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MPVAT - 'Brake fluid' cannot be classified as ‘Lubricant’ - chargeable under residuary entry of Commercial Tax Act: HC

By TIOL News Service

INDORE, DEC 06, 2017: THE issue before the Bench is - Whether the tax can be charged in respect of Brake Fluid by treating it under Entry No.9 Part-III of Schedule-II which prescribes the rate of tax in respect of description of goods as Lubricant @ 15%. NO IS THE VERDICT.

Facts of the case:

The Assessee Company is a manufacturer of "Brake Fluid". The Assessee was registered as a dealer under the provisions of Madhya Pradesh Commercial Tax Act, 1994 and the said Act did not provide any specific entry in respect of levy of sales tax on "Brake Fluid", however, it provides for an entry i.e. Entry No.9 in Part-III of Schedule-II as "lubricants" at the rate of 15%. The Company, as the Brake Fluid did not fall under the description of the goods i.e. Lubricant, was paying Commercial Tax under the residuary entry being Entry No.1 of Part-VII of Schedule-II which provides for all other goods not included in Schedule I. In respect of A.Y 1991-92, the Sales Tax Department accepted the payment of tax by treating the Brake Fluid under the residuary entry. However, the Commissioner of Sales Tax in the case of M/s. Brakes India Ltd. took a view that "Brake Fluid" was chargeable as Sales Tax under Entry No.7 Part-III of Schedule-II of the M. P. General Sales Tax Act. The Assessee thereafter filed an application before the Commissioner of Sales Tax, Indore u/s 42-B of M. P. General Tax Act, which was in force at the relevant time as well as M. P. Commercial Tax Act, 1994 w.e.f. 01/04/1995, for determination of rates of Sales Tax in respect of Brake Fluid. The application of Assessee was not decided and the new Act came into force and the Commissioner of Commercial Tax intimated that Brake Fluid falls under Entry No.7 Part-III of Schedule-II which was related to lubricants and was chargeable to Sales Tax @ 12% up to 31/03/1994 and @ 15% w.e.f. 01/04/1994. The order passed in the case of M/s. Brakes India Ltd. was followed by the Commissioner of Commercial tax, M.P. The Assessee thus requested the Commissioner to grant them an opportunity of hearing as the order was passed without hearing them, but in vain. The Assessee thereafter, preferred a writ petition, and while the petition was pending, the Commissioner of Commercial Tax continued with the assessment proceedings for subsequent years also imposing tax by treating Brake Fluid as Lubricant.

High Court held that,

++ the basic question involved in the present case is that whether the tax can be charged in respect of Brake Fluid by treating it under Entry No.9 Part-III of Schedule-II which prescribes the rate of tax in respect of description of goods as Lubricant @ 15% or tax has to be charged by treating the Brake Fluid under the residuary entry being Entry No.1 of Part-VII of Schedule-II which is @ 8%. In order to resolve the controversy, it has to be decided whether the Brake Fluid falls under the category of Lubricant or not. It is pertinent to note that under the Bombay Sales Tax Act, lubricants have been classified under Entry 8 whereas Brake Fluid is classified under the residuary entry and not under the Entry No.8 relating to lubricants. Therefore, the functions and composition of both "Brake Fluid" and "Lubricating Oil" is totally different, as clear from the definitions of "Brake Fluid" and "Lubricating Oil" in various on-line dictionaries. Thus, by no stretch of imagination Brake Fluid can be treated as Lubricant. The function of both the liquids is different. The Supreme Court in the case of Atul Glass Industries (P.) Ltd. Vs. Union of India, has dealt with an issue in respect of imposition of Excise Duty and the case before the Apex Court was in respect of Glass and Glassware. The apex Court in the said case has held that a product is identified by its functional character. It was also held that it is a matter of common experience that the identity of an article is associated with its primary function and when a consumer buys an article, he buys it because it performs a specific function for him. The Glass Mirrors were held not to be included in item No.23A(4) of Schedule-I appended to Central Excise and Salt Act, 1944 which was relating to other Glass and Glassware. Thus, in short the apex Court has held that Mirror and Glass Mirror are not included in tariff item No.23A(4) as other Glass and Glassware though the department has treated Glass Mirror as Glass only;

++ the similarly, the apex Court in the case of Commissioner of Sales Tax, U. P. Vs. Macneill & Barry Ltd., was dealing with an issue relating to Ammonia Paper or Ferro Paper. The apex Court by taking into account the meaning as per common parlance has held that Ammonia Paper and Ferro Paper does not fall within Entry the entry "paper other than hand-made paper". Again, the apex Court in the case of Commissioner of Central Excise, Delhi Vs. Carrier Aircon Ltd, was dealing with an issue relating to classification of Chillers under Chapter Heading No.84.18 of the first Schedule of the Central Excise Tariff Act, 1985, and was held that chillers would not be classifiable under Chapter Heading No.84.15, meaning thereby, they cannot be a refrigerator even by testing it from commercial parlance test. The apex Court in the case of State of Jharkhand and Others Vs. LA Opala R. G. Ltd, has again dealt with an issue of classification and has held that in the taxing statutes the terms and expression must be seen in their common parlance and not be attributed their scientific and technical meanings. This Court in light of said judgments is of the considered opinion that the Brake Fluid is a different kind of liquid altogether which is never used for the purpose of lubrication. Earlier the braking system in vehicles used to be mechanical braking system, like the braking system which we have in bicycle and the moment the pressure is applied to liver of the brake, it is transmitted mechanically to the brake pads which were fixed to the wheel of the vehicle as they are fixed at the wheel of the bicycle. With passage of time, Hydraulic Brake System came into existence and the Brake Fluid was introduced. The Brake Fluid perform the same job which was being performed by the mechanical system and it transfers the force on the brake pads fixed on the brake drums. It is not at all lubricating either the brake or any part which is under the braking system. Thus, by no stretch of imagination, Brake Fluid and Lubricant can be treated as under one entry and therefore, the impugned orders passed by the Commercial tax Department are hereby quashed. The amount, if any, recovered by the Department by charging tax @ 15% be refunded back to the Assessee within a period of 90 days from the date of receipt of certified copy of this order.

(See 2017-TIOL-2525-HC-MP-CT)