Solvents Trading Company vs The State of Tamilnadu

F.M. Ibrahim Kalifulla, J.—In all these Reviews the common question that arise for consideration is as to ""whether ""dyes"" used for leather

finishing falls under entry 49 of Part C or entry 16(iii) of Part E."" If it falls under entry 49 of Part C then the rate of tax to be applied is 5% while if it

falls under entry 16(iii) of Part E, the rate of tax would be 12%.

We refer to the case particulars concerned in T.C.(R) No. 547/2006. By order of assessment dated 28.2.1995 for the assessment year 1993-

94 the assessing authority took the view as under in para 5.

5) They have effected dyes colours to the tune of Rs. 29,35,055.00 during the year 93-94. Perusal of the sale bill revealed that they have effected

dyes colours to the leather manufacturers for Rs. 15,10,202.00. Thus is evident that the sales of dyes colours effected to the leather manufacturers

are only for the use on leathers and that for on any other purposes. The sales of dyes colours for use on leathers would attract liability to tax at

12% under item 16 of the Part E of the I Schedule. But they have paid the sales tax at the rate of 5% under entry 49 of Part C of I schedule.

Hence the turnover of Rs. 15,10,202/- is assessable to the tax at 12%.

At that point of time since there was a clarification issue pending before the Special Commissioner and Commissioner (CT), Madras with regard to

the rate of tax to be applied on the sale of ""dyes"" used on leathers, namely, whether to be taxed at 12% or 5% for a sum of Rs. 15,10,202/-, the

assessing authority determined the tax liability at the rate of 5% subject to revision if any to be made based on receipt of clarification.

Subsequently, after an order passed by the Special Tribunal dated 26.10.98, the assessing authority passed orders on 22.3.99 revising the tax at

12% on the said sum of Rs. 15,10,202/- and arrived at the balance tax payable as Rs. 1,05,713/-.

Aggrieved by the order of the assessing authority, the assessee went before the Appellate Assistant Commissioner. The Appellate Assistant

Commissioner by his order dated 4.12.1999 also affirmed the order of the assessing authority by holding that entry 16(iii) is a specific entry while

entry 49 is a general entry and therefore entry 16(iii) will be applicable to the ""dyes"" used in leather and the tax will have to be calculated at the rate

of 12%. On further appeal by the assessee before the Sales Tax Appellate Tribunal, the Tribunal also took the view that the ""dyes"" which are used

as ""pigments"" for leather finishing, is liabile to be taxed at 12% under entry 16(iii). The petitioner has therefore come forward with this revision

challenging the above orders of the lower authorities as confirmed by the Tribunal.

We heard Mr. V. Sundareswaran and Mr. S. Ramanathan, learned Counsel for the petitioners. We also heard Mr. Haja Naziruddin, learned

Special Government Pleader for Taxes.

(i) The learned Counsels for the petitioners by referring to the entries found in Serial No. 49 of Part C as well as Serial No. 16(iii) of Part E

contended that the method adopted by the lower authorities, namely, the `user theory'' was not proper and therefore the orders are liable to be set

aside.

(ii) According to the learned Counsel for the petitioners, when admittedly what was sold by the assessee in the market were ""dyes"" and not

pigments"", merely because the ""dyes"" sold to parties dealing with leather that by itself would not cover such sale under entry 16(iii) of Part E and

therefore, the conclusion of the lower authorities is liable to be set aside.

(iii) According to the learned Counsel, when ""dyes"" have been specifically classified as a separate entry in Part C in Serial Number 49, there was

no justification to bring it under entry 16(iii) of Part E and thereby enhance the rate of tax on the sole ground that such ""dyes"" were sold to the

parties dealing with leather finishing.

(i) On the other hand, the learned Special Government Pleader would contend that when ""leather finishes"" is a specific item as entry 16(iii) of

Part E, described along with ""pigments including water pigments"", the ""dyes"" being a colourant and used for finishing of leather it would fall under

entry 16(iii) and therefore the rate of tax applicable for entry 16(iii) of Part E was correctly applied by the lower authorities as well as the Tribunal.

(ii) The learned Special Government Pleader placing reliance upon the decisions reported in Industrial Gases Ltd. v. Commissioner, Sales Tax,

U.P., Lucknow Vol. 21 (1968) STC 124 and State of Goa and Ors. v. Leukoplast (India) Ltd. Vol. 105 (1997) STC 318 contended that such an

approach made by the lower authorities does not call for interference.

(iii) The learned Special Government Pleader lastly contended that in any event if there is any doubt as to the applicability of appropriate entry,

namely, whether entry 49 of Part C or under entry 16(iii) of Part E, the issue should be left to be decided by the assessing authority by making a

detailed study about the nature of products and its application by the appropriate users by remitting the matter back to the assessing authority.

Having heard the respective Counsel, at the outset we hold that having regard to the nature of orders passed and the product description there is

no necessity for remitting the matter back for fresh consideration. In fact the decision relied upon by the learned Special Government Pleader,

namely, the one reported in State of Goa and Ors. v. Leukoplast (India) Ltd. Vol. 105 1997 STC 318 in support of his submissions cannot be

applied since the facts involved therein are entirely different from the one before this Court. A perusal of the said decision discloses that the

assessee which initially paid the tax wanted to rely on an exemption notification which came into being after the payment of tax and at that point of

time preferred a Writ Petition in the High Court which went before the Honourable Supreme Court. The questions posed for consideration were

(a) Whether the products manufactured by the petitioners and listed in paragraphs 2 and 4 of the petition are ''drugs and medicines'' within the

purview of the aforesaid Notifications No. 14/41/81-Fin(R&C) and No. 5/5/87(R&C)-8 and

(b) whether the petitioners are entitled to the refund sought?

While the High Court took a view that the products manufactured by the assessee were to be treated as ""drugs and medicines"", the Honourable

Supreme Court having regard to the nature of the products manufactured by the assessee in that case held that a detailed examination had to be

made by the assessing authority in order to find out whether those items would fall within the definition of ""drugs and medicines."" The socalled

drugs manufactured by the assessee in that case were zinc oxide adhesive plaster, balladona Plaster, capsicum plaster, surgical wound dressing,

crepe bandages. It was in the abovestated background the Hon''ble Supreme Court held that the case called for a remand in order to make a

detailed examination about the nature of products to find out whether such products would fall within the definition of ""drugs and medicines"".

In the case on hand, it will have to be stated that there is no dispute about the product manufactured by the assessee, namely, ""dyes"". The only

other question to be determined is whether such ""dyes"" which were supplied to parties dealing with finishing of leather products would attract levy

of 12% tax under the heading ""pigments including water pigments"" and ""leather finishes"". Therefore, we hold that there is no need for remittal of the

matter back to the assessing authority as we are convinced that with the details available in the order of the assessing officer, the lower appellate

authorities as well as the Tribunal, we would be able to answer the issue raised in the revision petition by applying the appropriate provisions

contained in the Act.

With that we proceed to deal with the question raised in these revision petitions, namely, whether ""dyes"" sold to merchants dealing with finishing

of leather would fall under entry 49 of Part C of the I schedule or entry 16(iii) of Part E. The said entries as they stood in 1993-94 and 1994-95 in

the statute book was reading as under:

Entries extracted from the first schedule to the TNGST Act

(as they stood in 1993-94, 94-95)

-------------------------------------------------------------

Part-C, Sl. No. 49 Part-E, Sl. No. 16

(Rate of tax 5% (Rate of tax 12% first sale

first sale point point)

-------------------------------------------------------------

Dyes, that is to say-

(i) Acid Dyes 16(i) Paints and enamels not

otherwise specified in

this schedule including

power paints, stiff paste

paints and liquid paints

(ii) Alizarine dyes (ii) Colours

(iii) Bases (iii) Pigments including water

pigments and leather

finishes

(iv) Basic dyes (iv) Dry distempers including

cement based water paints,

oil bound distempers,

Plastic emulsion paints.

(v) Direct dyes (v) Polish including metal

Polisher in any form(but

not boot polishes)

(vi) Napthols (vi) Varnishes, french polish,

bituminous and coal tar-

blacks

(vii) Nylon dyes (vii) Cellulose laquers, nitro-

cellulose laquers, clear

and pigments, nitro-

cellulose ancillaries in

liquid, semi solid or

pasty forms.

(viii) Optical Whitening (viii) Turpentine Oil, bale oil

agents White oil;

(ix) Plastic dyes (ix) Dilutents and thinners

including natural and

synthetic drying and

semi-drying oils such as

double-boiled linseed oil

blown linseed oil, stand

oil, sulphurised linseed

oil, parilla oil, whale

oil and tung oil.

(x) Reactive dyes (x) Glazicers putty, grafting

putty, resin cements,

caulking compounds and

other mastics; painters

fillings; non-refractory

surfacing preparations

for facades, indoor walls,

false ceilings or the like;

(xi) Sulphur dyes (xi) Primers of all kinds;

(xii) Vat dyes (xii) All other materials used

in painting and varnishing

as Flint papers, emery

clothes, brushes, paint

removers and stainers of all

kinds.

-------------------------------------------------------------

It is not in dispute that the assessees were dealers selling ""dyes"" supplied by the manufactures. It is also not in dispute that what was sold by the

assessees were only ""dyes"" and not ""pigments"". One other relevant fact to be noted is the very same ""dyes"" when sold to other parties, the rate of

tax applied was 5% as specified under Sl. No. 49 of Part C and when the ""dyes"" were sold to the merchants dealing with finishing of leather, the

tax was levied at the rate of 12% as prescribed under entry 16(iii) of Part E. therefore, the only reason which weighed with the lower authorities

for applying entry 16(iii) of Part E was that the said entry specifically bear the expression ""leather finishes"". In fact we are at a loss to understand as

to what is meant by ""leather finishes"". In spite of our best efforts we were not highlighted as to whether there is any specific product called ""leather

finishes"" available in the market. Apparently, since the expression ""leather finishes"" has been used along with the expression ""pigments including

water pigments"", the authorities seem to have taken the view that even ""dyes"" when used in the process of leather finishing works, the same should

be treated as ""pigments"" and thereby to be taxed under the said entry. The reasoning in the assessing authority''s order in paragraph 5 only states

that sale of dyes colours for use of leathers would attract liability to tax at 12% under item 16(iii) of Part E of the I schedule. No other reason has

been attributed for reaching the said conclusion. Therefore, the assessing authority based his conclusion by applying ""user theory"" in order to apply

entry 16(iii) of Part E.

When we examine the order of the Appellant Assistant Commissioner, we find that according to him, entry 49 is a general entry and entry

16(iii) is a specific entry and therefore ''the general entry'' should yield to a ''specific entry'' and consequently the rate of tax as specified in the

''specific entry'' alone would apply. As far as the Tribunal is concerned it took the view that the sales effected by the assessees to leather merchants

were involved in leather finishing work and therefore entry 16(iii) alone would apply.

In our considered opinion none of the above conclusions were justified inasmuch as we find that ""dyes"" as a colourant has been specifically

mentioned in entry 49 of Part C while the entry contained in 16(iii) of Part E only relates to ""pigments including water pigments"". At best the

expression ""leather finishes"" used in entry 16(iii) could only relate to such of those ""pigments"" which could be used in the process of leather finishing

works.

When we considered the meaning of the words ""dyes"" and ""pigments"" in the reputed dictionaries, we find the meaning as under in Oxford and

Webstar Dictionaries.

OXFORD DICTIONARY

dye: In ""dye""-noun (mass noun) a natural or synthetic substance used to add a colour to or change the colour of something.

Pigment - noun the natural colouring matter of animal or plant tissue.

A substance used for colouring or painting, especially a dry powder, which when mixed with oil, water, or another medium constitutes a paint or

ink.

WEBSTAR

Dye-(di) v. dyed. Dye-ing v.t. 1.To fix a coor by soaking in liquid coloring matter. 2.To stain; tinge.- v.t. 3. To take or give color: This cloth dyes

badly. See synonyms under STAIN.-n. A fluid or coloring matter used for dyeing; also, the color or hue so produced. According to the method of

application, dyes are classified as substantive, or direct, when they color by simple immersion; adjective, or mordant, when a fixing agent is used;

ingrain, or ice, when deposited by chemical reaction; vat, when applied in an alkali-soluble state and oxidized; and sulfur, when used in a sodiun

sulfide bath followed by oxidation. Homophone : die.(OE deagian deag dye, color)

Pigment 1. Any of a class of finely powered, insoluble coloring matters suitable for making paints, enamels, oil colors, etc. 2. Any substance that

imparts color to animal or vegetable tissues, as chlorophyll. 3. Any substance used for coloring.

From any of these meanings set out in the reputed dictionaries we are able to see that ""dyes"" can be authoritatively brought under the expression

pigment"".

In the course of the submissions of the learned Counsel, it was only stated that both ""dyes"" and ""pigments"" are colourants though they are two

different products by themselves. While describing ""dyes"" it is stated ""dyes"" are dissolved in whatever solvent used. In respect of ""pigments"" it is

stated that they are insoluble. In fact, ""dyes"" are used as colouring material even in a pigment. It is also not in dispute that a ""pigment"" being a

colouring agent is fugitive while a ""dye"" when applied gets absorbed in the material in which it is applied and exhibits its colour in the process of

such dissolution. In fact, there are vast differences in the nature of product, its application as well as its effect when applied on different substances

as between ""dyes"" and ""pigments"". Therefore, in our considered opinion, when ""dyes"" and ""pigments"" have been classified as two different and

distinct substances, it would be travesty of justice to hold that ""dye"" should also be classified as ""pigment"" though there is no such mentioning to that

effect in the entry relating to ""pigments"" as contained in entry 16(iii) of Part E. We are not therefore persuaded to approve of any of the conclusions

of the lower authorities as well as that of the Tribunal and also the submissions of the learned Special Government Pleader that since because the

dyes"" are used in the process of finishing of leather, the dyes should be held to be a ''pigment'' and thereby bring them under entry 16(iii) of part E.

In this context, we are reminded of the well settled principle that in taxing statutes, strict interpretation of the provisions should be made and

there is no scope for either liberal interpretation or any interpretation by way of inference as regards any of the provisions contained in the taxing

statutes. In the decision reported in A.V. Fernandez Vs. The State of Kerala, the Hon''ble Supreme Court of India stated the principle as under:

If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case

is not covered within the four corners of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the

intentions of the legislature and by considering what was the substance of the matter.

In the decision reported in Income Tax Officer, Tuticorin Vs. T.S. Devinath Nadar and Others, the Hon''ble Supreme Court cited with approval

the principle of strict interpretation of taxing statute as enunciated by Rowlatt, J in his classic statement in Cape Brand Syndicate v. Inland Revenue

Commissioners 1921 (1) KB 64, in paragraph 24 which reads as under:

Rowlatt, J. observed in Cape Brand Syndicate v. Inland Revenue Commissioners 1921 (1) KB 64:

in a taxing Act one has to look merely at what is dearly said. There is no room for any intendment. There is no equity about a tax. There is no

presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

These principles have been accepted as correct both by the English Courts and the superior courts in this country. It is now well settled that if the

interpretation of a fiscal enactment is in doubt, the construction most beneficial to the subject should be adopted even if it results in obtaining an

advantage to the subject; the subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of

the law cannot avail the department.

It has been stated again by the Hon''ble Supreme Court in State of Punjab Vs. Jullunder Vegetables Syndicate, that ""in taxing statutes the language

cannot be strained"".

In the recent decision of the Hon''ble Supreme Court reported in Raghunath Rai Bareja and Another Vs. Punjab National Bank and Others, the

Hon''ble Supreme Court, as a proposition of law, has held as under in paragraph 40:

It may be mentioned in this connection that the first and the foremost principle of interpretation of a statute in every system of interpretation is

the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation, etc. can only be resorted to when

the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statue. Where the

words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule, vide

Swedish Match AB and Another Vs. Securities and Exchange Board, India and Another, ...

Therefore, going by the provisions, namely, the entry as contained in Serial Number 49 of Part C we hold that ""dyes"" would fall under the said

entry while the same cannot by any stretch of imagination be brought under entry 16(iii) of part E which specified ""pigments including water

pigments"". At the risk of repetition we hold that the expression ""leather finishes"" used in entry 16(iii) of Part E can only be understood by applying

the well known legal maxim ""Ejusdem Generis,"" namely, the context in which it is used and state that the ""pigments including water pigments"" when

used in the process of leather finishing works would fall under the said category. In other words, while ""pigments"" would straightaway fall under

entry 16(iii) . ""pigments or water pigments"" when used for leather finishing works would also fall under the said entry 16(iii. Certainly ""dyes"" which

are classified as such under entry 49 of part C can be taxed only at the rate it is specified for that entry and the said classification cannot be

clubbed with entry 16(iii) even if such ""dyes"" were used for the purpose of leather finishing works and thereby brought under entry 16(iii) of Part E.

To put it differently, the ""dyes"" which squarely falls under entry 49 of Part C can never be classified as ""pigments"" and brought under entry 16(iii)

merely because such ""dyes"" are used the process of leather finishing works.

Once we come to such a definite conclusion, we have no hesitation in answering the question in favour of the assessee and consequently, the

order impugned in these revision petitions cannot be sustained.

The learned Special Government Pleader relied upon the decision in Industrial Gases Ltd. Commissioner, Sales Tax, U.P., Lucknow, reported

in Volume XXI 1968 STC 124 to support his contention that ""user theory"" applied by the assessing authority as well as the Tribunal are justified.

The Division Bench of the Allahabad High Court in that decision considered the case where the assessee manufactured Oxygen gas for industrial

and medical purposes. The question posed for consideration in that case was whether the oxygen so prepared is a chemical liable to be taxed u/s

3-A at the rate of 0-1-0 anna per rupee or it is a medicine liable to be taxed u/s 3 at a reduced rate. In the said decision the Division Bench of

Allahbad High Court was concerned with the product, namely, ''oxygen'' which was manufactured by the assessee, one for industrial purposes and

the other for medicinal purposes. Therefore, the application of ""user theory"", in the said situation had to be necessarily made in order to find out

what is the rate of tax to be applied. As against the facts involved therein, in the case on hand we are concerned with product, namely, ""dyes

classified under entry 49 of part C and ""pigments"" classified under entry 16(iii) of part E. As between two different products, when the taxing

authorities categorically admit that the product dealt with by the assessees were only ""dyes"" and not ""pigments"", there is no scope for applying the

user theory"" merely because in entry 16(iii) of part E the expression ""leather finishes"" are found. As explained above the expression ""leather

finishes"" can at best be applied in relation to such of those ""pigments"" which are being used in the process of leather finishing works. On that score,

the use of ""dyes"" in the process of leather finishing works will not make the ""dyes"", the ""pigments"" which bear distinct and different characterestic.

Even the nature and application of the products ''Dyes'' and ''Pigments'' even on a raw leather is not stated to be common. The above decision

therefore does not support the case of the Revenue.

Having regard to our above conclusions these revision petitions stand allowed. The impugned orders are set aside. The tax levied initially at the

rate of 5% alone would survive. Any levy of tax over and above 5% is hereby set aside. Consequently any penalty levied are also set aside. No

costs.