interpretation of schedule entries under VAT or sales tax laws

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Welcome..

…….Workshop on .....

Practical Approach to Interpretation of Schedule

Entries Under MVAT Act

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AgendaProvisions related to Schedule, Notifications and DDQ .

General contents of Schedules and Important Notifications.

Collection of factual information regarding commodity and Excise Tariff Code .

Theories of interpretation of Schedule Entries.

How to read and interpret Schedule Entry.

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Provisions regarding Schedule Entry / Notifications

Section 2(26) - Schedule means the schedule appended to MVAT Act, Section 5- Explains regarding tax-free goods. Section 6 - Levy of tax on goods specified in the schedule. Section 8(3) - Power to issue notification regarding SEZ, EOU, PSI, EHTP.

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Provisions regarding Schedule Entry / Notifications

Section 9 - Government can amend the schedule. Section 41- notification regarding refund as well as exemption in case of Motor spirit and other goods. Section 8(5) of CST Act - notifications can be issued for exemptions.

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Determination of Disputed Questions (section 56)

Whether someone is dealer or not ?

Whether registration is required or not ?

Whether it is manufacturing or not ?

Whether any transaction is sale or not ?

Whether tax is payable on such sale or not ?

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Determination of Disputed Questions (section 56)

What is rate of tax on such goods?

Whether set off is allowable or not?

Application is necessary before notice of assessment is issued.

Review of DDQ order is possible, CST can review.

DDQ is appealable, Tribunal can decide the appeal.

Chronological disposal of DDQ application.

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Classification of Goods and Rate of Tax

Schedule A- Tax-free goods,

Schedule B- Taxable @1%,

Schedule C- Goods Taxable @4% and @5%,

Schedule D- Taxable @20-50%,

Schedule E- 1: Remaining Goods, Taxable @12.5%

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Important Notifications

Agriculture implements- Tax-free goods (A-1),

Aids & equipments for handicap persons (A-2),

Handloom and auxiliary machines (A-13),

Musical instruments –handmade (A-30),

Aluminium products- alloys and products (C-6),

Goods of intangible nature (C-39),

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Important NotificationsIndustrial input and packing material (C-54),

Information technology products (C-56),

Non-ferrous metals and alloys (C-67),

Article of personal wears and clothing accessories made of textiles (C-81),

Renewable energy devices (C-82),

CST Act notifications (Section 8(5)).

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Collection of factual information regarding commodity and source thereof Whether there is any misclassification of schedule entry done by the dealer or not….

Whether tax has been paid at correct rate or not…

What is the real nature and description of goods?

Product, its use, function, nomenclature, trademark.

General recognition by customers, Advertisement…

Dictionary meaning of the word, context is important.

Internet / website / encyclopedia/ technical information

Pharmacopoeia / Ayurvedic standard text books.

Disclosures to other departments like customs, Central excise classification , FDA, etc.

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The Central Excise Tariff code

The Central Excise Tariff Act, 1985 (CETA) classifies all the goods under 96 chapters and specific code is assigned to each item. CETA is based on International convention of Harmonised System of Nomenclature (HSN), which is developed by World Customs Organisation (WCO) (That time called as Customs Cooperation Council).

The four digit numbers indicate the heading in the HSN classification, six digit numbers indicate the sub-heading and the eight digit numbers indicate the specific commodity number.

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How to read or interpret the entry under Central Excise Tariff Code :

(1) Refer the heading and sub-heading. Read corresponding Section Notes and Chapter Notes. If there is no ambiguity or confusion, the classification is final (Rule 1 of GIR).

(2) If meaning of word is not clear, refer to trade practice. If trade understanding of a product cannot be established, find technical or dictionary meaning of the term used in the tariff. You may also refer to BIS or other standards, but trade parlance is most important.

(3) If goods are incomplete or un-finished, but classification of finished product is known, find if the unfinished item has essential characteristics of finished goods. If so, classify in same heading - Rule 2(a).

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(4) If ambiguity persists, find out which heading is specific and which heading is more general. Prefer specific heading.- Rule 3(a).

(5) If problem is not resolved by Rule 3(a), find which material or component is giving ‘ essential character ’ to the goods in question - Rule 3(b).

(6) If both are equally specific, find which comes last in the Tariff and take it - Rule 3(c).

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(7) If you are unable to find any entry which matches the goods in question, find goods which are most akin -Rule 4.

(8) Packing material is to be classified in the heading in which the goods packed are classified – Rule 5.

Chapter No.

Heading Sub-heading

Commodity Number

Description

85 Electrical / Electronic M/C & equipment

8517 Tele. sets / Apparatus-wireless / wired.

8517 11 Line telephone sets / cordless

8517 1110 Push button type

8517 1190 Other

851712 Telephone for Cellular / wireless

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In nut shell……..

Whether it is distinct marketable commodity,

Whether it is extensively used for any purpose,

How it is recognized in the market and whether it is capable of being sold as such,

Whether new commodity emerges and it has higher utility than the original commodity (if manufacturing),

What is the extent of Value addition when goods are transformed into new commodity, Mamata Surgical (RAJ)- surgical cotton,

Whether description in the notification matches with the description in the Central Excise Tariff Code.

Excise gate pass as evidence, was accepted by MSTT. Bhagchand Madanlal- (31 MTJ) goods - Pan Parag Jarda.

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Reference Books / websites1) Sales Tax Cases (STC),

2) VAT and service Tax Cases (VST),

3) Maharashtra Tax Journal (MTJ),

4) Supreme Court Cases (SCC),

5) Lexicon Of sales Tax Entries,

6) Case law on sales Tax (SC and HC)- Mrs Nadgauda,

7) Interpretation of Words, Phrases, Commodities by Mr. Agarwal

8) Digest of Mah. Sales Tax Tribunal Decisions.

9) www.Indiankanoon.org

10) www. Indlaw.com

11) www.stconline.com

12) www.manupatra.com

http://www.indiankanoon.org/

http://www.vatreporter.com/



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Principles of interpretation of Schedule Entries

1) COMMON PARLANCE THEORY

The words / expressions must be construed in the sense in which they are understood in the trade by the dealer and consumer.

Delhi cloth and General Mills Co. Ltd. Vs State of Raj (46 STC 256) (SC)

Integrated Caps Pvt.Ltd. V/s CTT. (47 MTJ 145) (All.)

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2) NOSCITUR A SOCIIS:

The meaning :- It is known by its associates.

The meaning of a word is to be Judged by the company it keeps. It means mo constitute the words in an act with reference to the words found in immediate connection with them.

Pradeep Agarbatti V/s State of Punjab (AIR 1998 SC171)

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3) STRICT INTERPRETATIONWhere a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way.

Industrial catering Services V/s CTO Chennai ( 132 STC 35).

4) USE THEORY NOT RELEVANT

The nature of the goods can not be determined by the test of use to which they are capable of being put to. The user test is logical but not conclusive Tube Investment V/s Dy. CTO (27 MTJ 573),

Mukesh Kumar Agarwal V/s State of MP (68 STC 324)

CST V/s Govardhanlal (63 STC 435)

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5) SCIENTIFIC/TECHNICAL MEANING

Where generic expressions of scientific or technological meaning are used , the technical meaning would be more relevant.

Televista Electronics V/s CST ( 34 VST 1).

CST V/s Sarin Textile Mills ( 35 STC 634) (SC).

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Theories of interpretation of Schedule Entries

6) RULE OF EJUSDEM GENERIS

Meaning : - Of the same kind of species.When particular words pertaining to a class, category or genus are followed by general words, the general words are contrived as limited to things of same kind as those specified. This rule applies when:A) The statute contains an enumeration of specific words,

B) The subjects of enumeration contains class or category which is not exhausted by the enumeration.

C) The general terms follow the enumeration.

D) No indication of different legislative intents.

a) Radhakrishnan Murthi & Co. V/s CT (113 STC 161)

b) CST V/s Govardhandas Tokersey (52 STC 381).

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Theories of interpretation of Schedule Entries

7) SPECIFIC ENTRY V/S GENERAL ENTRY Specific entry would always over ride general entry. But resort has to be had to the residuary entry only when a liberal construction of the specific entry can not cover the goods in question. a)Bradma of India V/s State of MAH.(140 STC 17)b)Collector of Central Excise V/s Wood Craft (3 SSC454) (1995).

8)WHEN THERE IS NO REFRENCE TO ANOTHER STATUTE IN THE SCHEDULE ENTRY

Common parlance would be paramount and reference to the other statute is not permitted.Channulal Motilal V/s CST (MP).

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9) REFERENCE GIVEN OF ANOTHER STATUTE IN THE SCHEDULE ENTRY :

In such case the definition given in the other statute along with all its amendments , variations from time to time should be read into the Schedule Entry.Agro Industries Trading Corporation V/s State of Kerala.(72STC 1)(SC)

10) PRINCIPLE OF RES JUDICATA: Meaning :- Thing adjudicated.

Interpretation holding good for considerable period can not be disturbed for compelling reasons.Merind Limited V/s State of MAH ( 136 STC 462)

Smith Kline Beecham Consumer Health care V/s Dy. CST (128 STC 189) WB

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Important words and their meaning

Spare parts: Part which can be replaced on account of wear and tear / an extra item for use in emergency.

Acme Plastic Industries (48 STC 29).

Components: Article which forms an identifiable constituent of the finished product and make up the finished product.

CST V/s Acme Mfg. Co. Ltd. ( 78 STC 79)

CST V/s Punjab Gramophone House (43 STC .141).

Accessories : The article which is adjunct /addition for convenient use of another part or supplementary to the main / primary importance.

CST V/s Free India Cycle Ind. (26 STC 428).

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Important words and their meaning

Scrap : Waste or the thing being of no use.Bharat Iron & Brass Foundries V/s CST (28 STC 455)

Non – obstante Clause: Notwithstanding, an over riding clause, that a provision should prevail despite any thing to the contrary in any other provision.

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•PERFECT DRAFTSMAN EXISTS ONLY IN THEORY AND NOT IN PRACTICE.•

Construction is a process to ascertain the meaning or an art to give the meaning and true sense to the words of the legislature. If any statutory provision is open to more than one meaning then the interpretation represents the true intention of the legislature may be chosen.•Interpretation depends on- the Text and the Context.•Statute Is The Master And Not The Servant Of The Judgement.

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•Statement of Object and Reasons. : It is always safe to have an eye on the object and the purpose of statute or reasons & spirit behind it.

•Role of the interpreter- Is not the role of reformer- sometimes it is beyond the endurance of sensitive minds to allow the injustice to be suffered when it is so palpable.

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• A rule of construction : is flexible and is merely a presumption in favour of a particular meaning in case of ambiguity. The cannons of interpretation do not override the language of the statute where the language is clear. They are only guides us to enable to understand as what is inferential.

• IT IS DIFFERENT FROM CASUISTRY AND METAPHYSICS.

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Concepts…….. ASSESSMENT; PROPERTY;

TRANSFER; NOTICE;

ORDER; INSTALLMENT;

INPUT TAX CREDIT- In relation to a taxable person- a tax on the supply to him any goods or services; and tax payable by him on the importation of goods or the services used or to be used for the purpose of any business carried on or to be carried on by him.

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Distinguish…….Regulation & Prohibition ; Award & Reward ;

Liberty & Freedom; Purpose & Policy;

Lease & License; Confidential & Secret;

Afternoon & Evening…. when there is twilight;

Repairs & Maintainence.

When the question is essentially on of a degree then it is impossible to draw a fixed point or a definite line or to derive any thumb rule-

for e.g. the concept of works contract or of Manufacturing.

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•Includes : It is used to enlarge the meaning of the words. It widens the scope of entry by specific enumeration of certain matters which its ordinary meaning may or may not be considered.•That is to say : are really not the words of restriction but the words of illustration. •May : Generally permissive and not mandatory. •Namely : It has various shades but grammatically can be construed as ‘ that is to say’.•Means : The definition is hard and fast and no other meaning can be assigned.•Any : The word has several meanings like – ‘all’, ‘each’, ‘every’, ’some’, or , ‘one out of several’

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•And : - Normally conjunctive but some times can be disjunctive and can be construed as ‘as well as’

• Deeming provision: Legal fictions are created for specific and definite purpose and are limited to that very purpose. “ A part is always a part and not a whole”.

Occasioned By- Due To :

Notified from time to time- To protect the executor from various changes made in the statute

Quasi Judicial- It implies not fully judicial but describes the duty cast on an executive to stick up to the norms of judicial procedure.

Literal and mechanical construction – To be disregarded if it conflicts with some essential elements of fair play and natural justice.

SCHEDULE A

A-3 Animal driven Carts including bullock carts and CPA thereof (excluding bearing, tubes and tyres).

A-6 Books that is to say every volume or part or division of a volume including almanacs, panchangs, timetables for passenger transport services and periodicals, maps,

charts, orreiries and globes, but excluding – annual reports, application forms, account books, balance sheets, calendars, diaries, catalogues, race cards, publications which mainly publicise goods, services and articles for commercial purposes and publications which contain space exceeding eight pages for writing.

A-55 a) Incense sticks commonly known as agarbatti, Dhoop, Dupkathi or dhupbatti.

b) Camphor

c) [Dhoop including Loban and Ral]

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SCHEDULE C

C-79 Pulp of bamboo, wood and paper ('and' signifies as 'or').

C-91 a) Spices of all varieties and forms including cumin seed, hing (asafoetida), aniseed, saffron, pepper and poppy seeds.

b) for the periods starting on or after 1st April,2006, - Chillies, turmeric, tamarind, coriander seeds, fenugreek and parsley (suva) whether whole or powdered.

C-89 a) Milk powder including skimmed milk powder.

b) U H T Milk.

c) Condensed milk whether sweetened or not when sold on or after 1st April,2005.

d) Milk containing any ingredient and sold under a brand name, when sold on or after 1st April,2005

Explanation - U H T Milk, condensed milk whether sweetened or not and milk containing any ingredient and sold under a brand

name shall not be covered by the scope of this entry when served for consumption.

e) Curds (whether or not sweetened or flavored) when sold under a brand name, except when served for consumption

SCHEDULE C

C-104 a) Writing instruments, ball point pens, felt tipped and other porus tipped pens and markers, fountain pens, stylograph pens and other pens, duplicating stylos, propelling or sliding pencils; pen holders, pencil holders, and similar holders; parts (including caps and clips) of the foregoing articles;

b) Mathematical instrument boxes including instruments thereof, students colour boxes, crayons and pencil sharpeners;

c) Writing boards or writing pads, drawing boards, black boards, greenboards, white boards, examination pads, foot rulers, erasers, glitter pens, sketch pens, staplers, pencil leads, oil pastels, drawing charcoals and envelopes.

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SCHEDULE C

C-92 Sports goods excluding apparels and footwear.

C-99 a) Umbrella and raincoat except garden Umbrella.

b) Components, parts, and accessories of umbrella except garden umbrella.

C-56, 57,68, 84,105 -That is to say.... IT products, Jute, Oil Seeds, Rubber , Embroidery or Zari material.

C-108(2)-Timber, sold during 01.04.2008 to 31.03.2010- 4%

(Time specific entry) and after 01.04.2010 - 12.5%

C-39 Goods of incorporeal nature or intangible nature as may be notified from time to time by the Government in the official gazette (read with Schedule Entry A- 27).

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SCHEDULE D

1 Foreign liquor as defined from time to time in rule 3(6)(1) of the Bombay Foreign Liquor Rules 1953 excluding wine-50% Wine - 20%

5 HSD Oil - 24% , when delivered to a retail trader for trading in BMC, Thane and Navi Mumbai - 24% Other than Mumbai ( Geographical area oriented)

In any other circumstances 21%.

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Important Decisions of Courts

Cloth Bags: The Entry in itself is exhaustive and not illustrative which does not permit the inclusion of any other material which is not enumerated.

Maharashtra Hybrid Seeds v/s State of Karnataka,(119 STC 112)

Whether leak proof battery cells are spare parts of transistors or electrical goods?

Whether leather cases for transistors is accessory or not?

V. Govindarajan & Br. v/s The Govt. of Pondicherry (40 STC 169)

Important Decisions of Courts

“Vermicelli" are nothing but "maida“ and not the processed food.

Jaya Food Industries Pvt. Ltd. v/s CTO (82 STC 319)

Bicycles "Model Matrix" with an auxiliary electric motor having a 30 minutes backup power of less than 0.5 kilo watt, which is also called as "E-Bike-Matrix“ is not bicycle.

M/S R.K.Rim Pvt.Ltd v/s CST (Bombay HC)39

Economy & Finance

interpretation of schedule entries under VAT or sales tax laws