By TIOL News Service

BANGALORE, MAR 28, 2015: THE issues before the Bench are - Whether a narrow or a common parlance meaning can be given to the expression "paper", for the purpose of levying State sales tax and Whether once an article is classified and put under a specific entry, the basis of such classification is not open to question. And the verdict goes against the assessee.

Facts of the case

The assessee company is engaged in the business of manufacture and sale of paper and paper board which includes electrical insulated press board, commonly known as high density board. The assessee was of the view that electrical insulated press board manufactured by them falls within the Serial No.69 of the Third Schedule appended to the KVAT Act 2003 and therefore, tax payable thereon would be 4% which was subsequently enhanced to 5%. The Authorities however, brought the said good under the residuary entry to tax at 12.5%.

Having heard the parties, the High Court held that,

++ it is seen the goods which do not fall in any of the schedules of the KVAT, 2003 were covered u/s 4(1)(b)(ii) under the heading 'other goods' and the rate of tax payable was 12.5%. In the instant case, the goods which is the subject matter of dispute is Electrical Insulated Press Board commonly known as High Density Board. It is also seen that Serial No.69 (i) of the KVAT Act, 2003, deals with 'Paper of all kinds' and 69(ii) deals with 'Waste paper, paper waste and Newsprint'. However, the word 'paper' has not been defined under the KVAT Act, 2003. Therefore, the expression "PAPER" has been the subject matter of decisions by various Courts. The Supreme Court in the case of Parle Biscuits (P) Ltd. V. State of Bihar and Others, has held that: "It is well-established that in a taxing statute there is no room for any intendment and regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different, but that is not the case here". The Supreme Court again in the case of State Of U.P. And Another, has held that the mere fact that the word 'paper' forms part of the denomination of a specialised article is not decisive of the question whether the article is paper as generally understood. The word 'paper' in the common parlance or in the commercial sense means paper which is used for printing, writing or packing purposes. From the said various definitions, it is clear that in popular parlance the word "paper" is understood as 'a substance which is used for bearing, writing or printing, or for packing or for drawing on, or for decorating, or covering the walls'. Thus, the word 'paper' in the common parlance or in the commercial sense means 'paper' which is used for writing, printing, packing purposes or drawing or decorating or covering the walls. The legislative history of 'paper' indicates that the expression "paper" has been understood to include all kinds of paper including carbon paper, blotting paper, water proof paper, PVC coated paper, ferro paper, ammonia paper, stencil paper and the like. Therefore, the court should not merely be guided either by taking a narrow or common parlance meaning to the expression "paper" as it is used only for the purposes of writing or printing, when there is such legislative history or practice;

++ it is well settled that where no definition is provided in the statute itself as in this case, for ascertaining the correct meaning of a fiscal entry reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the content and the trade meaning. It is a commercial article to be understood in the sense that people dealing with such an article can understand it and would attribute to it in the common parlance. An article of merchandise whenever used in a taxation statute must always be understood in a common parlance and must be given its popular sense meaning, with which people are conversant and while dealing with the articles would attribute to it. The trade meaning is one which is prevalent in that particular trade where that goods is known or traded. If special type of goods is subject matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word. It must be understood that the paper boards or a thicker variety of paper containing thin sheets of paper would not take it out of category of "paper". In the case of the assesse itself, the Commissioner of the Central Excise, Customs and Service Tax while dealing with the question of process and manufacture of the goods of the assessee falls under which sub-heading, has passed an order holding that the Electrical Grade Insulation Press Board falls under the heading '4805', which covers 'Other uncoated paper and paperboard, in rolls or sheets, not further worked or processed than as specified in Note.3 to the said Chapter. The "entry" to be interpreted here is in a taxing statute; full effect should be given to all the words used therein. If a particular article would fall within a description, by the force of words used, it is impermissible to ignore that description and denote the article under another entry, by a process of reasoning. The meanings given to articles in a fiscal statute must be as people in trade and commerce, conversant with the subject, generally treat and understand by them in the usual course. If an expression is capable of a wider meaning as well as narrower meaning, the question whether the wider or the narrower meaning should be given depends on the context and the background of the case. But once an article is classified and put under a distinct entry, the basis of the classification is not open to question. Technical and scientific tests offer guidance only within limits. Once the articles are in circulation and come to be described, then, there is no difficulty for statutory classification under a particular entry. The classification of the said goods for the purpose of levy under the Central Excise Act, furnishes no guidance for determining the rate of levy under the State Sales Tax Act. The definition of a word given for a specific purpose in an enactment cannot be treated upon to interpret the said word used in a general sense in another enactment. It is well settled rule of construction that the words used in a statute imposing the tax, may be construed in the same way in which they are understood in ordinary parlance in the area in which the law is in force;

++ there are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification, the relevant factors, inter alia are, statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to, the end use to which the product is put to, cannot determine the classification of that product. It is well-established that in a taxing statute, there is no room for any intendment and regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the enactment. If the tax-payer is within the plain terms of the exemption, he cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the enactment or by necessary implication there from, the matter is different. The normal function of the word 'including' in an entry, is to indicate that the items following the word "including" are those of the types of the main item in the entry. There could be some doubt as to whether the main entry covered them or not and therefore, the legislature specifically mentioned those items in the entry to remove scope for any doubt. In other words, the items so included with the prefix "including" would be of the type about which there could be some doubt as to whether they are covered or not by the main entry. The item about which there is no scope for doubt or there is comparatively less scope for doubt would accordingly stand automatically covered by the main items in the entry. In the absence of any inclusion or exclusion of words in the expression "paper", it must be held that it includes 'all kinds of paper'. In this background, when we look at serial No.69, 'papers of all kinds' should include all types of paper. In various judgments, the Courts have held that waste paper, paper waste or newspaper are not included in the word 'paper'. The legislature now has consciously included this paper in Serial No.69. However, after using the words 'paper of all kinds', they have used the word 'including', it means, the types of papers set out after the word including was not included in the word 'paper of all kinds'. Therefore, when a particular item falls within the word, description of paper is not in doubt, it is the word 'included' in the phrase 'paper of all kinds'. If there is any doubt, then, all those doubtful goods are included by expressing the same in serial No.69 of the third schedule. If there is any doubt as to the particular item is paper or not, then in the context of the said paper being understood in common parlance which it undergoes before a final product is reached, we have to see whether that product is included in the word 'paper';

++ keeping in mind these principles, if we look at the item, which is in dispute, it is called as Electrical Insulated Press Board, which is commonly known as High Density Board. In the aforesaid description, the word 'paper' do not find a place. Going by the Indian Standard Glossary Terms used in Paper Trade and Industry, the said Electrical Insulated Press Board is described as 'having certain properties, namely, high electrical strength, durability, absence of conductive metallic particles and uniformity in thickness and formation. Such material is being used by the electrical industry for insulation'. Therefore, it is clear that the said goods is excessively used in an electrical industry and not used in common parlance for the purpose of writing, printing, packing, drawing, decorating or covering walls. The process of manufacture of this item indicates that this product is manufactured by imported wood pulp. It is tested for fiber length, moisture content, mechanical and chemical properties. Going through this process, one thing is clear that though the raw material used is a wood pulp or sulphate pulp, the process it undergoes and the purposes for which it is manufactured, clearly demonstrates that it is not used as a paper. Looking at the relevant factors, such as a basic character, function and the use of the goods and the statutory fiscal entry, it is clear that the intention was not to treat it as paper. Though in the instant case, it is required not to go not by the popular meaning but trade meaning. Even though the persons who are in trade, may be aware that the same process is undergone, similar to the one which is used for manufacturing paper, they are clear in their mind that it is not a paper but it is an electrical insulation press board or high density board which is used in the electrical transformers as conductor wrapping and insulation barriers between winding coils. In the trade parlance, it is understood as electrical goods. Therefore, that may be the reason why the legislature took the pain to expressly state as to what are the types of paper included in the expression 'paper of all kinds'. They have excluded this particular type of paper. Therefore, the paper of all kinds is a comprehensive and an inclusive definition. It is not possible to treat the Electrical Insulated Press Board/High Density Board as a paper, so as to fall within the third schedule of the KVAT Act, 2003. Section 3 of the KVAT Act, 2003 being a charging section, provides that tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act. Section 4 of the KVAT Act, 2003 deals with liability to tax and rates thereof. Section 4(1) of the KVAT Act, 2003, provides that every dealer who is required to be registered as specified in Sections 22 to 24 of the Act, shall be liable to pay tax on his taxable turnover in respect of the goods mentioned in second, third and fourth schedule, at the rates mentioned therein. Insofar as the goods mentioned in the third schedule is concerned, the rate of tax is 4%. Therefore, the authorities are justified in levying tax under the heading 'all other goods' and the rate of tax at 12.5%. It is the finding which the Tribunal and suo motu revision authorities have concurrently recorded and therefore, there seems no justification to interfere with the well considered order of the authorities.

(See 2015-TIOL-756-HC-KAR-VAT)