Uttarakhand High Court
Unknown vs M/S S.R.F. Ltd. Kashipur on 6 May, 2024
IN THE HIGH COURT OF UTTARAKHAND
AT NAINITAL
HON'BLE THE CHIEF JUSTICE MS. RITU BAHRI
AND
HON'BLE SRI JUSTICE RAKESH THAPLIYAL
06th May, 2024
COMMERCIAL TAX REVISION No. 29 OF 2023
Commissioner, State/ Commercial Tax,
Uttarakhand, Dehradun
...Revisionist
Versus
M/s S.R.F. Ltd. Kashipur ...Respondent
Counsel for the revisionist/ State : Ms. Puja Banga, learned Brief Holder
of Uttarakhand. for the State of Uttarakhand.
Counsel for the respondent. : Mr. S.K. Posti, learned Senior Counsel
assisted by Mr. Ashutosh Posti, learned
counsel.
JUDGMENT :
(per Ms. Ritu Bahri, C.J.)
The present Revision has been filed by the
State against the order dated 03.04.2021, passed by the
Commercial Tax Tribunal, Uttarakhand, Division Bench,
Haldwani, whereby two Second Appeals filed by M/s
S.R.F. Ltd. Kashipur have been allowed. The dispute in
the above two Second Appeals was with respect to tax
amount of Rs. 14,83,879/- and Rs. 3,90,850/-
respectively.
3. For the Assessment Year 2010-11, vide order
dated 25.03.2017 passed under Section 29(4) read with
Section 25(7) of the Uttarakhand Value Added Tax Act,
on the self-manufacture of Nylon Chips, the Assessing
Officer, in the absence of Form-C and F Central sale on
Nylon Chips was exigible to tax @ 14,83,879/- and
3,90,850/- and taxable @ 13.5% which amounted to
Rs.2,00,324/- and tax liability of Rs.52,765/- was
affixed. Against the said order, the Assessee filed an
Appeal before the First Appellate Authority. The First
Appellate Authority dismissed the Appeal, by observing
that the trader had used the processing chemicals and
compounds on raw materials plastic granules, and the
product was being sold under a new name/ commodity
called Nylon Chips, and there was no Entry with regard
to notified Schedule-II of the Uttarakhand Value Added
Tax Act, and the Assessing Officer had rightly considered
that Nylon Chips cannot be considered as plastic
granules, and they are not covered by Schedule-II of the
Uttarakhand Value Added Tax Act, and hence the tax
liability fixed on the sale of self-manufactured Nylon
Chips, as 13.5%, was rightly done under Section
29(1)(c) of the Act, which allows for re-assessment in
case of incorrect rate of tax being applied in the previous
assessment.
4. The question before the Tribunal was, whether
re-assessment, under Section 29(4) of the Act could be
made on the change of opinion, especially keeping in
view that the same records had already been scrutinized
by the Assessing Authority. The main argument of the
respondent before the Tribunal was that, by the Original
Order, the department had accepted that Nylon Chips
were plastic granules. It had already formed an opinion
on the nature of the product, and accordingly levied tax,
and subsequently, the department changed its stand/
view on the nature of product, and accordingly higher
rate of tax was sought to be applied. Section 29(1)(c)
of the Act applies to cases, where department has
applied the wrong rate of tax to the sale of a product,
and desires to apply the correct rate of tax. The opinion
of the department, on the nature of the product,
remains the same.
5. In the present case, the department has taken
a different view by changing the nature of the product,
and not on account of wrong application of rates. Re-
assessment, in such type of situation, is prohibited. The
assessment order was a clear change of opinion, and
was not under Section 29(1)(c).
6. The other ground taken by the respondent
was that the impugned order was illegal, as Section
29(4) of the Uttarakhand Value Added Tax Act does not
apply to the present case. In the instant case, the
assessment year ended on 31.03.2012, and the period
of limitation is to be counted from 31.12.2012. Three
years & nine months from that date is 30.09.2016, and
the authorization notice dated 27.02.2017, under
Section 29(4) of the Act, was issued beyond the period
of limitation. The second notice was sent on
29.11.2016, and limitation had expired on 30.09.2016.
7. For seeking the benefit of enlarged period of
limitation, under Section 29(4) of the Act, reasons in
writing have to be given. Moreover, there is no
suppression of facts, or evidence by the respondent,
with the intention to evade the payment of VAT. There
is no reason given in the authorisation order and the
impugned order, justifying the applicability of Section
29(4) of the Act, where the time period of assessment,
under the regular Section 29(3), had already expired.
8. Polymer Nylon Chips are classifiable under
Entry 83 Schedule-II(B) of the Uttarakhand Value Added
Tax Act, as "Plastic Granules". The case of the
respondent was that it was engaged in engineering
plastics business, wherein it manufactures compounded
polymers, i.e. Compounded Poly Carbonate ("PC"), and
Compounded Poly Butylene Terephthalate ("PBT"). The
raw material used by the respondent for the
manufacture of the above goods is imported.
9. It is the further case of the respondent that
during the process of manufacturing, undertaken by the
respondent, fillers, such as glass fibre, minerals etc. and
additives such as lubricants, antioxidant, colour master
batches etc. is added to the molten polymer in an
extruder. The compounded form of polymer comes out
of the extruder in the form of strands, which is cut into
small pieces with the help of a granulator. These small
pieces are then packed and sold to the customers. The
process of manufacture explained in the technical books,
pertaining to manufacture of plastic, is the same, as is
adopted by the respondent for manufacture of Polymer/
Nylon Chips. Hence, the Polymer/ Nylon Chips
manufactured by the respondent are nothing, but
"plastic granules". The respondent has referred to the
Central Institute of Plastics Engineering & Technology
(CIPET), which has issued a certificate, clearly stating
that the products manufactured by the respondent are
"plastics". Copy of this certificate is annexed as
Annexure 17. The final and the end product of the
respondent's process of manufacture is a plastic polymer
itself. The photographs of the raw material are placed
on record as Annexure 19. The primary form of polymer
is not as stable, or suitable for commercial use.
Therefore, to improve upon its properties, the plastic
granules are subjected to the process of compounding.
The respondent adds numerous chemicals and other
such compounds, which improve the characteristics of
these products, which renders them viable for
commercial use. These chemicals and compounds
include product like Fiber Glass, which improves the
tensile strength of the product. Other products include
pigments, which adds colour to these products etc.
Thus, the nature of the product remains the same i.e. in
the form of plastic granules.
10. The Tribunal, thereafter, referred to Entry 83
of Schedule II(B) of the Act, which reads as under :
83. Plastic granules, plastic 5% Schedule-II(B)-
powder and master 83
batches
11. The Tribunal proceeded to examine the
dispute on two points :
"(i) Whether the assessment order, which has been
passed under Section 29(4) of the Act has become
illegal and time barred, or according to the provision.
(ii) Whether the Nylon Chips manufactured by the
appellant are covered by Entry 83 of Schedule-(II)(B)
of the Act, or whether the liability of tax on this article
is under any of the provisions of the Act due to not
coming under the schedule also, the liability of tax on
it will be at the rate of 13.5 percent of the unclassified
category."
12. With respect to the first question, the
Tribunal has referred to the provisions of Section 29(7)
of the U.P. Commercial Tax Act, which reads as under :
"29(7) Where the Commissioner, on his
own or on the basis of reasons recorded by the
assessing authority, is satisfied that it is just and
expedient so to do, authorises the assessing authority
in that behalf, such assessment or reassessment may
be made within a period of eight years after expiry of
assessment year to which such assessment or
reassessment relates notwithstanding such
assessment or reassessment may involve a change of
opinion."
13. As per the above-said provision, reassessment
can be made within a period of 8 years after expiry of
the Assessment Year. In the present case, as per the
Uttarakhand Value Added Tax Act, Section 29(4) deals
with the procedure for doing reassessment, which reads
as under :
"29. Assessment of Escaped Turnover :
(1) ...
(2) ...
(3) ...
(4) If the commissioner on his own or on the
basis of reasons recorded by the assessing
authority is satisfied that it is just and expedient
so to do, he may authorise the assessing
authority in that behalf, and then such
assessment or reassessment may be made after
the expiration of the period aforesaid but not
after the expiration of six years form the end of
such assessment year, notwithstanding that
such assessment or reassessment may involve a
change of opinion."
14. In the present case, the Assessment Year is
2010-11, and before the end of six years, the
reassessment order can be passed. The reassessment
order has been passed on 25.03.2017, which is before
the end of six years of the Assessment Year 2010-11,
and hence the reassessment order passed under Section
29(4) of the Act was done within limitation, and this
aspect has been affirmed by the Tribunal, and the
Appeals, qua this ground, has been rightly dismissed.
15. With respect to the second ground, whether
Nylon Chips manufactured by the appellant are covered
by Entry 83 of Schedule-(II)(B) of the Act, the Tribunal
had proceeded to examine the definition of "Plastics"
considered in the judgment of the Hon'ble Supreme
Court in Chemicals and Fibers of India Ltd. v. Union
of India, AIR 1997 SC 558. The Tribunal, in
paragraph no. 10 of its order, considered in detail the
various definition of "Plastics". As considered in the case
of Chemicals and Fibers of India Ltd. (supra), the
definition of "Plastic" is given in Encyclopedia Britannica,
Volume 18, Books Polymers and Resin 1, Hawley's
Condensed Chemical Dictionary (13th Edition), Webster's
Third New International Dictionary. With respect to the
definition of "Granules", it is stated to be a piece of 2 to
4 millimeters, in which the shape of pebble, on the
manufacture of any plastic product, is said to be called
Plastic Granules. Nylon is considered by the British
Plastics Federation to be a group of plastics in the
polyamides and is believed to be used in the
manufacture of films and fibres. The work related to the
manufacture of plastic polymers is done by them, and
the photographs show that they are Plastic Granules
only. Plastic is the Granules and the primary form of
Raw Polymer Materials. During its manufacturing
process, there are many chemicals, compounds, fiber
glass, minerals, lubricants, antioxidants, colors etc.
added. After mixing the above-said material in the
plastic granules, the produced item is Nylon-6.
16. The Tribunal further referred to the British
Plastic Federation in respect of Nylon (Polyamide,
according to which "Nylon" is defined as under :
"The name 'nylons' refers to the group of plastics
known as polyamides."
17. Hence, Nylon will come under the plastic
group, i.e. Plastics. The polymer manufactured by the
respondent-company has been accepted to be cut into
small sizes of 2 to 4 millimeters and sold to the
customers. This can be called granules, which was
evident from the samples presented by the respondent-
company before the Tribunal at the time of hearing.
18. The Tribunal further came to a conclusion that
the original article was not changed by adding fillers and
additives to increase the strength, or strength of Nylon-
6. Hence, with reference to the raw material Nylon-6 by
the Central Institute of Plastics Engineering &
Technology (CIPET), there is no change in the original
material (raw material) in this manufacturing process.
Hence, the manufacturing process relates to Nylon-6 of
the respondent-company. Even the international
organization, i.e. British Plastics Federation has
also considered Nylon under the Plastics group.
19. Finally, the Tribunal observed that, even if
plastic granules are Nylon Chips used in different
industries, but the type of thing is Plastic, which is used
as per the requirement. It is not necessary that these
two items should be different items due to their use in
different industries, and it has been accepted by the
department that Nylon Chips have more strength, and is
needed for better mechanical and chemical properties of
engineering plastics.
20. Finally, the Tribunal held that Nylon Chips will
fall under Entry 83 of Schedule II(B) of the Act, and the
taxable liability cannot be 13.5%. Hence, the
determination of tax liability, as unclassified, was wrong.
For the Assessment Year 2010-11, the self-
manufactured Nylon Chips in the State and Central are
considered to be covered by Entry 83 of Schedule II(B)
of the Act for the purpose of tax, and the appeals of the
respondent-company was allowed by the Tribunal.
21. After going through the order passed by the
Tribunal, the appellant-department have themselves
accepted that, with respect to the Plastic Granules, when
they are put into procedure by adding fillers and
additives, the strength of the plastic becomes better.
Further, as per the opinion given by the British Plastics
Federation, and Central Institute of Plastics Engineering
& Technology (CIPET), Nylon refers to a group of Plastics
known as Polyamide, and there is no change in the
original material (raw material) in this manufacturing
process of Nylon-6. Hence, the use of raw material, i.e.
Plastic Granules to produce Nylon Chips will not alter the
character of Nylon Chips, being a Plastic, and under the
British Plastics Federation, Nylon is considered under the
Plastics group.
22. There is no substantial question of law, which
requires to be considered in the present Revision. The
Nylon Chips have been rightly held to be falling in Entry
83 of Schedule II(B) of the Act by the Tribunal.
23. There is no merit in the present Revision, and
the same is, accordingly, dismissed.
24. Consequently, pending application(s), if any,
also stand disposed of.
______________
RITU BAHRI, C.J.
___________________
RAKESH THAPLIYAL, J.
Dt: 06th May, 2024
NR/
