+ * Cc | htra Value Added Tax Acts Read: Application dated 30-03-2010 under Section 56 of The Maharast 3002 from M/s Manohar Industries, holder of VAT TIN 27270091901 V. Heard: Shri Praful Vora (STP) and Shri Melwani (Partner). PROCEEDINGS (Under Section 56(1}(¢) of The Maharashtra Value Added Tax Act,2002) No.DDQ-11-2010/Adm-3/20/B- 2 Mumbai, dt. 6 [412011 ‘The applicant M/s. Manohar Industries. holder of VAT TIN 2727009190-V.having address at 3-A, Waco Radio Compound, Ulhasnagar-421004 has posed a question for determination as to whether their product ‘Peacock Brand essence of Phenyle-Black disinfectant ’sold through invoice No,374,281,421dt. 11.2,2008, 14.10.2009, 5.3.2009 respectively would get covered by schedule entry C-54 of the MVAT Act, 2002. 02. FACTS & CONTENTION ‘The applicant submitted his written submission which is reproduced as under:~ The firm is the Partnership concern duly registered under the Partnership Act, under the MVA'T Act, 2002 and under the Central Sales Tax Act, 1956. The firm is also having its trademark registered under the Trade Mark Act, for products of Essence of Phenyle and Concentrated Perfumed Phenyle "Peacock Brand".The product is manufactured under the Drug Licence’ obtained by the firm. (@) For manufacturing of one liter of essence of phenyl, the process is as under:- 70 milliliter of Castor Oil and 10 gram Caustic Soda are mixed manually and then after the mixture is bein siven the treatment in the boiler up to 90 degree.The solution obtained after heat treatment js mixed liter of light Criosit oil and 50 gm. of Mono cholor phenol and remaining solution is mixed with pure water for making 1 liter of Essence of Phenyle ready for packin's and for sale. (b) The applicant says and submits that Phenyle of any kind is the part of ‘Phenol’ as pet Notification No. VAT1505/GR-115/Taxation-L, dt.1.4.2005 with effect from 1.4.2005, 'Pheno]" is covered by Entry 54 of Schedule C of the Local Act, which reads Industrial inputs ang packing materials as may be notified from time to time by the State Government in the Official Gazette and as per entry rate of sales tax is 4%. In the above Notification ‘Phenol’ is included in item No.30 and said item is covered by sub heading of Central Excise Tariff No.2707.50. (©) The word ‘Phenol’ or 'Phenyle’ are not defined under the Local Act, and therefore it is safe to refer. Webster's Encyclopedic Unbridged Dictionary of the English Language.At page 1060 the meaning of ‘Phenol’ and 'Phenyle’ are given as under:~ PHENOL: "a chem. 1. Also called carbolic acid, hydroxybenzine, Oxybenegen, Phenylic acid. A white crystalline, water soluble, poisonous mass, C6HSOH, obtained fro Coaltar, dt hydroxyl, derivative or benzene use chiefly as disinfectant, as an anticeptic and in organi synthesis, 2. Any analogous hydroxyl derivative of benzene" thus item ‘Phenol’ include Phenylic Acid. PHENYLE: - “adj. Chem, a containing the phenyl group, 7 (@) The applicant says and submits that i) It is rule of interpretation in case of Schedule Entries that - when théietis no definition given under the Statute, the Court may take the aid of dictionari¢§ to ascertdin@the true meaning of common parlance, bearing in mind that a word is used i — “~— ae to the context meaning of word and the Court has, therefore, to | dnfeusoany Documents\borse ddq\Manohar-1.doc 1Selah alae lala aaa ailahaiailahalaemeemenmm nn mnnnT I TT TT Memmmammn nee eee ee ey o select the particular meaning which is relevant to context in which it has to interpret that word. Please refer the case of The State of Orissa v. Tilagha Paper Mills Co. Ltd. reported in 60 STC 2 (SC) ii) It is permissible to refer dictionaries to find out the meaning in which, a word is capable Of being used or understood in common parlance, the well, known construction should not even for[: minute be overlooked that the meaning of a statute ordinarily take their colour from the context i which they occur, Please refer the case of R.S. Nayak v. A. R. Antulay reported in AIR 1984 St 684 and iii) 1 is now well settle that interpreting items of Statute like Sales Tax Act, resort should be had not to the scientific or technical meaning of such terms but to their popular meaning or the meaning attached to them by their meaning in them that is to say in their commercial sense. Please refer Commissioner of Sales Tax U.P. V. Jaswant Singh Sharan Singh Reported in 19 STC 469 (SC). In view of the above submission the applicant says that the product “Peacock Branch Essence of Phenyl Black Disinfectant’ manufactured and sold by the applicant may be held to BE covered by entry 54 of Schedule C of the Local Act, liable to tax @ 4% or the said item may bs held as Chemical covered by the Entry of 54 Schedule C of the Local Act, liable to the Tax @ 4% with effect from 1.4.2005 and onwards and highly oblige. (©) The applicant has collected sales tax @ 4% on the said item having above view in its mind bonafidely and paid the sales tax accordingly. Therefore, it is prayed that if it is held that tht item is covered by other entry of any Schedule of the Local Act, attracting higher rate of Sales. Tax, the prospective effect may be given to the valued decision. 03. HEARING The case was fixed for hearing on 9.8.2011.Shti Praful Vora, STP and Shri Melwani, Partnes; attended on behalf of the applicant. The product submitted for determination is "Peacock brand} essence of phenyle - Black disinfectant’. The applicant is collecting 5% on the product considering that the item fills under schedule entry C-54 as ‘phenol’ under excise heading 27076000 because th! product is phenolic acid. For manufacturing one litre of the product, 50 ml. of monchlorophenol’ is used along with other chemicals. ‘The STP referred to the Supreme Court judgment in Forage & Col that observed that even if'a small portion of zine oxide is used, it cannot be said that it is not an articlel used in the construction, He has also referred to the Supreme Court judgment in Jaswant Singh and in] Titaghur Paper Mills to prove that common parlance test should be followed in statutory| interpretations. It is submitted that in case the product is not held as covered by 5%, the prospective} effect be given to the determination order. 04, OBSERVATIONS Thave gone through all the facts of the case. It is the contention of the applicant that the product “Peacock Brand essence of Phenyle- Black disinfectant’ is covered by the schedule entry C-54 of they MVAT Act, 2002 as an industrial input. The schedule entry pertains to ‘industrial inputs and packing! materials’ which have been notified by the State Government. The Notification is Excise based. The applicant-has-laid his claim in Excise Heading 2707 6000 notified for the purposes of the above| igfite, let me reproduce herein description against excise sub-heading 2707 6000, ich has bien nodifig)for the purpose of schedule entry C-54, IBM\My Documents\borse ddq\Manchar-1.dec 2alleles ili =f=ohsaiiiti fate ent EEE eee . ‘The description under Excise Heading 2707 6000 which has been notified for schedule entry 54 is as below. Sr.No. Heading | Sub- | Tariff Item |Description of Goods No, | Heading} No. No. 52 : : 2707 6000 | Phenols A) WHETHER PHENOL? ‘The applicant contends that the word Phenol or ‘Phenyle’ are not defined under the Local Act and therefore it is safe to refer to the Webster's Encyclopedic Unabridged Dictionary of the English Language at page 1060 the meaning of 'Pheno!' and 'Phenyle’ are given as under: PHENOL: "a chem. 1. Also called carbolic acid, hydroxybenzine, Oxybenegen, Phenylic acid. A white crystalline, water soluble, poisonous mass, C6HSOH, obtained from Coaltar, hydroxyl, derivative or benzene use chiefly as disinfectant, as an anticeptic and in organi é synthesis, 2. Any analogous hydroxyl derivative of benzene" PHENYLE:- "adj. Chem, containing the phenyl group. Hence applicant has submitted that ‘Phenyle’ is in the group of ‘phenol’ and therefore it can be classified under heading 2707 60 00, wherein the latter is classified. Let me reproduce the informatiot available on product phenol on the internet (phenol -Wikipedia) which is as follows: Phenol, also known as carholie acid, is an organic compound with the chemical formula CeH:OH. It is a white crystalline solid. The molecule consists of a phenyl (-CeHHs), bonded to a hydroxyl (OH) group. It is produced on a large scale (about 7 billion kg/year) as a precursor to many materials and useful compounds." It is only mildly acidic but requires careful handling due to its propensity to cause bums.Phenol was first extracted from coal tar, and its major uses involve its conversion to plastics or related materials. It's key for building polycarbonates, epoxies, Bakelite, nylon, detergents and a large collection of drugs, herbicides and pharmaceuticals. Production Ce Because of phenol's commercial importance, many methods have been developed for its production. The main route being practiced presently involves the partial oxidation of cumene’ Gsopropylbenzene) via the Hock rearrangement: Uses The major uses of phenol involve its conversion to plastics or related materials Condensation with acetone gives bisphenol-A, a key building block for polycarbonates and epoxies. Condensation with formaldehyde gives phenolic resins, the most famous of which is Bakelite. Hydrogenation of phenol gives cyclohexanone, an intermediate en route to nylon, _Nonionic detergents are produced by alkylation of phenol to give the alkylphenols, which are ZSrthen subjected to ethoxylation. Phenol is also a versatile precursor to a large collection of 27° drugs, most*idtgbly aspirin but also many herbicides and pharmaceuticals. Phenol is also ¢" used as an ofaléihesthetic/analgesic, commonly used to temporarily treat pharyngitis Phenol \Documents'and Setttngs{IBM\My Documents\borse ddq\Manohar-1.doc 3was widely used as an antiseptic, especially as Carbolic soap, from the early 1900s through the 1970s. Now let us see the manufacturing process of product in question as described by the applicant, which is reproduced as under:~ “For manufacturing of one liter of essence of phenyl, the process is as under:- 70] milliliter of Castor Oil and 10 gram Caustic Soda are mixed manually. Afterwards, the| mixture is given the treatment in the boiler up to 90 degree. The solution obtained after heat treatment is mixed with 150 milliliter of light Creosote oil and 50 gm. of monochloro phenol! and remaining solution is mixed with pure water for making 1 liter of ‘Essence of Phenyle’| ready for packing and for sale.” ‘The applicant has submitted that, for manufacturing one litre of product, SOml of monocholoy| phenol is used with other chemicals. From the above manufacturing process it is seen that, applicant has used various materials to manufacture the product in question and one of the ingredients is phenol} The applicant does not sell pure ‘Phenol’ but a preparation made out of Phenol. Thus, the product is not covered by excise heading 2707 as it not ‘Phenol’ but a ‘Phenol-based preparation.’ Also, the| applicant uses monochloro phenol in the manufacturing of the product. As per the Wikipedia , aj shlorophenol or a monochlorophenol is any organochloride of phenol that contains one or morg covalently bonded chlorine atoms. Chlorophenols are produced by electrophilic halogenation of phenol with chlorine. Thus, the chlorophenol or a monochlorophenol is a derivative of phenol and not phenol| itself. In view of the above, it cannot be said that the applicant has sold ‘Phenol’- he has sold a product} made out of phenol. As per the Sub-heading Note no 3 of Chapter 27, it is mentioned that, “3. For the purposes of sub-headings 2707 10,2707 20,2707 30, 2707 40, and 2707 60,the terms “benzol”, “(benzene)”, “‘toluol”, “(tolune)", “xylol", “(xylenes)”, “naphthalene”, or “phenols apply to products which contain more than 50% by weight of benzene, toulene, xylene, naphthalene or phenols, respectively.” From the above note it is clear that in order to be classified in the category of phenol under the heading 2707 60 the product must comply the above condition. Inthe present case, the applicant hall not produced any conclusive proof to show that the product in question contains more than 50% by Weight of phenol, Hence the product of the applicant does not qualify to be classified under the heading 2707 60 00. B] WHETHER INDUSTRIAL INPUT? It is essential that the product should be an Industrial input and packing material in order to be covered, reas entry C-54, In the present case, the claim of the applicant is that, the product is aff & < (Sitial input be qualify as an “industrial input’, the product should have application in industries Ah industrial gd , In the determination in the case of M/s. Samruddhi Industries [DDQ: ot ee Y $25 —~. “aRaaiiee, coyi *. 1112003/Adm-5/40/B-8 Mumbai, dt, 20/02/2004}, the the TEESE Eee eee CE 1 Commissioner while deciding a similar case had made the following observations: See eee 4 i ie Since the term “Input” is qualified as “Industrial Inputs” in the notification it include all inputs but only inputs of an industry. The very qualification for judicious imerpretation shall equally be applicable to “Packing Material” since they are placed together in conjunction by the word “and”. As such the entry C-1-29 covers “Indisirial Inputs and Industrial Packing Materials alone in it.” ; : ‘Against the aforementioned determination order above, the applicant M/s Samrudhi Industries preferred an appeal before the Tribunal (M/s, Samrudhi Industries vs. State of Maharashtra [32 MTJ 226} in which the determination order was upheld. While deciding the issue, the Hon. Tribunal had an opportunity to discuss the meaning of the term “Industrial inputs and packing materials” as understood for the purposes of the then schedule entry C-1-29 for “Industrial inputs and packing materials”. The same could be reproduced thus, “The plain reading of the entry indicates that the articles required for industrial purposes are only covered under the entry. ...the aims and objects to incorporate the entry is to give benefit in taxes for growth of the industry. This aim and object is discussed by the Commissioner of Sales Tax in his order and that cannot be disbelieved. According to us, in order (o interpret the legal provisions, one has to go into the details of the aims and objects of bringing provisions in the Act. The schedule entry is very specific in the sense that, it covers only “Industrial inputs and] packing materials”, thereby, leaving no scope for any other type of input, other than industrial input, to be included in the impugned entry, The term ‘Input’ is qualified as ‘Industrial Input’ in the notification -it does not include all inputs but only inputs of an industry. As mentioned earlier the, applicant contends that the impugned product in question covered by Excise Heading 2707 ee which is notified under schedule entry C-54, However from the sample of the product it is clear thai the product is meant for retail use and is not an industrial input, It is a product ready for use and is not at all a raw material. From the literature submitted, the uses of the product in question are given below:- 1) Essence of phenyl is excellent for disinfecting home, offices, hospital, factories, closets, cesspools, & wood prescrves also. 2) It effectively kills germs and creates hygienic conditions. ee further up to the Supreme Court, The Supreme C narra oo e ‘ourt in the judgment in the case of Bomb: er ; ay Sheil v.Collector of Central Excise (77 ELT 3) had to decide the classification br ish fluid jn i i wl a se Siege! from phenolic compound and high boiling tar acids, ‘The Supreme Cold / - A ay Me eege wt ‘ Sigh fluid is a pesticides or disinfectant. It held that,- ; sand Set se Documentstborse ddq\Manohar-1.doc 5 >setae et See a bb aba Sai EEC EEE EEC SEES SEE eee BE “Disinfectant may particularly be covered by the word pesticides. Disinfectant may be u of two types one to disinfect and other to destroy the germs. The former i. those products which are used as disinfectant for instance lavender, ctc. may not be covered in the expression ‘pesticides’. But those products which are used to kill insects by use ‘of substance such as high boiling tar acids are of the same characteristics ‘pesticides’. ‘This Supreme Court judgment was approved by the Supreme Court again in the ease of Ambey le Laboratory [131 ELT A86]. The Supreme Court effectively held that liquid phenyl is a pesticid that under the covered by excise heading 380810. Therefore, what implies from the above Excise Act, liquid phenyl has been classified under excise heading 3808 and more specificall ide’. under sub heading 380810 as a ‘pes a . The heading 3808 under the CET Act is as follows: A} HEADING 3808 UNDER THE CET ACT 3808 | Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparations or articles (for example, sulphur treated bands, wicks and candles and fly-papers). B} HEADING 3808 UNDER THE MVAT ACT ‘The heading 3808 as notified for the purpose of schedule entry C-54 of MVAT Act., is as follows, ‘Sr.No. | Heading | Sub- | Tariff Item No. [Description of Goods No. | Heading j |_No. I 175 3808 | When sold as technical grade materials , the following:- Insecticides, rodemticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, weedicides and | seed pesticides It is seen from the above that the description that firstly disinfecianis are not included in the © _ heading notified for schedule entry C-54. However, as the Supreme Court has held in the Excise Tari Act that ‘Phenyl 7 not a infectant but a ‘pesticide’, I will have to examine the possibility [of coverage under excise heading 3808. However, under the heading as notified under excise heading 3808, products like Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plat growth regulators, weedicides and pesticides only when sold as technical grade material are include A technical grade is something that is used for laboratory consumption. However when we talk abcht commercial grade chemicals, these mercial refer to the substances that we use for daily consumption.|A echyieal Fie SS tor lai a it for labor; ticide is & rant for {eboraanyse. A technical grade pesticide is too strong and is not capable of being used \ & ;EAPocumenté and SeidgsiBM My Documentsborse ddqiManohar-I.doc oduct is something which is not for retail or commercial consumption- it is only 6 pa!Oo the users for pesticidal purposes. It needs conversion to formulation grade before it becomes ‘marketable and usable at the hand of the ultimate users. The process of conversion is not simple ant does not involve mere dilution but addition of many other ingredients to impart the new product different properties including surface properties. Various kinds of chemicals are added to the base product to carry out the conversion and these include diluents, adjuvants emulsifiers, dust carriers wetting agents, dispersing agent, deodorants/masking agent to enable the end product to acquire new characteristics for its intended use apart from making it usable at the hand of the lay users. The process of conversion is technical which cannot be carried out by the end users. From above it is seen that, normally technical grade material are used in industries and product in question are used for the purpose of disinfecting home, offices, hospitals etc. It is not used in industries as input. The product sold by the applicant is not technical grade pesticide. It is mixed with certin chemicals and sold in retail. It is therefore not covered by excise heading 3808 as notified under schedule entry C-54. 05. PROSPECTIVE EFFECT ‘The applicant has requested for prospective effect in case the determination is not in their favour. The prayer of the applicant needs to be weighed in the it of the provisions under the Act as also the facts of the case, It needs to be seen whether there is any statutory misguidance. When the applicant is himself claiming that the product is covered by the entry for industrial inputs, he is awall of the fact that the said entry is not for “all inputs” but only for “industrial inputs”. Given the characteristics of the product, the applicant should have understood that the product cannot be used z an input in the industries. It is observed that the product is used as disinfectant and the applicant is certainly aware of the fact that that the impugned product does not find use in the manufacturing process of the product. The claim of the applicant that the product is an industrial input was based & self assessment of the facts and is accordingly inappropriate, There were no judicial ae on which the applicant could have said to be relied upon. The position of the law was very clear and there was no scope for statutory misguidance of any kind. Further, the impugned product does not find place in Schedule entry C-54 of MVAT Act 2002 as discussed above, I have elaborately dealt with the issue and it can be seen from the preceding pot that there did not exist any kind of statutory misguidance. Thus in view of the above, the request orl applicant for prospective effect can not be considered. Ee viewrat the deliberations held above, the following order is passed. LS “~ No.DDQ-11-2010/Adm-3/20/B- 4 Mumbai, at, 6/4] 2011 1) It is hereby held that the transaction of sale of the impugned product ‘Peacock Brand essence of Phenyle- Black disinfectant *sold through invoice No.374,281,421dt. 11.2.2008, 14.10.2009, 5.3.2009 respectively would not get covered by schedule entry C-54 of the MVAT Act, 2002. It would| instead get covered by the residual entry E-1' and would be taxable @ 12.5%. 2) The seer the prospective effect is hereby rejected for the reasons discussed in the| is 'y¥ proceedings of this Order, eee e k | (Sanjay Bhatia) Commissioner of Sales Tax, Maharashtra State, Mumbai. ‘CADocuments and Settings\IBM\My Document ddq\Manohar- Ml ts tings\IBM\M, ts\borse ddq\Manohar-1.d nohar-1.doc