The Commissioner Of Sales Tax ... vs M/S. Polyfab Industries
2017 Latest Caselaw 2722 Bom

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           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
              ORDINARY ORIGINAL CIVIL JURISDICTION



                     SALES TAX REFERENCE NO.31 OF 2009 
                                    IN
                   REFERENCE APPLICATION NO.76 OF 2003

      The Commissioner of Sales Tax,
      Maharashtra State,
      8th Floor, Vikrikar Bhavan,
      Mazgaon, Mumbai - 400 010                                                  ..  Applicant 
             Vs.
      M/s. Polyfab Industries,
      247/2, Station Road,
      Chinchwad, Pune - 411 033.                                                 ..  Respondent

                                   ......
      Mr. Himanshu Takke, AGP for the Applicant - State.
      Mrs. Nikita Badheka, Advocate for the Respondent.
                                   ...... 

                               CORAM :         S.C. DHARMADHIKARI AND 
                                               PRAKASH D. NAIK, JJ.

      DATE OF RESERVING THE JUDGMENT  : APRIL 4, 2017.

      DATE OF PRONOUNCEMENT : JUNE 05, 2017.


      JUDGMENT (PER PRAKASH D. NAIK, J.) : 

This reference is made vide Section 61(1) of the

Bombay Sales Tax Act, 1959 by Maharashtra Sales Tax Tribunal

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at Mumbai. The Commissioner of Sales Tax, Maharashtra State,

Mumbai had moved the Reference Application No.76 of 2003 before

the said Tribunal with request to refer certain questions of law to

this Court, which according to the learned Commissioner of Sales

Tax have arisen out of the Judgment and order of the Tribunal in

Appeal No.96 of 1998 decided on 30th April, 2003.

2 The relevant facts leading to the Reference are as follows:

(a) The opponent (original appellant) is the manufacturer of

HDPE yarn, HDPE cloth and filament products. According

to the opponent, out of these products, the opponent is not

selling HDPE yarn. It is the contention of the opponent that

the Yarn is used in the manufacture of HDPE cloth which is

neither laminated nor processed. The third product is

filament product. The opponent is manufacturing only

"Brushes" of the HDPE yarn.

      (b)      The opponent entertained a doubt as to the levy of taxes on 





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"cloth" manufactured out of HDPE yarn with aid of looms.

The opponent claims that the cloth manufactured out of

DHPE yarn being a man-made fabric is exempted from levy

of sales tax being described in the Column 3 of First

Schedule to the Additional Duties of Excise (Goods of Special

Importance) Act, 1958.

(c) In order to get the doubt settled from the determining

authority, the opponent filed an application on 3 rd June,

1997 under Section 52 of the Bombay Act by posing the

following question:

"Whether the sales of 48" width 72 mesh woven cloth and sales of 48" width 40 mesh woven cloth, as indicted under sale Bills No.97190 dated 8th December, 1996 and under Bill No.97186 dated 27th November, 1996, respectively are taxable under any entry under the Bombay Sales Tax Act, 1959, and if taxable, the rate of tax thereof ?"

(d) It was the contention of the opponent that these products

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being man-made fabric are covered by Schedule Entry No.A-

15 appended to the Bombay Act. It was also contended that

the opponents were manufacturer of HDPE yarn, HDPE

cloth and filament products. The HDPE cloth is

manufactured out of DHPE yarn and is man-made fabric. It

is subject to additional duties of Excise Act and is free from

excise duty with effect from 25th July, 1996. The opponent

tendered a letter in support of said submissions regarding

the aforesaid product during the course of hearing before the

determining authority. In the said letter it was stated that

the process of manufacturing HDPE cloth out of HDPE

filament is identical to that of textile cloth manufacturing as

done on power looms. It was further stated that the

opponent gets beams with various width 42, 48 etc., with

mash of the filament yarn also fixed in length of 80 meter

etc. The opponent then by a similar system of "Weft

Shuttles" as used on power-looms, manufacture HDPE cloth.

It was further pointed out that the product was produced

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out of "Synthetic Staple Fiber" and it would be a man made

fabric for the purpose of excise subheading 54.06 notified

under the Bombay Sales Tax Act, 1959. By virtue of the

above classification, it was submitted that the product would

be exempted from tax. It was further submitted that the

excise heading 54.06 covered all woven fabrics of synthetic

filament yarn and as HDPF , yarn was also a synthetic

filament yarn it was covered by the scope of the above stated

excise heading.

(e) The determining authority disagreed with the submissions

made by the opponent that the impugned HDPE cloth is

covered by Schedule Entry A-15. The determining authority

held that the product is covered by Schedule Entry C-I-17

and is accordingly liable to tax at 4%. The determining

authority has based its findings on the ground that the goods

manufactured by the opponent are plastic articles covered by

Chapter 39 of the Central Excise Tariff Act, 1985.

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      (f)      The   opponent   being   dissatisfied   with   the   findings   of   the 

determining authority enumerated in order dated 5 th June,

1998 preferred an Appeal before the Maharashtra State

Sales Tax Tribunal disputing the correctness of the finding

of the Commissioner of Sales Tax (Determining Authority).

(g) The Tribunal vide its judgment and order dated 30 th April,

2003 set aside the determination order passed by the

Commissioner of Sales Tax to the extent it holds the product

to be covered under Entry 17 of the Schedule C Part-I. It is

held that HDPE cloth is covered under Entry 15 of Schedule

A except for the period from 1st October, 1996 to 30th April,

1998. The opponent was also granted prospective benefit for

limited period from 1st October, 1996 to 30th April, 1998.

(h) The revenue was not satisfied with the order dated 30 th

April, 2003 and preferred an application under Section 61(1)

of the Bombay Sales Tax Act requesting the Tribunal to refer

certain question of law to the High Court for its decision. The

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Tribunal has made this Reference vide order dated 11 th

August, 2006.

3 The Revenue vide its Reference Application No.76 of

2003 had requested the Tribunal to refer certain question of law to

this Court for its decision which are as follows:

"(i) Whether on the facts and the circumstances of the case, was the Tribunal justified in holding that the impugned product i.e. Filter fabrics is covered by Schedule entry A-15 except for the period from 1 st October, 1996 to 30th April, 1998?

(ii) Whether on the facts and the circumstances of the case, was the Tribunal justified in holding that the impugned product is covered by Central Excise Head 54.06 being manufactured out of raw material covered by Central Excise Heading 54.04?

(iii) Whether on the facts and the circumstances of the case, was the Tribunal justified in granting a prospective effect to determination from 1st October, 1996 to 30th April, 1998 ?

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       (iv)    Whether on the facts and the circumstances of the case,  

was the Tribunal justified in adjudicating over the classification of the impugned product for the period not related to the transactions impugned in the determination order ?"

4 In support of the Reference, the opponent made the

following submissions before the Tribunal :

(a) The product impugned in the determination and described is

known as filter fabrics. The predominant use of the product

is in filtering water to separate it from suspended particles.

The use can be said to be distinct from the use that in

common parlance is attached to fabrics. Hence, in that view

of the matter the use may be said to be specialized,

technical.

(b) When a dispute over classification arises and when two or

more headings are found proximately applicable to a given

product, doctrine of harmonious construction comes into

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play. In the present matter, heading 59.11 is the appropriate

heading for fabric that are used for technical purposes. It

was further contended that interpretation of any entry is a

question of law. In the instant case, the competing entries

are C-I-17 and A-15 and whether the products falls in one or

the other is a question of law. The question posed in the

determination proceedings was in relation to a transaction

of sale on a particular date. It was called upon to decide the

question on the basis of the law applicable on the particular

date. The appellate authority cannot decide in the Appeal in

relation to the transactions taken place on any other date,

because in the original order appealed against the original

authority has not determined in relation to such

transactions which were not impugned before it.

(c) It was further submitted that the Appeal was against the

order passed under Section 52(1)(e) of the Bombay Act. The

appellate authority is not seized with the order under

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Section 52(2) of the Act. If the original authority has not

passed an order under a particular sub-section, the Appeal

cannot be said to be available against the non order.

Whether there can be two separate orders, one for the

determination and the other of the prospective effect or a

single order covering both the aspects is a question of law.

According to the Revenue, giving a prospective effect has

revenue implications and, therefore, it is the sole discretion

of the revenue. The revenue has to forego the amount when

assessee has no right to claim prospective effect. In the

instant case, the Tribunal has decided that the sale

transaction is liable to tax and is covered by the Schedule

Entry C-I-17 liable to tax at 4%. The issue of giving

prospective effect to the determination is the discretion of

the Revenue. There is nowhere in the Act a right to have a

prospective effect conferred on the assessee as of right by

resorting to appeal proceedings. This power is given under

the Act to the Commissioner.

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       (d)     It   was   further   urged   that   in   view   of   the   aforesaid 

submissions, it was a case for reference on the questions

raised by the revenue. The questions can be answered in

either way. The answer to such questions is not available in

any judgments of the Apex Court.

5 The advocate for the opponent made the following

submissions before the Tribunal:

(i) The assessee has proved beyond doubt that the product falls

in Entry 54.06. Once it is confirmed that the product falls

under Entry 54.06 of the Central Excise Tariff, there is no

further debate possible. No reference lies as no question of

law arises.

(ii) In the Reference Application, new arguments were advanced

by the revenue. The arguments advanced in the reference

application are uncalled for and beyond the jurisdiction of

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the application of Section 61 of the Bombay Act. The

questions posed by the revenue were never before the

Tribunal.

(iii) The assessee has proved beyond doubt that the goods fall

under Excise Entry 54.06. The classification under the

Bombay Act is based on the Central Excise Tariff and,

therefore, the reliance on CET by the Tribunal to give

prospective effect can be justified. It is a case of referential

legislation.

(iv) It was further contended that the Tribunal sitting in Appeal

is in continuation of the determination proceeding. It is a

power vested in the Commissioner of Sales Tax. It was

pointed out that the revenue has failed to consider that

before the Commissioner also the plea of prospective effect

was made. The order of Commissioner being silent on the

said point means that he has not allowed the ground of

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prospective effect. The Tribunal in Appeal has the power to

decide the issue of prospective effect. The submission of the

department is that the Tribunal has traveled beyond its

jurisdiction is devoid of merit. The Tribunal gave

prospective effect till the date of its own order in the interest

of justice. The prospective effect was given purely on facts of

case and no question of law arises. It is a discretionary

power used in the interest of justice and fair play. Exercise

of discretionary power does not raise any question of law.

6 The Tribunal in the reference order dated 11th August,

2006 observed that, it is agreed that the submission of the revenue

that interpretation of any entry is a question of law and in the

instant case, the competing entries are C-I-17 and A-15 and

whether the product falls in one or the other is a question of law.

According to the revenue, the predominant use of the product is in

filtering water to separate it from suspended particles. It is

further their case that the use can be said to be distinct from the

use that in common parlance is attached to fabrics. The

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controversy as to the classification of the product itself is

debatable and it is certainly a substantial question of law and

therefore, the question nos.(i) and (ii) in that behalf are required to

be referred to the High Court for consideration.

7 The Tribunal further observed that the other

grievance of the revenue is that the question posed in the

determination proceedings was in relation to a transaction of sale

on a particular date and the Tribunal was called upon to decide

the question on the basis of the law applicable on the particular

date. The appellate authority cannot decide the Appeal in relation

to the transaction taken place on any other date. This question

raised is to jurisdiction and competency of the Tribunal to

determine the classification of the product in the context of

particular period or rather say beyond the period of disputed

transaction. The said question would not arise in the present case

because the Commissioner himself has clarified the legal position

in respect of the product for the period prior to 1 st October, 1996

and after 1st October, 1996 (i.e. for the transactions other than the

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specified transaction). Hence, the Tribunal's competence cannot

be a question in the present reference.

8 The Tribunal further observed in the Reference that as

far as the question of prospective effect is concerned, it was

submitted on behalf of the revenue that the Appeal was against

the order passed under Section 52(1)(e) of the Bombay Act. The

appellate authority is not seized with the order under Section

52(2) of the said Act. If the original authority has not passed any

order under particular sub section, the Appeal cannot be said to be

available against the non order. The assessee has made the

application for prospective effect but no order was passed on the

said application. It was observed that Section 52(2) indicates that

it is a prerogative of the Commissioner of Sales Tax to grant

prospective effect, however, it may be noted that Appeal does not

lie against any order passed by the Commissioner under Section

52. Section 56 specifies the non appealable order it has neither

included the determination order passed under Section 52(1) nor

the discretionary order passed by the Commissioner as regards

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grant of prospective effect under Sub Section 2 of Section 52.

9 It was further observed that in the present case the

Commissioner has not exercised his discretion in favour of the

dealer for granting the prospective effect, but, it is pertinent to

note that the appellant has sought relief when they have moved

the Commissioner for determination of the rate of the impugned

product despite making specific prayer no relief is granted and no

order is passed which means that the Commissioner of Sales Tax

has refused to grant the said relief. When the orders are made by

exercising powers under Section 55(6), the Tribunal has to pass

the orders as it deems just and proper. When despite making

specific prayers such relief was not granted that is impliedly

refused without giving any reason, certainly it becomes a subject

matter of Appeal if such inaction on the part of the Commissioner

to consider the relief has been challenged in Appeal. The

appellant has raised specific ground in the appeal to grant the

prospective effect.

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      10                The Tribunal further observed in the reference order 

that the revenue has placed reliance on earlier decision of the

Tribunal in the case of Commissioner of Sales Tax

Maharashtra State Vs. M/s. Ashish Enterprises. However, the

facts of the present case and the said case stand on different

footing. In the case of M/s. Ashish Enterprises (Supra), the

determination order as passed on 8th September, 1993, which

application for giving prospective effect was filed on 9th January,

1998 i.e. about 4 years and 8 months after the passing of

determination order and, hence, it was observed that it is difficult

to hold that the dealer can file such application any time after the

determination order i.e. without having any time limit. It is

further observed that in such an event, it may not be erroneous to

hold that prayer for giving prospective effect has got to be made

along with the application for determination itself and separate

application for such prospective effect may not be maintainable. In

the light of the said observations, the power of the Tribunal to

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grant prospective effect in subsequent application was referred to

the High Court which is not the case of the present proceedings. It

is observed that in the present proceedings the relief for grant of

prospective effect has been sought simultaneously while

application for determination order was filed and, therefore, the

ratio of the decision in the case of M/s. Ashish Enterprises is not

applicable.

11 The Tribunal considered the following facts while

determining the issue of grant of prospective effect:

(i) On 1st May, 1998, retrospective effect was given to

entry C-I-17 with effect from 1st October, 1996.

(ii) Appellant has made application for determination on

21st January, 1997.

      (iii)    The Commissioner of Sales Tax has decided the issue 





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on 5th June, 1996 i.e. after one and half years and the

Appellant has not collected any taxes during this

period.

12 It is further observed that the Tribunal found that the

Appellant was guided by the determination order of Commissioner

of Sales Tax in the case of (1) M/s. Sanghavi Industries wherein

the "High Density Polyethylene Mono Filament Woven Cloth" as

falling under entry 41 of Schedule A; (2) M/s. Bajaj Plastics

Limited wherein "HDPE Woven Fabrics" were held as covered by

entry 41 of Schedule A under the unamended Act. In the

circumstances, the Tribunal while exercising its discretion

judiciously granted prospective effect for the limited period of 1 st

October, 1996 to 30th October, 1998.

13 The Tribunal, however, in the reference order held that

on the facts and circumstances the question may arise, wherein

the Commissioner had not given any specific decision in his

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original order on the appellant's prayer for prospective effect under

Section 52(2) of the Bombay Act, the Tribunal was legally justified

in holding that the Commissioner has rejected the said prayer and

in adjudicating upon the prayer in exercise of the appellate powers

under Section 55 of the Bombay Act.

14 The Reference Application No.76 of 2003 was allowed

and the following questions of law were referred to this Court for

its decision:

(i) Whether on the facts and the circumstances of the

case, was the Tribunal justified in holding that the

impugned product i.e. Filter Fabrics is covered by

Schedule entry A-15 except for the period from 1st

October, 1996 to 30th April, 1998?

(ii) Whether on the facts and the circumstances of the

case, was the Tribunal justified in holding that the

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impugned product is covered by Central Excise Head

54.06 being manufactured out of raw material

covered by Central Excise Heading 54.04?

(iii) Whether on the facts and the circumstances of the

case, was the Tribunal justified in holding that the

Commissioner has rejected the said prayer and in

adjudicating upon that prayer in exercise of the

appellate powers under Section 55 of the Bombay

Act?

15 Section 61 of the Bombay Sales Tax Act relates to

statement of case to the High Court. As per the said provisions,

within ninety days from the date of the communication of the

order of the Tribunal, passed in Appeal being an order which

affects the liability of any person to pay tax or penalty or interest

or to forfeiture or any sum or which affects the recovery from any

person of any amount under Section 39, that person, (the

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Additional Commissioner of Sales Tax having jurisdiction over the

whole of the State or the Commissioner), may by application in

writing (accompanied, where the application is made by that

person, by a fee of One Hundred rupees) require the Tribunal to

refer to the High Court any question of law arising out of such

order and where the Tribunal agrees, the Tribunal shall as soon

as may be after the receipt of such application, draw a statement

of the case and refer it to the High Court. It is implicit that a

reference can be made to the High Court with regard to any

question of law arising out of such order. The law is very clear on

the aspect of reference and the approach of the High Court while

answering the Reference made by the Tribunal. In a reference, the

High Court not being a Court of Appeal would not embark upon a

reappraisal of evidence and arrive at finding of fact contrary to

that of the Appellate Court. The High Court is not sitting in

Appeal but it is deciding a Reference and, therefore, the question

of reappraisal of the evidence does not arise. In the present case,

the opponent approached the determining authority by preferring

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an application under Section 52 of the Bombay Act. The issue

which was considered by the determining authority was whether

the sales of 48" width 72 mesh woven cloth and sales of 48" mesh

woven cloth, as indicated under sale bills are taxable under any

entry under the Bombay Sales Tax Act, 1959 and, if taxable, the

rate of tax thereof. The determining authority had opined that the

products are covered by Schedule entry C-I-17 and accordingly

liable to tax at 4 %. The Tribunal vide its order dated 30 th April,

2003 allowed the Appeal preferred by the opponent by setting

aside the order passed by the Commissioner of Sales Tax to the

extent holding that the product is covered under entry No.17 of

Schedule-C Part-I. The Tribunal further held that the HDPE

cloth is falling under Entry A-15 of Schedule A except for the

period from 1st October, 1996 to 30th April, 1998. The opponent was

granted prospective effect for the limited period from 1 st October,

1996 to 30th April, 1998. Pursuant to the said order, the

application under Section 76 was preferred requesting the

Tribunal to refer certain questions of law. Apparently the

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reference was sought beyond the scope of order dated 30 th April,

2003. We do not find that there was any question of law to be

referred to this Court pursuant to the Tribunal's order dated 30 th

April, 2003. The findings of the Tribunal were reaffirmed in the

reference order. Most of the questions which were sought to be

referred were also considered in favour of the opponent. The

questions which are referred are contrary to the finding of the

Appellant Tribunal as reflected in order dated 30 th April, 2003

and, also to the observations made in the reference order.

16 The learned AGP representing the State/applicant

supported the reference and submitted that the Tribunal is

justified in referring the proceedings as it involves the question of

law, enumerated in reference order. He advanced the submissions

which were raised by Deputy Commissioner of Sales Tax Legal

representing the applicant before the Tribunal. Ms. Badheka, the

learned advocate representing the respondent/opponent also

reiterated the submissions advanced by her before the Tribunal

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and submitted that, this reference is unwarranted and no question

of law is involved in the proceedings.

17 The first question of law referred to by the Tribunal is

whether on the facts and circumstances of the case, was the

Tribunal justified in holding that the impugned product i.e. filter

fabrics is covered by Schedule entry A-15 except for the period

from 1st October, 1996 to 30th April, 1998? In the reference order

dated 11th August, 2006 there is no observation as to why such a

question is required to be referred to this Court and for the

reasons best known to the Tribunal the said question has been

framed for reference to this Court. The Tribunal in the order

dated 30th April, 2003 has dealt with such issue in detail from

paragraph 22 onwards. In paragraph 22, the Tribunal has

observed that the question since arose whether the product HDPE

woven cloth which is used as filter fabric can be said to be an

impregnated, coated, covered or laminated textile fabrics or textile

articles of a kind suitable for industrial use or technical usage.

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The inspection of the sample makes it clear that it is not an

impregnated, coated, covered or laminated textile fabric. It is a

settled position that the burden is on the department to prove that

the product falling under particular sub-heading is not covered by

A.D.E. Act and, therefore, fails to qualify as one covered by

Schedule Entry A-15 as fabrics described in A.D.E. Act. It is

further observed that HDPE woven cloth, known as "Filter

Fabrics" cannot be said to be a textile article of a kind suitable for

industrial use or technical usage as it is understood in trade or

industry. The word "Industrial" is defined in Chambers Dictionary

as "relating to or consisting in industry" and the word "Industry"

has been defined as "the quality of being diligent, assiduity, steady

application". The word "Technical" is defined as "pertaining to art

or applied science, industrial, department of knowledge or skill".

There is nothing to show that "Filtered Fabric" is a textile article

of a kind suitable for use in a factory or an industry or an article of

technology and, therefore, it is difficult to agree that the impugned

product falls in a heading 54.06 covering fabrics in A.D.E. Act. In

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paragraph 24 of the said order, it is stated that exception was

made to entry A-15 by virtue of amendment dated 6th January,

1997 which was further amended on 1st May, 1998 whereby the

exception was removed. On 1st May, 1998, a retrospective effect

was given to entry C-I-17 with effect from 1 st October, 1996. It was

thereafter observed that it is very clear that during the period

from 1st October, 1996 to 1st May, 1998, the impugned product was

not falling under Schedule entry A-15.

18 The second question referred to is whether the

impugned product is covered by Central Excise Head 54.06 being

manufactured out of raw material covered by Central Excise

Heading 54.04. In respect to this issue also there is no reasoning

assigned as to why this question is required to be referred to this

Court. In the order dated 30th April, 2003, the issue has been dealt

with in depth from paragraph 14 onwards. The Tribunal has

considered the rival contentions and relied upon several decisions

including the opinion of an expert tendered by the original

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appellant and the Tribunal has opined that it is not possible to

accept the contentions of the Commissioner of Sales Tax that the

impugned product is not obtained by either of the two processes

referred to therein and that therefore cannot be considered as

material described in heading 54.05 and, therefore, not covered by

Central Excise Tariff Head 54.04. It was further observed that the

Tribunal finds good deal of substance in the contention made on

behalf of the appellant that the impugned product HDPE woven

cloth fulfilled the necessary conditions of heading 54.04 and,

therefore, covered by the Central Excise Tariff heading 54.06. The

Tribunal had also considered the opinion of expert which was

relied upon by the opponent. The reference is apparently silent as

to why said issue is considered as a question of law.

19 The third question as to whether the Tribunal was

justified in holding that the Commissioner has rejected the prayer

and has adjudicated upon that prayer in exercise of the appellate

powers, under Section 55 of the Bombay Act. We fail to

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understand as to how the Tribunal has referred to the said issue

as a question of law when in the reference order itself, the

Tribunal has assigned cogent reasons in affirmative holding that

the Tribunal was justified in dealing with the said issue since it

was raised before the determination authority as well as the

appellate authority. In the reference order, it is observed that in

the present case, the Commissioner has not exercised its discretion

in favour of the dealer for granting the prospective effect, but, the

opponent has sought said relief and moved the Commissioner for

determination of the rate of the impugned product and despite

making specific prayer, no relief is granted and no order is passed,

which would mean that the Commissioner of Sales Tax has

refused to grant the said relief. It was further observed that once

the orders are appealable by exercise of power under Section 55(6),

the Tribunal has to pass the order as it deems just and proper.

When despite making specific prayer, the said relief was not

granted i.e. indirectly refused without giving reasons, it becomes

the subject matter of Appeal, if such inaction on the part of

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Commissioner to consider the said relief has been challenged in

Appeal. The opponent has taken a specific ground in the Appeal

to grant prospective effect. The order further justifies the finding

of the Tribunal in order dated 30th April, 2003 for granting

prospective effect. Therefore, there was no reason to refer the

question no.3 as a question of law.

20 In view of the above observations, we find that the

Reference was wholly unwarranted and unnecessary and, hence,

we pass the following order:

:: O R D E R ::

(i) Sales Tax Reference No. 31 of 2009 is returned

unanswered.

(ii) No order as to costs.

(PRAKASH D. NAIK, J.) (S.C. DHARMADHIKARI, J.)