Partly allowed

M/S Huntsman International (India) Private Limited v. State of Kerala

Kerala HC22 Dec 2022WA/829/2017

Case brief

AI extract

What is this about?

This writ appeal challenged the classification of the product 'Suprasec' under the Kerala Value Added Tax Act. The Court interferred with the lower court's dismissal, holding that the appellate authority failed to independently consider technical reports on chemical composition. The matter was remitted to the Deputy Commissioner (Appeals) for fresh adjudication while staying penalty proceedings.

What did the court decide?

The orders of the Deputy Commissioner (Appeals) were set aside. The matter was remitted for fresh consideration with liberty to the appellant to submit expert opinions. Penalty proceedings were stayed

M/S Huntsman International (India) Private Limited Vs… — GST and Indirect Tax | Kerala HC (2022)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE S.V.BHATTI

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THE HONOURABLE MR.JUSTICE BASANT BALAJI

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THURSDAY, THE 22^ND DAY OF DECEMBER 2022 / 1ST POUSHA, 1944

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WA NO. 833 OF 2017

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AGAINST THE JUDGMENT IN WPC 9727/2016 OF HIGH COURT OF KERALA

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APPELLANT:

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M/S.HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LIMITED 12/720 C, FEROKE KOZHIKODE - 673 631.REPRESENTED BY ITS INDUSTRY MANAGER.

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BY ADV SRI.NAVOD PRASANNAN PATTALI, ADV. A.R. MADHAV RAO, ADV. MUKUNDA RAO.

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RESPONDENTS:

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1 STATE OF KERALA THROUGH THE SECRETARY, MINISTRY OF FINANCE, DEPT OF REVENUE, THIRUVANANTHAPURAM.

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2 THE COMMISSIONER

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COMMERCIAL TAXES DEPARTMENT, THIRUVANANTHAPURAM - 695 002.

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3 THE COMMERCIAL TAX OFFICER IVTH CIRCLE, KOZHIKODE - 673 006.

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4 ASST. COMMISSIONER COMMERCIAL TAX DEPARTMENT, SPL. CIRCLE II, KOZHIKODE - 673 006.

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5 DEPUTY COMMISSIONER COMMERCIAL TAX DEPARTMENT, KOZHIKODE - 673 006.

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OTHER PRESENT:

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SPL GP SRI MOHAMMED RAFIQ

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WA No.829 & 833 /2017

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THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 22.12.2022, ALONG WITH WA.829/2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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WA No.829 & 833 /2017

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I N THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR.JUSTICE S.V.BHATTI

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THE HONOURABLE MR.JUSTICE BASANT BALAJI

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THURSDAY, THE 22^ND DAY OF DECEMBER 2022 / 1ST POUSHA, 1944

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WA NO. 829 OF 2017

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AGAINST THE JUDGMENT IN WPC 15191/2016 OF HIGH COURT OF KERALA

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APPELLANT:

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M/S HUNTSMAN INTERNATIONAL (INDIA) PRIVATE LIMITED 12/720 C, FEROKE, KOZHIKODE- 673 631REP. BY ITS INDUSTRY MANAGER

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BY ADV SRI.NAVOD PRASANNAN PATTALI, ADV. A.R. MADHAV RAO, ADV. MUKUNDA RAO.

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RESPONDENTS:

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1 STATE OF KERALA THROUGH THE SECRETARY, MINISTRY OF FINANCE, DEPT. OF REVENUE, THIRUVANANTHAPURAM

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2 THE COMMISSIONER COMMERCIAL TAX DEPARTMENT,THIRUVANANTHAPURAM- 695 002

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3 THE COMMERCIAL TAX OFFICER IVTH CIRCLE, KOZHIKODE- 673 006

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4 ASST. COMMISSIONER COMMERCIAL TAX DEPARTMENT,SPL.CIRCLE II, KOZHIKODE- 673 006

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5 DEPUTY COMMISSIONER COMMERCIAL TAX DEPARTMENT,KOZHIKODE- 673 006

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BY ADV GOVERNMENT PLEADER, SPL GP SRI MOHAMMED RAFIQ

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THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 22.12.2022, ALONG WITH WA.833/2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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J U D G M E N T [WA No.829 & 833 /2017]

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S.V.Bhatti, J.

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We have heard Mr A.R Madhav Rao, the learned counsel for the appellant and Mr Mohammed Rafiq, Special Government Pleader, for the respondents. Writ appeals arise from the common judgment dated 12.04.2017 in W.P.(C) Nos. 15191/2016 and 9727/2016.

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M/s. Huntsman International (India) Pvt. Ltd is the appellant, and the State of Kerala and others are the respondents in both appeals. The appellant filed W.P.(C) No.15191/2016 challenging Ext.P1 order dated 27.02.2016 of the Deputy Commissioner (Appeals), Commercial Taxes, Kozhikode. The appeals were directed against the monthly assessment order made under Kerala Value Added Tax Act, 2003 (for short, ‘the Act’) for August to December 2013. The appellant filed W.P.(C) No.9727/2016

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questioning the order in Ext.P1 dated 25.02.2016 in penalty proceedings more or less for the same period.

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At this juncture, it can be stated that the tax rate attracted to the commercial product, i.e., ‘Suprasec,’ is the question for our decision. The prelude to the narrative is whether the product Suprasec could be classified as Polyurethane or Isocyanate and the applicable tax rate under the Act depends on the HSN Code attracted to the commercial product of the appellant.

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The appellant's case is that the appellant does business of importing and selling Polyurethane with the brand name ‘Suprasec’. According to the appellant, the exporter of the Polyurethane wrongly classified Supresec under the Harmonized System of Nomenclature (HSN) Chapter heading 2929.10.20. The appellant claims to have adopted the classifications of Suprasec as falling under Chapter 2929.10.20. The appellant, till August 2013, continued to adopt HSN code 2929.10.20. The exporter of the Suprasec on authoritative scientific lab reports, the composition, and characteristics of Surpasec has reclassified the HSN code from

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2929.10.20 to 3909. Code 3909.50.00 specifically deals with Polyurethane. The corresponding Entry in KVAT Act is Entry 66 of the III Schedule, read with Entry 118 of List A of the third Schedule and chargeable to VAT at 5%. The controversy between the appellant and the respondents commenced with the change of classification from Chapter heading 2929.10.20 to 3909. Admittedly, on 02.05.2008, the appellant asked for clarification under Section 94 of the Act. On 04.11.2009, a competent authority clarified as follows:

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“11. The commodity Polyols (Resin) with HSN Code 3907.20.90 would be taxable at 4% vide Entry 118(7) of List A of Third Schedule to the Kerala Value Added Tax Act 2003. The commodity Tegostab (Surfactant) with HSN 3402.11.00 would be taxable at 12.5 % vide Entry 27(3) of SRO No.82/ 2006 with HSN Code 3402. The commodity Irostic (Polyurethane) with HSN Code 3909.50.00 would be taxable at 4% vide Entry 118(9) of List A of Third Schedule to the Act with HSN Code 3909. Since the other commodities are not mentioned in any of the Schedules to the Act, they are taxable at 12.5% vide Entry 103 of SRO No. 82/2006 The issues raised above are clarified accordingly.”

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5. It is the respondent's view that Suprasec by itself is not

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a product in any of the schedules mentioned under the Act and is hence taxable at 12.5%. The appellant's case is that a competitor of

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the appellant in Polyurethane applied to the competent authority under Section 94 of the Act and the competent authority accepted

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the product, which is a combination of diisocyanates with polyols. The order reads thus:

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As such, considering the facts stated above, it is clarified that Amino- resins, phenolic resins, and polyurethanes, in primary forms with HSN Code 3909.50.00 sold under any trade name / brand name would be taxable at the rate of 5% by virtue of Entry 118(9) of the List A to the Third Schedule to the Kerala Value Added Tax Act, 2003.

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The codes by which respective parties argued are tabulated

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hereunder:

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Chapter 29	Organic Chemicals
2929 10 20	Isocyanates
Chapter 30	Plastics and articles thereof
3909 50 00	Polyurethanes

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The Assessing Officer issued pre-assessment notices

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under Section 25(1) of the Act and also Section 6 7 (1)(d) proposing to

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levy a penalty on the dealer for misdescription of Suprasec as falling

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under Polyurethane and avoidance of tax. The appellant submitted the reply, which the Assessing Officer did not accept, the appellant filed an appeal before the Deputy Commissioner (Appeals) as

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narrated above, and the appeal ended in dismissal by order dated 27.02.2016 (Ext.P1) in W.P.(C) No.15191/2016. Likewise, the notice under Section 67 of the Act was confirmed, and the review filed resulted in dismissal by order dated 25.02.2016 (Ext.P1) in W.P.(C) 9727/2016.

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The learned Single Judge, through judgment impugned in the intra-court appeal, dismissed the writ petitions and granted liberty to the appellant to approach the competent statutory authority, and in the event of the appellant availing statutory remedy, the time spent by the appellant during the pendency of the writ petitions is excluded for computing the period of limitation provided for filing the appeal.

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Adv. A.R. Madhav Rao contends that the judgment under appeal failed to exercise the discretionary jurisdiction under Article 226 of the Constitution of India and relegated the appellant to work out the alternative remedy of appeal, etc. He places reliance on the Indian Rubber Manufacturers Research Association Report dated 09.06.2016, which is to the effect that the brand name ‘Suprasec’

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cannot be considered as a separate chemically defined poly functional Isocyanate and must be considered as Polyurethanes. The same effect is the report dated 09.06.2016 of the SGS Pvt Ltd in chemical parlance; the presence of some percentage of Isocyanate in the final product of polyurethane is no reason to bracket Suprasec as Isocyanate falling under HSN code 2929.10.20. Therefore, the writ remedy should have been examined on the case’s merits.

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8.1 It is further argued that in the absence of disputed questions of fact on the classification and applicable Tariff to a product, the matter should have been heard and disposed of on merits. Further, after the W.P.(C) is admitted, disposing of the writ petition to avail the appeal remedy is untenable.

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8.2 Adverting to the merits of the matter, learned counsel places strong reliance on the chemical composition reports and the category to which Suprasec is relatable on the reports of Indian Rubber Manufacturers Research Association, SGS Pvt Ltd. Simultaneously, he commends on clarifications dated 04.11.2009 for more than one reason, has not conclusive on the issue of applicable

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HSN Code to the subject commodity. To wit, he argues that the clarifications have yet to go into any tests for deciding the applicable Code under the HSN Code and Entry under the Act. The clarification dated 04.11.2009, for all purposes, gets erased with the subsequent clarification issued to a similar product by the Commissioner and another letter issued to the appellant herein. The appellant relied on the opinion of the competent body on this behalf. The Department desired to have an independent third-party opinion. Accordingly, it has received the report from the Department of Chemistry, NIT, Calicut. The report dated 17.10.2016 (Annexure R2(b) in W.P.(C) No.9727 of 2016) refers to ‘FTIR spectrum provided Suprasec-2449 and Polyurethane shows strong-NCO peaks in this range indicating the presence of isocyanate functional group’. Polyurethane is formed by a chemical reaction of diisocyanate with polyol, and the presence of Isocyanate cannot be treated as an organic Isocyanate chemical falling under HSN 2929.10.

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8.3. He relies on the judgments reported in M.P Agencies vs.

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State of Kerala¹ , HPL Chemicals Ltd v. Commissioner of C. Ex. Chandigarh² , and Indian Metals & Ferro Alloys Ltd vs. Collector of Central Excise³ argued that the clarificatory order dated 4.11.2009 cannot act as an estoppel against the appellant. The appellant has scientifically established Suprasec as a commodity falling under HSN Code 3909; the decision must be taken at the applicable tax rate of 5% but not 12.5%. Therefore, he prays for setting aside Ext.P1 in both Writ petitions.

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Mr Mohammed Rafiq argues that Suprasec is a brand name. The appellant having hands-on experience up to August 2013,

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treated Suprasec as a product falling under Isocyanate HSN Code. The reports relied on are dated 09.02.2016 and 09.06.2016. The reports relied on by the appellant, though they suggest Suprasec product as falling under Polyurethane, the report dated 17.10.2016 of the Department of Chemistry, NIT, Calicut, contradicts the

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1 (2015) 38 ELT 22 (SC)

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2 (2006) 197 ELT 165 (SC)

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3 (1991) 51 ELT 500 (SC)

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exclusive claim of the appellant to treat Suprasec as a product falling under Polyurethane.

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9.1 He argues with considerable force that the issue of having determination, at any stage, is not whether Polyurethane could be categorised as HSN Code 3909 or falls in Entry 66 of the III Schedule read with Entry 118 of List A of Third Schedule. The core contention is whether the product ‘Suprasec’ would fall within the ambit of any of the Entries in the Act. He argues that directing the appellant to avail remedy of appeal is very apt and correct in the circumstances of the case. He prays for dismissing the appeals.

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We have taken note of the contentions required to the extent of the order of conclusion we would be reaching and perused the record. We have perused the order of the Appellate Authority in Ext.P1 orders. The Appellate Authority was primarily guided by the clarification dated 04.11.2009 given to the appellant by the competent authority under Section 94 of the Act. The Appellate order refers to the appellant's conduct in declaring Suprasec as Isocyanate falling under HSN 2929.10. The Appellate Authority

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narrates that sufficient material is not placed before the authorities in support of the appellant's changed view canvassed for the period of return. The clarificatory order dated 04.11.2009 refers to the commodities with which the appellant deals and the description as per the Bill of Entry. The competent authority examined the method by the description of the commodity as per the Bill of Entry. The fallacy in the said approach is that the appellant was also admitting that till August 2013, the appellant was treating Suprasec as Isocyanate, which is theoretically, and commercially incorrect. Therefore, by enclosing sufficient data for classifying supersec as a commodity falling under Polyurethane, the appellant agreed to change of HSN classification. It is also the case of the appellant that post-August 2013 the port of Entry accepted the very same goods as Polyurethane. For two reasons, the clarification issued in favour of the appellant, at least in the jurisdiction of this Court under Article 226, shall not be appreciated as a conclusive situation on the name of the commercial product characteristics, categorisation, and applicable rate of tax. As held by the Hon’ble Supreme Court, there is no estoppel against raising the contention on applicable

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classification. However, producing sufficient proof and data, the appellant though tries to simply his burden by relying on a clarification issued to one of its competitors, Mr Rafiq rightly meets such contention that it is a universal application of what is imported by all traders. The issue is about the entry applicable to the product imported. Once the clarificatory orders are kept aside, the question begs very consideration when we refer to reports received from on Indian Rubber Manufacturers Research Association, SGS Pvt. Ltd and Department of Chemistry, NIT, Calicut.

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10.2 It is contextual to appreciate that faced with the situation of considering the material now relied on by the appellant, the respondent has chosen to obtain an expert view or opinion on the characteristic and applicable classification for the chemical product in dispute. The dates of all these reports have already been recorded. Therefore, it boils down to the determination of Suprasec as falling under Isocyanate or polyurethane or because of some percentage of isocyanate being present in Suprasec whether the status of polyurethane could be denied to the appellant or not. No

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doubt, the authorities having jurisdiction over these matters must examine the circumstances. We agree with the view of the learned Single Judge to the extent that these keenly contested issues of technical and scientific implication are agitated at the first instance before the statutory forum. In the case on hand, after perusing the order of the Appellate Authority we are convinced that the appellate authority was convinced by the clarificatory order of the Commissioner than by independently applying the conclusions recorded in the reports relied on by the writ petitioner and the department. In other words, the appellate authority did not objectively consider contemporaneous material placed before it. We believe that the order of the appellate authority warrants to be interfered with and the matter remitted to the Deputy Commissioner (Appeals) for consideration and disposal. Accordingly, the orders of the Deputy Commissioner (Appeals) in Ext.P1 in both the writ petitions are set aside.

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10.3 Hence for the above reasons, Writ Appeals are allowed,

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the orders under appeal are set aside, and matters are remitted to

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Deputy Commissioner (Appeals) for consideration and disposal afresh in accordance with the law. We must add that the matter on hand upon remand is not considered and decided exclusively by the opinion rendered in clarificatory orders by the Competent Authority under Section 94 of the Act. The appellant is given the liberty to discharge the initial responsibility of proving its claim that ‘Suprasec’ is a product falling under HSN Code 3909. For the said purpose, the appellant is given liberty to enclose additional documents or experts’ opinions by enclosing a copy of the judgment within eight weeks from the date of receipt of copy of the judgment. The appellate authority hears and disposes of the appeals within six months from the date of receipt of the judgment.

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W.P(C) No.9727/2016

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We have juxtaposed the impugned orders of the Appellate Authority. The reasoning appears to be identical or has sufficient influence on one another. The incidence to pay the penalty arises subject to the case now canvassed by the appellant is decided by the competent authority or the court of law. When there is a serious

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technical issue for consideration and decision, a penalty order has been imposed. For the reasons recorded in W.A No.833/2017 for setting aside the order of the Appellate Authority in Ext.P1 dated 25.02.2016, we set aside the order in Ext.P1 dated 25.02.2016 dismissing the review petition filed by the appellant, and the matter remitted to Deputy Commissioner (Appeals) for consideration and afresh in accordance with the law.

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The consideration of penalty is taken up subject to adjudication on the core issue, viz whether ‘Suprasec’ is a product in which the appellant is doing business. By operation of its characters, commercial name, and product details, whether it falls within the consideration of HSN Code 3909 as Polyurethane. Therefore, the question is, at what stage the penalty proceedings could be taken forward by the Authority? In our considered view, the Assistant Commissioner of Commercial Taxes, who has initiated the step, is directed to await the outcome of adjudication before the Deputy Commissioner (Appeals) in the appeal filed by the appellant herein. Subject to such an outcome, the penalty proceedings are

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investigated and decided. The sum and the substance are that the order dated 25.02.2016 is set aside, and the matter is remitted to the

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Deputy Commissioner (Appeals) for consideration in the manner indicated above. No order as to costs.

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Writ appeals are ordered as indicated above.

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