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2020 Supreme(Ker) 432
IN THE HIGH COURT OF KERALA AT ERNAKULAM
K.Vinod Chandran, T.R.Ravi, JJ.
State Of Kerala - Petitioner
Versus
M/S.Cadbury India Ltd. - Respondent
OT.Rev.No.6, 7, 8 of 2019
Decided On : 30-06-2020
For the Respondent: Smt. S.K. Devi, Sri. Santhosh P. Abraham, Senior Government Sri. Mohammed Rafiq
IMPORTANT POINTS
The Explanatory Notes clearly exclude the product of the assessee from Chapter 30 since mere mixture of substances having medicinal properties does not warrant inclusion thereat and it should have specific therapeutic or prophylactic properties. “Halls” does not have such properties and is also not marketed as one having such properties. The subject product as of now even in the Customs Tariff Act, does not fall under Chapter 30 and is included under Chapter 17; as discernible from the Explanatory Notes. The HSN codes to which the items under Entry 36 are aligned are those under Chapter 30 and there is no interpretation possible in the context of the items under that chapter, in the Customs Tariff Act.
Headnote:
Finance Act of 2007 - The Kerala Value Added Tax Act, 2003- Section 94 - The amendment by the Finance Act 2007 added the words and 'those notified under clause (d) of sub-s.(1) of S.6' to Entry 36 excluding that from Entry 36 Schedule III. This Exclusion which by itself could not have removed a medicated throat pastille from Schedule III, without a corresponding inclusion in SRO 82/2006-The challenge was against an Order of Clarification issued under Section 94, finding 'Vicks' to be taxable at the higher rate, being covered under Entry 24 of SRO 82/2006. The Division Bench also relied on the Clarification issued under Section 94, in the case of 'Halls', the product relevant to the instant revision-The exclusion of all medicaments included in the notification under Section 6(1)(d) from Entry 36 of Schedule III.
Statement of facts:
Whether the product of the respondent assessee called “Halls” is exigible to tax @ 4% under Schedule III or 12.5% under SRO 82/2006. The respondent- assessee before the Assessing Officer claimed that the product is an Ayurvedic medicament covered by HSN Code, which finds place as against the specific Entry under Schedule III making it exigible to reduced rate of tax @4%. The Assessing Authority however, found that by virtue of the amendments made in the year 2007, the product even if it is a medication stood excluded from Schedule III and included specifically in SRO 82/2006; exigible to tax @12.5%.
Finding of the court:
Do not find any application for the said Clarification dated 15.01.2006, issued by the Commissioner under Section 94 of the KVAT Act, since it related to period prior to the amendments made by the Finance Act of 2007 and SRO 119/2008; which amendments were with retrospective effect from 01.04.2007-The questions of law in favour of the revenue and against the assessee
Result: Questions of law in favour of the revenue and against the assessee
ORDER :
K.Vinod Chandran, J.
In the above revisions filed by the State we are concerned with three assessment years- 2007-08, 2009-10 and 2011-12. The issue agitated before the statutory authorities was as to whether the product of the respondent assessee called “Halls” is exigible to tax @ 4% under Schedule III or 12.5% under SRO 82/2006. The respondent- assessee before the Assessing Officer claimed that the product is an Ayurvedic medicament covered by HSN Code, which finds place as against the specific Entry under Schedule III making it exigible to reduced rate of tax @4%. The Assessing Authority however, found that by virtue of the amendments made in the year 2007, the product even if it is a medication stood excluded from Schedule III and included specifically in SRO 82/2006; exigible to tax @12.5%.
2. The Assessing Officer allegedly even against a clarification issued by the Commissioner under Section 94 of the Kerala Value Added Tax Act, 2003 (for brevity “KVAT Act”), assessed the product at the higher rate. The First Appellate Authority reversed the order on the ground of the clarification under Section 94 being in favour of the assessee's claim and also reading the Rules of Interpretation of Schedules in the Appendix to the KVAT Act. The Tribunal concurring with the First Appellate Authority found the product to be a commodity falling under Schedule III of the KVAT Act.
3. Following questions of law arise from the order of the Tribunal.
1. Is the finding of the Tribunal that the product “Halls” is a commodity falling under Entry 37(7)(e)(i) of the 3rd Schedule to the KVAT Act assessable to tax at 4%, correct and sustainable?
2. Is not the product “Halls” taxable at the rate of 12.5% during the relevant assessment year in view of the amendments made as per Kerala Finance Act 2007 in Entry 36 in Schedule III and issuance of SRO NO.119/2008?
3. Is the Clarification order No. C7- 40688/05/CT dated 16.01.2006 applicable after the period 01.04.2007 in the light of the amendment made as per Kerala Finance Act, 2007 to Entry 36 in ScheduleI III coupled with issuance of a notification including the product in SRO 82/2006?
4. The learned Senior Government Pleader specifically took us through the amendments brought out in 2007 to Entry 36 of Schedule III by which, those goods notified under Clause (b) of Sub-section (1) of Section 6 (ie, SRO 82/2006) were specifically excluded. A corresponding amendment with effect from 01.04.2007 was made in SRO 82/2006 including confectioneries whether medicated or not within the said Entry. According to the learned Senior Government Pleader, the amendments made; comprehensively indicate that the product of the assessee falls under SRO 82/2006. It is also argued that even without the said amendments, the position would be the same. In Commissioner of Central Excise v. Uni Products India Ltd.[2020 SCC OnLine SC 429] it was held that the HSN Explanatory notes dealing with Interpretation of the Rules though having only a persuasive value, it provides compelling assistance insofar as resolving entry related disputes. The Explanatory Notes issued by the World Customs Organisation has been produced to point out that throat pastilles or cough drops are included under 30.04 only if the proportion of the substances having medicinal properties in each pastille or drops is such that they are, thereby, given therapeutic or prophylactic uses. It is pointed out that in fact, the subject product does not fall under HSN Code 3003.90.11 for reason of it being sold in packs on retail. If at all, it would only fall under 3004.90.11; which aspect does not have any relevance insofar as the adjudication on classification called for in the present revision. State also relies on the decision of this Court in O.T. Appeal No. 2/2018 (Talash Plastopacks v. State of Kerala judgment dated 30.08.2018).
