Bitumen; Indian Oil Corporation Vs. Senior Joint Commissioner [Calcutta High Court, 20-05-2016]

West Bengal Valued Added Tax Act, 2003 – Part-I of Schedule C – Whether bitumen emulsion should be regarded as bitumen and covered by Entry 14 of the list of goods taxable at five per cent – Held, bitumen emulsion is more relatable to the entry covered by bitumen rather than the residuary entry in Schedule CA to the Act.


IN THE HIGH COURT AT CALCUTTA

CONSTITUTIONAL WRIT JURISDICTION APPELLATE SIDE

BEFORE SANJIB BANERJEE, Judge

Date: May 20, 2016.

WP 2905 (W) of 2016

INDIAN OIL CORPORATION LIMITED

-VERSUS-

SENIOR JOINT COMMISSIONER, COMMERCIAL TAXES AND OTHERS

For the Petitioner: Mr R. N. Bajoria, Sr Adv., Mr Avra Majumder, Adv., Mr Akhilesh Gupta, Adv., Ms Sudeshna Mazumder, Adv.

AND

WP 324 of 2016 With WP 1163 of 2015 With WP 325 of 2016

SHELL INDIA MARKETS PRIVATE LIMITED

-VERSUS-

SENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, CORPORATE DIVISION AND OTHERS

AND

WP 403 of 2016

SHELL INDIA MARKETS PRIVATE LIMITED

-VERSUS-

SENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, LARGE TAX PAYER UNIT AND OTHERS

AND

WP 404 of 2016

SHELL INDIA MARKETS PRIVATE LIMITED

-VERSUS-

SENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, LARGE TAX PAYER UNIT AND OTHERS

For the Petitioner Mr Sumit Kumar Chakraborty, Adv., in WP 324 of 2016: Mr Piyal Gupta, Adv., Ms Payel Verma, Adv. For the Petitioners Mr Sumit Kumar Chakraborty, Adv., in WP 324 of 2016, Ms Payel Verma, Adv. WP 403 of 2016 & WP 404 of 2016: For the State: Mr Abhratosh Majumdar, Sr Adv., Mr Prithu Dudharia, Adv., Mr Soumitra Mukherjee, Adv., Ms P. Bandhopadhyay, Adv.

SANJIB BANERJEE, J.

The issue involved in all the matters is the same: whether bitumen emulsion should be regarded as bitumen and covered by Entry 14 of the list of goods taxable at five per cent in

Part-I of Schedule C to the West Bengal Valued Added Tax Act, 2003.

2. Bitumen is mainly used for road construction, road repair, roofing and similar purposes. There are several variants of bitumen in use for a considerable period, viz, polymer modified bitumen (PMB), crumb rubber modified bitumen (CRMB) and bitumen emulsion. Bitumen it its original form is a solid and it melts at a high temperature. Traditionally, bitumen has been used for road construction for long and the sight and smell of bitumen is one of the everlasting memories of long-distance road travel in India.

3. For its convenient use, bitumen is now increasingly marketed in an emulsified form so that solid bitumen is not required to be brought to its molten state at high temperatures at the time of its application. Emulsifiers are added to bitumen and certain other chemicals are mixed therewith for bitumen emulsion to be produced as a fine dispersion of minute droplets of one liquid in another in which it is not soluble or miscible. There is undoubtedly a chemical change that is brought about in bitumen being treated with emulsifiers and other chemicals, but the end product of bitumen emulsion has similar use as bitumen; except that solid bitumen no longer needs to be brought to a molten state for its application and bitumen emulsion can be used as a substitute for molten bitumen.

4. The Indian Oil Corporation Limited, the petitioner in the lead matter, markets bitumen emulsion. Such petitioner claims that bitumen emulsion facilitates the use thereof, it is non-hazardous and saves time and cost at the stage of application. The petitioners are all registered dealers under the said Act of 2013.

5. It appears from the trend of the submission made on behalf of the parties that there are, at present, four variants of bitumen products used for the same or similar purposes with very little commercial difference: bitumen in its original form, PMB, CRMB and bitumen emulsion. There is a bit of a history to the matter that requires to be noticed. A legal issue has raged for sometime as to whether PMB, CRMB and bitumen emulsion are distinct from bitumen and should be regarded as products of different manufacture and separate commercial commodities excigable to further excise duty upon bitumen being refined to obtain such products. As far as PMB and CRMB are concerned, the matter has been laid to rest by a judgment reported at

(2012) 2 SCC 282 (Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Private Limited).

In the context of PMB and CRMB, the Supreme Court held that “the process of mixing polymers and additives with bitumen does not amount to manufacture”. The Supreme Court observed that the process involved “merely resulted in the improvement of quality of bitumen” and there was “no change in the characteristics or identity of bitumen” resulting in the “transformation of bitumen into a new product having a different identity, characteristics and use.”

6. Some time prior to that judgment, a dealer in this State applied under Section 102 of the said Act of 2003 before the Commissioner of Sales Tax for determining the rate of tax applicable on the various varieties of bitumen. By an order of January 6, 2012, the Commissioner held that the other varieties of bitumen were assessable at the higher rate applicable under the residuary item and not at the lower rate under the specific head of bitumen. Another dealer applied under Section 102 of the said Act for determining the rate of tax applicable on CRMB. Such matter culminated in a decision of June 6, 2012, upon the Commissioner noticing the Supreme Court judgment in Osnar Chemical and holding that CRMB would be treated as bitumen for the purpose of imposition of tax under the said Act of 2003. A further reference was made under Section 102 of the Act for the determination of the status of bitumen emulsion and the rate of tax payable thereon. Such matter was disposed of by an order of May 7, 2013 with the observation that “Bitumen emulsion is not bitumen but is an unspecified goods covered under Schedule CA as was decided earlier”. Such order of May 7, 2013 was challenged before the West Bengal Taxation Tribunal which agreed with the view expressed by the Commissioner that bitumen emulsion would attract tax at the rate of 13.5 per cent under Section 16(2)(b)(a) of the said Act of 2003. The Tribunal’s judgment of August 21, 2015 has been challenged in a petition under Article 226 of the Constitution. WPTT No.101 of 2015 is pending before a Division Bench of this court.

7. The petitioner in the lead matter and the other petitioners apprehend that in view of the opinion expressed by the Commissioner in the order dated May 7, 2013 as upheld by the Tribunal’s judgment dated August 21, 2015, assessment orders would be passed involving the petitioners on the basis of bitumen emulsion carrying tax at the higher rate. The petitioners also fear that concluded assessments may be revisited and enhanced demands slapped on them. The petitioners say that in view of the order of the Tribunal, they cannot expect that the department would take a different view and also point out that the Tribunal has not been functioning for more than four months now.

8. The petitioners have carried substantial literature to explain the process of making the other varieties of bitumen, particularly bitumen emulsion. The petitioners claim that though the process of preparing the product can be loosely called as manufacture, unless the product is commercially and otherwise substantially different from the product which is identified by name in the relevant schedule, the related product should be regarded as the product named in the schedule and not treated as an unspecified product not relatable to the product specified in the relevant entry. The petitioners also refer to the views expressed, whether in the context of entry tax or VAT by Tribunals and courts in other States.

9. The petitioners submit that the classification of goods for the purpose of determining the tax chargeable thereon has to be based on the relatability of the product to the named entry and if the department intends to classify the goods under a different heading or sub-heading from that claimed by the assessee, it is for the department to adduce evidence and discharge the burden of proof. In such context, the petitioners first refer to a Supreme Court judgment reported at