaled by patients.

However, the product is incapable of diagnosing any disease. When a patient is administered anesthesia at the time of operation, the person’s body becomes numb and has no sensation. Such a use does not qualify the product as a drug.

A drug needs to have therapeutic characteristics and Nitrous oxide does not have therapeutic attributes. It only provides relief and comfort to the patients but does not mitigate disease.

Thus Nitrous oxide cannot be considered as a drug as it does not satisfy the essential condition of treatment and mitigation of disease and disorder.

Case law relied upon

1. M/s. Inox Air Products Ltd. No. DDQ-11-50/Adm.-5/19/B-1, Mumbai dated 4-7-2005

As for the prospective effect, the Commissioner held that there was a statutory precedent as regards a product of a similar nature; i.e., medical oxygen in the case of M/s. Sunny Industrial Gases. No. DDQ-11-2002/Adm-5/18/B-7, Mumbai dated 31-1-2003, which should have been of guidance to the applicant. Therefore, the request for prospective effect could not be granted.

However, Schedule entry C-29 has been amended w.e.f. 1-2-2006 whereby para (b) has been added to cover medical oxygen & nitrous oxide manufactured under Drugs & Cosmetics Act, 1940.

With this amendment to Schedule Entry C-29, Nitrous oxide has been inserted in the entry on drugs as a sub-entry and thus becomes taxable at 4%.

Held

The Commissioner held as follows:-

1. Nitrous oxide was covered by Schedule Entry E-1, exigible to tax at 12.5% before amendment.

2. After amendment, Nitrous oxide becomes covered by Schedule Entry C-29 w.e.f. 1-2-2006.

(M/s. Inox Air Products Ltd. DDQ No. DDQ-11-05/Adm-5/44/B-4 dated 27-3-2006)

9. Whether the applicants are carrying on the business of buying or selling goods and liable for registration under the BST Act, 1959 ?

Transaction date:- 19-12-2004 Held:- Not a dealer, not liable for registration

Facts in issue

There are three applicants which are charitable trusts holding Certificate of Registration by the Charity Commissioner and registration u/s. 80G and section 12A of the Income-tax Act, 1961.

The first applicant is doing work in educational field and village development in tribal area. It also produces educational aids. It is a non-government and non-profit organisation.

The second applicant is a charitable trust working for the mentally challenged adults and rural poor. It runs a residential rehabilitation centre for mentally challenged adults.

The third applicant is a charitable society whose object is advancement of social and educational activities and medical relief. The applicant organized a ‘Hepatitis-B free Mumbai’ campaign and also administered vaccine to the children at a nominal fee.

Submissions of the applicant

The applicants contend that they are not carrying on business of buying and selling of goods and are not ‘dealers’ under the BST Act.

They are charitable institutions which are carrying out activities for the advancement of their charitable objects and are not liable to tax as a dealer.

Views of the department and case laws relied on

The Commissioner examined the Income and Expenditure A/c. of all the three applicants, which showed that the Income earned, was channelised towards achievement of the objectives of the Trust and not for any other purpose. No independent intention of carrying on business activity was seen.

Case Law

1. Commissioner of Sales Tax vs. M/s. Sai Publication Fund (126 STC 288 (SC))

Since the primary object of the trust was to spread the message of Sai Baba, its main activity did not amount to business.

If the main activity is not business then, any transaction incidental or ancilliary would not normally amount to business unless an independent intention to carry on business in the incidental or ancillary activity is established.

The Commissioner relied upon the above case and held that the applicants cannot be held dealers for the purpose of BST Act, 1959. They do not carry on any business. Their activities of sale and purchase of goods are purely of the service nature with a view to attaining their charitable objectives.

Held

The Commissioner held that the applicants are not dealers under the BST Act 1959.

(Gram Mangal, Sadhana Village, Pune, Yuvak Pratisthan DDQ Nos. DDQ-11-2004/Adm-5/78/B-8, DDQ-11-2002/Adm-5/83A, DDQ-11-2004/Adm-5/31 dated 31-3-2006)