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Meera Metal Industries Vs. Commissioner of Sales Tax, Mumbai - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference Nos. 7 of 2009 & 15 of 2009
Judge
AppellantMeera Metal Industries
RespondentCommissioner of Sales Tax, Mumbai
Excerpt:
bombay sales tax act, 1959 - section 61 -.....is utensils and other kitchenware made of aluminium or other non-ferrous metals and treated with stick-resistant coatings12%10%1.7.1982 to 30.9.1995 5. thereafter, on 1 october, 1995 substantial amendments were made to the bst act, as a result of which the schedules appended to the bst act underwent radical changes. in fact they were replaced by entirely new schedules altogether. schedule entry c-ii-17 relating to utensils made of non-ferrous metals was replaced with schedule entry c-ii-24 with no real major changes with the exception of the rate of tax. as far as schedule entries c-ii-46a and c-ii-46b are concerned, they were replaced with schedule entry c-ii- 26. the said schedule entries c-ii-24 and c-ii-26 read as under:- sr.no.description of goodsrate of sales taxrate of purchase.....
Judgment:

B.P. Colabawalla, J.

1. By these two Sales Tax References, the Second Bench of the Maharashtra Sales Tax Tribunal (for short the MSTT ) has referred the following questions of law for an opinion of this Court under Section 61 of the Bombay Sales Tax Act, 1959 (for short BST Act ). These references have been preferred at the instance of the Applicant. The question of law referred for our opinion are as under:-

(i) Whether on the facts and circumstances of the case and on true and correct interpretation of the Schedule Entries C-II-17 and C-II-46A appended to the Bombay Sales Tax Act, 1959, was the Tribunal legally justified in holding that the hard-anodised utensils sold by the appellant under his sale invoice dated 12.01.1995 is a heat-resistent cookware under the Schedule Entry C-II- 46A and hence does not get covered by the Schedule Entry C-II-17?

(ii) Whether on the facts and circumstances of the case and on true and correct interpretation of the Schedule Entries C-II-24 and C-II-26 appended to the Bombay Sales Tax Act, 1959, was the Tribunal legally justified in holding that the hard-anodised utensils sold by the appellant under his sales invoice dated 06.02.1996 falls under Schedule Entry C-II-26 and hence would not get covered by the Schedule Entry C-II-24?

2. Though the questions of law that have been referred for our opinion are whether the products of the Applicant sold under their invoices dated 12th January, 1995 and 16th February, 1996, fall under Schedule Entries C-II-17 or C-II-46A (prior to 30.09.1995) and Schedule Entries C-II-24 or C-II-26 (after 30.09.1995), Mr Nair, learned counsel appearing on behalf of the Revenue contended that as far as the Applicant's products are concerned, prior to 30.09.1995, the same would fall under Schedule Entry C-II-46B as held by the Commissioner in his order dated 7th August, 1999 that was passed on an Application filed by the Applicant seeking determination of the rate of tax on their products, namely, Anodized Concave Tawa and Anodized Kadai of different sizes ( the DDQ order ).

3. To understand the present controversy, it would be necessary to first set out the necessary Schedule Entries and the amendments thereto. Schedule Entry C-II-17 deals with inter alia utensils made of non-ferrous metals. For the period 1.9.1990 to 30.09.1995, the Schedule Entry C-II-17 read as under:-

Sr.No.Description of GoodsRate of Sales

Tax

Rate of Purchase TaxPeriod
17Utensils made of non-ferrous metals (other than those covered by any other entries in this schedule or any other schedule), but excluding utensils made of gold and silver (Sales or purchases of utensils made of aluminium of this Entry: Rate of tax is reduced to 4 % by Entry (235) G by STA-1086/103/RES-8 dt. 30.6.1986 w.e.f. 1.7.1986 to 31.3.1994 and w.e.f. 1.4.1994 the rate of tax is reduced to 1 % by STA-1094/12/T-2 dt. 8.9.1994)6%6%1.9.1990 to 30.9.1995
4. The Schedule Entries relating to heat resistant cook-ware and non-stick cook-ware for the relevant period were Schedule Entries C-II-46A and C-II-46B which read thus:-

Sr.No.Description of GoodsRate of Sales

Tax

Rate of Purchase TaxPeriod
46AHeat resistant cook-ware and serveware, that is kitchenware coated with heat-resistant coatings and used for cooking as well as serving12%12%1.7.1982 to30.9.1995
46BNon-stick cook-ware, that is utensils and other kitchenware made of aluminium or other non-ferrous metals and treated with stick-resistant coatings12%10%1.7.1982 to 30.9.1995
5. Thereafter, on 1 October, 1995 substantial amendments were made to the BST Act, as a result of which the Schedules appended to the BST Act underwent radical changes. In fact they were replaced by entirely new Schedules altogether. Schedule Entry C-II-17 relating to utensils made of non-ferrous metals was replaced with Schedule Entry C-II-24 with no real major changes with the exception of the rate of tax. As far as Schedule Entries C-II-46A and C-II-46B are concerned, they were replaced with Schedule Entry C-II- 26. The said Schedule Entries C-II-24 and C-II-26 read as under:-

Sr.No.Description of GoodsRate of Sales TaxRate of Purchase TaxPeriod
24Household utensils made of non-ferrous metals excluding those overed elsewhere (Rate reduced to 2 % on sales by RD of household utensils made of non-ferrous metals, entry A-54(2) of Noti. u/s. 41 w.e.f. 27.9.96)4%4%1.10.1995 to date
Sr.No.Description of GoodsRate of Sales

Tax

Rate of Purchase TaxPeriod
26Cookware, serveware and kitchenware coated with any material to make heat resistant or non-stick12%12%1.10.1995 to 30.9.1996
6. On a comparison of Schedule Entries C-II-46A and C-II-46B on the one hand (before amendment) and Schedule Entry C-II-26 on the other hand (after amendment), it is clear that with effect from 1.10.1995 the Schedule Entries C-II-46A and C-II-46B were combined into Schedule Entry C-II-26. Now after amendment, Schedule C-II-26 took within its sweep cookware, serveware and kitchenware coated with any material to make it heat resistant or non-stick.

7. Having set out the relevant Schedule Entries, we shall now turn our attention to the facts. In both these References the facts are almost identical. Hence, for the sake of convenience we shall refer to the facts in Sales Tax Reference No.7 of 2009.

(a) The Applicant is a Partnership Firm and manufactures aluminium utensils used for the household purposes. According to the Applicant, the utensils sold by it are not coated with any material so as to make them heat resistant or non-stick. Be that as it may, since the Applicant wanted some clarity in respect of the products sold by it, namely, Anodized Concave Tawa and Anodized Kadai , the Applicant filed two Applications both dated 10th October, 1997 ( the DDQ Applications ) under Section 52 of the BST Act for determination of the rate of tax in respect of the said products. In the DDQ Applications, in relation to the products sold under its invoice dated 12th January, 1995, the Applicant contended that its products were covered by Schedule Entry C-II-17. In relation to the products sold under its invoice dated 6th February, 1996, the Applicant contended that its products would fall under Schedule Entry C-II-24.

(b) By his common order dated 7th August, 1999 ( the DDQ Order ), the learned Commissioner rejected the contentions of the Applicant and held that the products of the Applicant sold under their invoice dated 12th January, 1995, would fall under Schedule Entry C-II-46B and the products sold under their invoice dated 6th February, 1996, would fall under Schedule Entry C-II-26. The reasoning given by the Commissioner was that considering the process of manufacturing as described by the Applicant and reading the advertisement of the said products, it was clear that the Applicant's products were not only promoted as non-stick cookware but had an Armour Finish which forms a stick resistant coating on the products of the Applicant. The products of the Applicant could not be called simple aluminium utensils and there was a marked difference in the price range between plain aluminium utensils and the products of the Applicant, was the finding of the Commissioner. Accordingly, the Commissioner, by his order dated 7th August, 1999 rejected the contentions of the Applicant.

(c) Being aggrieved by the DDQ order, the Applicant filed two Appeals before the MSTT. These Appeals of the Applicant came to be disposed of by the MSTT vide its order and judgment dated 16th January, 2007. The MSTT inter alia held that the products of the Applicant sold under its invoice dated 12th January, 1995 would fall under Schedule Entry C-II-46A (and not under Schedule Entry C-II-46B as held by the Commissioner). As far as the products sold under its invoice dated 6th February, 1996 are concerned, the MSTT held that the same would fall under Schedule Entry C-II-26. The MSTT inter alia held that the process of electrolysis and which was performed on the products of the Applicant, formed a coating on the products which made it heat-resistant. By virtue of this coating, the Applicant claimed that its products were nontoxic, non-staining and non-reactive with food. The MSTT held that the anodized utensils were unaffected by high heat, while the coating on a non-stick cookware would come off with mechanical abrasion and deteriorate rapidly with heat in excess of 260 C. Thus, on the basis of this reasoning, the MSTT classified the products of the Applicant sold under their invoice dated 12th January, 1995 under Schedule Entry C-II-46A instead of C-II-46B (as held by the Commissioner). Since after 1.10.1995, Schedule Entry C-II-26 took within its purview cookware, serveware and kitchenware coated with any material making it heat-resistant or non-stick, the MSTT held that the Applicant s products sold under its invoice dated 6th February, 1996 would fall under Schedule Entry C-II-26.

(d) Being aggrieved by the dismissal of the Appeals by the MSTT, the Applicant preferred two Reference Applications under Section 61 of the BST Act inter alia praying to refer the questions mentioned in the said Applications for the opinion of this Court. It is, in these circumstances, that the MSTT partly allowed the Reference Applications and referred the questions of law mentioned in paragraph 1 above for the opinion of this Court.

8. In this factual backdrop, Mr Surte, the learned counsel appearing on behalf of the Applicant, submitted that the products of the Applicant in question were basically aluminium utensils on which an anodizing process was done. The said anodizing process was explained by Mr Surte as follows:-

Aluminium utensils are put through a process of heating and anodizing whereby it acquires a quality of stick-resistance. The anodizing is done in order to give a smooth finish and better appearance to the utensils. Because of anodizing, the food cooked in the utensil is non-toxic and is without staining and non-reactive. The metal surface is toughened to armour finish by an electrolysis process. Heavy guage and commercially pure aluminium metal is chosen because it is a good conductor of heat. The vessel is provided with heat-proof handles. It is efficient and long lasting. It is not treated with any stick-resistant coating.

9. Mr Surte argued that despite this anodizing process, the products of the Applicant continued to remain aluminium utensils covered by Schedule Entry C-II-17 for the period prior to and including 30.09.1995, and by Schedule Entry C-II-24 for the period commencing from 1.10.1995. Mr Surte contended that the products of the Applicant, in trade parlance, could never be classified as nonstick cookware. In any event, he submitted that anodizing is done to give a better finish and by virtue of this process its products become non-toxic and non-reactive to food. He submitted that before the products of the Applicant could be classified either under Schedule Entries C-II-46A or C-II-46B (before amendment) or Schedule Entry C-II-26 (after amendment), the same has to be treated with a coating to give it either heat resistant or non-stick properties. He laid great stress on the words coated with heat-resistant coatings appearing in Schedule Entry C-II-46A and the words treated with stick-resistant coatings in Schedule Entry C-II-46B to contend that a separate coating has to be applied to the products which makes it heat resistant or non-stick before one can classify it under either of the said Schedule Entries.

10. According to Mr Surte, by carrying out the process of anodizing, the Applicant was not putting any coating on the product or treating it with any coating which makes it either heat-resistant or non-stick. Therefore, according to Mr. Surte, the Applicant s products would clearly fall outside the purview of the Schedule Entries C-II- 46A and C-II-46B (before amendment) as well as Schedule Entry C-II-26 (after amendment). Accordingly, he submitted that the questions of law set out in paragraph 1 above be answered in the negative and in favour of the Applicant and against the Revenue.

11. On the other hand, Mr Nair, learned counsel appearing on behalf of the Revenue, submitted that the products of the Applicant sold under its first invoice dated 12th January, 1995 ought to be classified under Schedule Entry C-II-46B (non-stick cookware) and under the second invoice dated 6th February, 1996 under Schedule Entry C-II-26. According to him, the products of the Applicant would squarely fall in the aforesaid two Entries as they have stick resistant properties. They acquire these stick resistant properties by virtue of a coating being formed on the utensils by virtue of it undergoing the process of anodizing. He submitted that the argument of the Applicant that no coating is found on the utensils when it undergoes the process of anodizing is factually incorrect. He submitted that the process of anodizing the aluminium utensils provides a stick resistant coating to the utensils. By virtue of this process, therefore, the utensils of the Applicant become nonstick cookware which is specifically covered under Schedule Entry C-II-46B (before amendment) and C-II-26 (after amendment). He, therefore, submitted that the products of the Applicant could not have been classified under C-II-17 or C-II-24.

12. He submitted that the dictionary meaning of the term anodizing is a process to produce a durable film on the surface by electrolysis action in which the metal acts as an anode. Mr Nair submitted that the durable film that is formed is nothing but a durable coating on the utensils and hence a coating is created on the utensils during the process of electrolysis. By virtue of this coating, the utensils achieve stick resistant properties, besides other properties such as being non-reactive and non-toxic. Mr Nair also placed reliance on Hawley's Condensed Chemical Dictionary wherein the process of anodizing has been described as an electrolytic treatment of Aluminium, Magnesium and a few other metals as a result of which heavy, stable films of oxide are formed on their surfaces .

13. Mr Nair submitted that the process of anodizing converts the metal surface into a decorative, durable, corrosion-resistant, anodic oxide finish by passing an electric current through the medium. Anodizing is accomplished by immersing the aluminium into an acid electrolyte bath and passing an electric current through the medium. A cathode is mounted on the inside of the tank and the aluminium acts as an anode, so that oxygen ions are released from the electrolyte to combine with the aluminium atoms at the surface of the part being anodized. It is by this process that a current is applied and the water in the electrolyte breaks down and oxygen is deposited at the anode. This oxygen then combines with the aluminium to form oxide and thus builds on the oxide film present on the surface which has stick-resistant properties. This electrochemical process thickens and toughens the naturally occuring protective oxide. Apart from this, the satilon coating (viz. an integral part of the metal built up molecule to the thickness of more than 50 microns, under very carefully controlled conditions, through electrolysis) forms an extremely stable surface that is non-toxic, non-staining and non-reactive with foods. It is highly abrasion resistant and will not scratch. The resulting finish, depending on the process, is the second hardest substance known to man, second only to diamonds. He, therefore, submitted that the products of the Applicant have been correctly classified by the Commissioner in its DDQ order under Schedule Entry C-II-46B (before amendment) and C-II-26 (after amendment).

14. Additionally, Mr Nair submitted that even under the common parlance test, the products of the Applicant could not be understood as ordinary aluminium utensils that would fall under Schedule Entry C-II-17 (before amendment) and C-II-24 (after amendment). The prices of the products of the Applicant are far higher than ordinary aluminium utensils sold in the market. For all the aforesaid reasons, Mr Nair submitted that the products of the Applicant sold under their invoice dated 12th January, 1995 are correctly classified by the Commissioner under Schedule Entry C-II-46B. Similarly, according to Mr. Nair, the Commissioner has correctly classified the products of the Applicant sold under their invoice dated 6th February, 1996 under Schedule Entry C-II-26.

15. We have heard the learned counsel for respective parties at length. We have perused the papers and proceedings in both the References as well as given our careful consideration to the relevant Schedule Entries. Schedule Entry C-II-17, as it stood during the period 1st September 1990 to 30th September 1995, deals with utensils made of non-ferrous metals (other than those covered by any other Entries in Schedule C or any other Schedule) but excluding utensils made of gold and silver. The rate of tax was 6%. As far as heat resistant cookware is concerned, the same was covered by Schedule Entry C-II-46A and provides that heat resistant cookware and serveware, that is kitchenware coated with heat resistant coatings and used for cooking as well as serving, would fall within this Entry. As far as non-stick cookware is concerned, the same was covered under Schedule Entry C-II-46B and provides that non-stick cookware, that is utensils and other kitchenware made of aluminium or other non-ferrous metals and treated with stick-resistant coatings, would fall within this Entry. These Entries related to a period upto 30th September, 1995 and which would govern the Applicant's invoice dated 12th January, 1995.

16. As far as the invoice dated 6th February, 1996 is concerned, the relevant Schedule Entries under which the products of the Applicant could be classified, were Schedule Entries C-II-24 or C-II-26. Schedule Entry C-II-24 stipulates that household utensils made of non-ferrous metals excluding those covered elsewhere, would fall within this Schedule Entry. Schedule Entry C-II-26 provides for cookware, serveware and kitchenware coated with any material to make it heat resistant or non-stick.

17. When all these Entries are looked at and examined together, what can be discerned therefrom is that if cookware, serveware and kitchenware (which would obviously include utensils) is heat resistant or non-stick by virtue of any coating (whether formed, applied or treated), on the utensils, then the same would clearly fall within Schedule Entries C-II-46A (heat resistant) or C-II-46B (non-stick) [before amendment], and C-II-26 [after amendment], as the case may be. Therefore, they cannot be classified under Schedule Entries C-II-17 (before amendment) or C-II-24 (after amendment). This is the clear intention of the Legislature in classifying different products in different Entries.

18. The thrust of Mr Surte's argument was that there is no coating on the products sold by the Applicant under its invoices dated 12th January, 1995 and 6th February, 1996 for it to fall either under Schedule Entries C-II-46A or C-II-46B (before amendment) or C-II-26 (after amendment). The corollary to this argument was that the Applicant s products would therefore fall within Schedule Entries CII-17 (before amendment) and C-II-24 (after amendment), respectively.

19. We are afraid we are unable to accept this submission. For the Applicant's product to fall within either Schedule Entry C-II-17 (before amendment) or C-II-24 (after amendment), the following basic conditions are to be fulfilled:-

(1) the utensil is made of non-ferrous metal; and

(2) this utensil made of non-ferrous metal should not be covered in any other Entry either in Schedule 'C' or any other Schedule to the Bombay Sales Tax Act.

20. In Schedule Entry C-II-17 one more condition has to be fulfilled, viz. the utensil should not be made of gold or silver. It is common ground before us that the Applicant s products are made of aluminium and therefore, the first condition is fulfilled. However, the dispute arises with reference to the second condition viz. whether they are covered by any other Entry either in Schedule 'C' or any other Schedule. According to the Revenue, the products of the Applicant would be squarely covered by Schedule Entries C-II-46B (before amendment), and C-II-26 (after amendment).

21. Hawley's Condensed Chemical Dictionary describes the process of anodizing as an electrolytic treatment of Aluminium, Magnesium and a few other metals as a result of which heavy, stable films of oxide are formed on their surfaces . It is an electrochemical process and is accomplished by immersing the aluminium into an acid electrolyte bath and passing an electric current through the medium. A cathode is mounted on the inside of the tank and the aluminium acts as an anode, so that oxygen ions are released from the electrolyte to combine with the aluminium atoms at the surface being anodized. It is by this process that a current is applied and the water in the electrolyte breaks down and oxygen is deposited at the anode. This oxygen then combines with the aluminium to form oxide and thus builds on the oxide film present on the surface which has stick-resistant properties. This electrochemical process thickens and toughens the naturally occuring protective oxide. The coating thickness and surface characteristics are tightly controlled to meet the end product specifications. In other words, anodizing is a matter of highly controlled oxidation. The end result of this highly controlled process is that the anodized aluminium cookware is coated with oxide so that base of the metal does not come in contact with food.

22. Looking to all this, what is clear is that the anodizing process forms a certain coating on the metal, due to which the utensil achieves additional qualities, one of which is the quality of stick resistance. In other words, the coating created due to this electrolysis process achieves stick resistant properties, besides other properties such as being non-reactive to food etc. We, therefore, are unable to agree with the main and principle contention of Mr Surte that by the process of anodizing, the products of the Applicant are not coated and/or treated with any coating to fall either under Schedule Entry CII-46B or C-II-26. We are clearly of the view that by the anodizing process, a coating is formed on the products of the Applicant which gives it stick resistant properties and would therefore definitely fall within Schedule Entry C-II-46B (prior to amendment) and C-II-26 (after amendment).

23. Even from the advertisement of the Applicant s products (pg 67 of the paperbook), it is clear that this is how even the Applicant understood it. The relevant portion of the said advertisement reads thus:-

This 'Armour' finish cookware is made of heavy gauge, commercially pure aluminium metal, which is one of the best and most even conductors of heat. The metal surface is specially toughened to the 'Armour' finish surface by an electrolysis process.

The Armour Finish forms an integral part of the metal and is natural dark gray in colour. IT IS TOUGH, STABLE, NON-TOXIC, NON-STAINING AND NONREACTIVE WITH FOODS.

Armour Finish thus combines the superior heat conductivity of aluminium with the corrosion resistance of stainless steel. Armour Finish does not develop hot-spots like in stainless steel.

Armour Finish:

Stays Looking Good:- It does not tarnish and with a little proper cleaning, stays looking good for years.

Stays tough:- It will not scratch. It is highly abrasion resistant in fact harder than stainless steel.

Provides Convenience:- It is stick resistant and its fine smoothness provides for absolute ease in cleaning.

(emphasis supplied)

24. In fact, in the very same advertisement, while comparing conventional cookware with the cookware manufactured by the Applicant, it is also mentioned that it has non-stick qualities. All this clearly goes to show that the products of the Applicant cannot be classified under Schedule Entry C-II-17 (prior to amendment) and CII-24 (after amendment).

25. In the view that we have taken, we are supported by a decision of the Supreme Court in the case of Hawkins Cookers Ltd. v/s State of Kerala. (2008) 12 SCC 447).The issue which arose for consideration before the Supreme Court was whether the satilon brand cookware sold by the Appellants therein was an aluminium household utensil made of aluminium and aluminium alloys classifiable under Entry 5 of the First Schedule under the Kerala General Sales Tax Act, 1963, or whether the said product would fall under Entry 104 which pertained to pressure cooker, cook and serve ware to keep food warm, casseroles, water filters and similar home appliances not coming under any other entry . Whilst deciding the aforesaid issue, the Supreme Court at paragraphs 5 and 6 held as under:-

5. We are in agreement with the view taken by the Tribunal as well as the High Court that satilon coated aluminium products are not identical with aluminium household utensils made of aluminium and aluminium alloys . The coating of satilon makes all the difference to the product. The Tribunal has further recorded a finding that in trade parlance, no one would describe satilon coated aluminium products as aluminium household utensils.

6. We do not agree with the submission made on behalf of the assessee that coating of satilon on the surface of the metal product does not bring about any change in the nature and utility of the product. By no stretch of imagination, satilon coated cookware can be treated as ordinary aluminium household utensils. Price of the satilon coated cookware is much more than the aluminium household utensils made of aluminium and its alloys. Hawkins cookware sold by the assessee cannot be categorised as household utensils made of aluminium for the reasons that the satilon coating makes the goods non-stick and hence different from the aluminium household utensils. In common parlance, Hawkins cookware with satilon coating is not understood as aluminium ware. We further agree with the view taken by the High Court that the amendment to Entry 104 of the First Schedule is clarificatory in nature.

(emphasis supplied)

26. We must mention here that satilon coating is a hard anodizing coating which is not brushed or sprayed on. It is an integral part of the metal built up molecule to the thickness of more than 50 microns, under very carefully controlled conditions, through electrolysis. Satilon forms an extremely stable surface that is nontoxic, non-staining and non-reactive with foods. It is a naturally dark grey colour. No pigment is added. Satilon does not tarnish, stays looking new for years and makes the utensil non-stick. It will not scratch, is highly abrasion resistant and is 2.4 times harder than stainless steel. Once we understand what is a satilon coating, then the decision of the Supreme Court in the case of Hawkins Cookers Ltd. (2008) 12 SCC 447)would squarely apply to the facts of the present case.

27. In view of our foregoing discussion, we have no hesitation in holding that the products of the Applicant sold under its invoice dated 12th January, 1995 would fall under Schedule Entry C-II-46B and the Applicant s products sold under its invoice 6th February, 1996 would fall under Schedule Entry C-II-26. The Sales Tax References are answered in the aforesaid terms. However, in the facts and circumstances of the case, there shall be no order as to costs.


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