Kerala High Court Holds MRF Eligible for Exemption on Compound Rubber Under SRO 1729/93

A Victory for MRF: Tax Exemption on Compound Rubber Upheld

The Kerala High Court on August 14, 2026, delivered a significant ruling in favor of MRF Limited, holding that the company is entitled to sales tax exemption for its manufactured "compound rubber" under the S.R.O. No. 1729/1993 notification. Justice Harisankar V. Menon, presiding over a single bench, clarified that the exemption cannot be denied by invoking the negative list introduced through S.R.O. No. 38/1998, which sought to exclude certain processing activities from the purview of "manufacture."

The Battle Over Compound Rubber: Background of the Case

MRF Ltd., a medium-scale industrial unit engaged in manufacturing tyres, tubes, tread rubber, and related products, sought the benefit of tax exemption under S.R.O. No. 1729/1993. This exemption was intended to cover "additional investments" and "modernization" carried out at its Kottayam facility. The Directorate of Industries and Commerce issued eligibility certificates (Exhibits P2 and P5) for both the additional investment and modernization, paving the way for exemption orders from the Deputy Commissioner (General). However, the Deputy Commissioner's orders restricted the exemption for "compound rubber" to January 14, 1998, relying on an amendment to S.R.O. No. 1729/1993 via S.R.O. No. 38/1998, effective from January 15, 1998. This amendment introduced a negative list, including clause (h), which stipulated that treating raw rubber with chemicals to form a rubber compound would not be considered "manufacture" for exemption purposes.

Aggrieved, MRF appealed to the State Level Committee (SLC) on Sales Tax Exemption, which dismissed the appeal, citing the Division Bench judgment in State of Kerala v. M.R.F. Limited [(2016) 90 VST 304 (Ker)]. MRF then approached the High Court by way of a writ petition challenging the SLC's order (Ext.P10).

Arguments and Counter-Arguments: The Legal Tussle

Mr. Kuryan Thomas, counsel for MRF, argued that the Division Bench in MRF (supra) had already settled the issue under S.R.O. No. 1516/1990, which contained a similar exclusion for rubber processing. The Division Bench had categorically held that "compound rubber" manufactured by MRF was a finished rubber product and not merely an intermediary subject to processing, thus qualifying for exemption. Mr. Thomas urged that the same principles should apply to S.R.O. No. 1729/1993 and the negative list under clause (h) of S.R.O. No. 38/1998, which was "more or less worded similarly."

Conversely, Smt. Harima Hariharan, the Government Pleader, contended that the earlier judgment pertained to a different notification (S.R.O. No. 1516/1990) and thus had no bearing on the present exemption claim under S.R.O. No. 1729/1993. She argued that the negative list introduced later was a distinct provision that should be interpreted independently.

Court's Reasoning: Why the Negative List Doesn't Apply

Justice Menon meticulously compared the two notifications and found that the explanation under S.R.O. No. 1516/1990 and clause (h) of S.R.O. No. 38/1998 were "more or less worded similarly." The court observed that the Division Bench in MRF (supra) had already considered the identical question—whether compounding rubber with chemicals produces a finished product—and had answered it in the affirmative, based on expert scientific evidence and industry certificates. The Division Bench had concluded that "compound rubber" is a finished rubber product, not a mere processing outcome, and therefore falls outside the exclusion.

The court noted that the State Level Committee had failed to specifically address the striking similarity between the two notifications. Relying on the precedent, Justice Menon held:

"When that be so, I am of the opinion that the principles laid down by the Division Bench in MRF (supra) though with reference to S.R.O. No.1516/1990 would have to apply as regards the eligibility of the petitioner for the benefit of exemption under S.R.O. No.1729/1993 also."

‘Compound Rubber is a Finished Product’: Court's Definitive Ruling

The judgment emphasized that the earlier Division Bench had meticulously examined the manufacturing process and expert testimony, ultimately ruling that compound rubber is a finished product in its own right, capable of being sold and used in further manufacturing. The court quoted extensively from the earlier decision:

"Having regard to the materials produced by both the sides after the order of remand, it cannot but be said that the overwhelming scientific opinion coming through the experts in the field of rubber and polymer technology is that compound of rubber or rubber compound, which is the product of the assessee’s unit in question, is a finished rubber product."

The court further noted that the earlier Division Bench had rejected the revenue's argument that the product was only an intermediary, stating that "the product that comes out of the process in the assessee’s unit in Kerala is itself a rubber product which has to be treated as finished one for the purpose for which it is put to use."

Final Verdict: Boost for MRF's Exemption Claim

The High Court set aside the State Level Committee's proceedings (Ext.P10) to the extent they denied exemption for compound rubber. It declared that MRF is entitled to the benefit of exemption under S.R.O. No. 1729/1993 for compound rubber, and that this claim cannot be curtailed by the negative list under clause (h) of S.R.O. No. 38/1998. The court directed the competent authority to issue consequential orders within two months. This ruling reinforces the principle that earlier judicial interpretations of similarly worded provisions carry persuasive weight and that the characterization of a product as "finished" or "intermediary" must be based on technical and scientific evidence rather than administrative assumptions.