By TIOL News Service

NEW DELHI, SEPT 07, 2016: THE facts on which the controversy rests in a narrow compass. The respondent manufactures "bitumen emulsion". It filed an application before the Commissioner, Commercial Taxes, Lucknow, U.P. under Section 59 of the VAT Act seeking a clarification about the rate of tax applicable to the sales of bitumen emulsion. The Commissioner of Commercial Taxes, vide order dated 23.1.1999 opined that bitumen emulsion is an unclassified commodity and, therefore, is excisable to tax at the rate of 12.5% as it would fall under the residuary Entry.

Being aggrieved by the order dated 23.1.1999, the respondent preferred Appeal under the VAT Act before the Tribunal Commercial Taxes, U.P., Lucknow which was heard by the Full Bench. It was contended before the tribunal by the assessee-appellant therein that bitumen as a commodity is taxed at 4% under Serial no. 22 Part A of Schedule II to the VAT Act and bitumen is found in solid state and to bring it in the liquid form, water is added to it and very little quantity is used in the process. Elaborating the said submission, it was urged that when bitumen is available in the liquid form, it is known as bitumen emulsion and is commonly known as bitumen when it is available in the solid form; and both the commodities are understood in the same manner in the commercial world and the end use is the same and, therefore, the rate of tax to be determined has to be the same as prescribed for bitumen.

The High Court ruled that it could not be said that mixing of some material would amount to manufacture unless it results in a change when the commodity concerned cannot be recognised as an original commodity but rather new and distinct article emerges having different commercial use and identity. On the basis of the aforesaid analysis, the High Court allowed the revision and set aside the orders of the forums below.

The Supreme Court observed,

Bitumen in its original form is solid but melts when heated, for it is used in molten stage. There is no difficulty to appreciate that bitumen emulsion comes into existence when bitumen is treated with emulsifiers and other chemicals to attain a liquid form. It has a huge advantage and add benefit because it is not to be heated and detained in its liquid form and has better stability and thus, saves time and cost components. That apart, it ensures its use at the stage of application. Needless to say it is comparatively less hazardous. Bitumen consists of four forms of variants, namely, solid bitumen, polymer bitumen, crumbler rubber modified bitumen and bitumen emulsion. The stand of the Revenue is that the word "bitumen" must be conferred a narrow meaning for the reason that the legislature has not thought it appropriate to use the prefix or suffix like "all", in all forms or of all kinds. It may be immediately clarified that bitumen is a generic expression which would include different types of bitumen. Revenue, however, as stated earlier, intends to apply it restrictively. The said submission has a fundamental fallacy. Entry 22 does not exclude or specify that it would not include bitumen of all types and varieties. This is not the principle or precept applied to interpret the entries under the Schedule of the Act.

The Entry in question uses the word "bitumen" without any further stipulation or qualification. Therefore, it would, in our opinion, include any product which shares the composition identity, and in common and commercial parlance is treated as bitumen and can be used as bitumen. When we apply the three tests, namely, identity, common parlance and end use to the goods and the Entry in question, bitumen emulsion would be covered by the Entry bitumen. It is worthy to note that bitumen emulsion matches the Entry as it is only one of the varieties of bitumen. Bitumen emulsion is processed bitumen, but the process has not changed its composition, commercial identity or its use. Bitumen emulsion is regarded and performs the same function as bitumen. As a result of processing, neither the primary character nor the composition is lost. Emulsification only eases and provides proficiency to the use of application of bitumen. Hence, in popular and commercial sense, bitumen emulsion is nothing but bitumen, which is in liquid form and is user friendly.

In the present context, when the word "bitumen" has been used as a generic expression, it would be erroneous not to cover a product that is only a type or form of bitumen and retains all its essential characteristics, and treat it as covered by the residuary Entry by some kind of ingenuous reasoning. Taking it outside the purview of the specific Entry is incorrect.

The Supreme Court concurred with the High Court judgment and dismissed the revenue appeal.

(See 2016-TIOL-156-SC-CT)