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M/S Navin Fluorine Industries, Ghaziabad v. Commissioner Of Trade Tax,Ghaziabad And Others - WRIT TAX No. 375 of 2002 [2007] RD-AH 14456 (24 August 2007)


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M/s. Navin Fluorine Industries, Ghaziabad  v.  Commissioner of Trade Tax,           Ghaziabad & others.


Hon'ble Sushil Harkauli, J.

Hon'ble K.N. Ojha, J.

(Delivered by Hon'ble Sushil Harkauli, J.)

The petitioner is a company which manufactures a gas which is a chemical compound known as Fluorochloro Hydro Carbon, under the trade name Mafron/Mafrosol. The product, according to the finding in the impugned assessment order, is predominantly used in refrigeration and air conditioning. It is hereafter in this order referred to as ''CFC' for short.

The petitioner's manufacturing factory is situate in Surat. The product is stock-transfered to the petitioner's Ghaziabad Depot from where it is sold to dealers/distributors.

The dispute in this writ petition is whether, for the assessment year 1999-2000, this product (CFC) should be subject to U.P. Trade Tax at the rate of 10% being treated under Entry No. 261 ''chemical of all kinds', or whether it should be taxed at the rate of 15% under Entry No. 1149 treating the same to be ''refrigeration materials'.

By the impugned assessment order dated 18.1.2002 passed by the Assistant Commissioner (Assessments) - 10, Trade Tax, Ghaziabad, enclosed as Annexure ''K' to the writ petition, the product has been taxed at the rate of 15% treating it to be covered by Entry 1149, i.e. refrigeration material, and thereby an additional demand of tax amounting to Rs. 12,22,142/- has been created against the petitioner.

Although the assessment order, which has been challenged in this writ petition, was an appealable order, but the petitioner chose to file this writ petition straight away without availing the alternative statutory remedy of appeal.

In the case of Titaghur Paper Mills Co. Ltd and another  v.  State of Orissa and another, (1983) 142 ITR 663, the Supreme Court pointed out the inadvisability of entertaining a writ petition questioning a sales tax assessment. The relevant part of the said decision is reproduced below :

"Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the prescribed authority under sub-section (1) of Section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under sub-section (3) of Section 23 of the Act, and, then ask for a case to be stated upon a question of law for the opinion of the High Court under Section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution."

However, the writ petition was admitted on 19.3.2002 but the prayer for interim stay was virtually rejected and the following interim order was passed :

"Interim application is disposed of with the direction that in the event the writ petitioner succeeds in the writ petition, the respondents authorities shall refund the differential amount with interest in accordance with law

Sd/- S.K. Sen, C.J.

Sd/- V.M. Sahai, J.


During final arguments, learned counsel for the petitioner devoted large amount of time and placed great emphasis upon trying to demonstrate that Fluorochloro Hydro Carbon (CFC) is a ''chemical'. We are not referring to the details of that argument or to the authorities cited on that point, for the simple reason that any chemical compound, i.e. a combination of two or more elements resulting from a chemical reaction between those elements would qualify as a ''chemical'. Moreover, it is nobody's case that CFC is not a ''chemical'. The question to be examined is whether the product (CFC) should be taxed under Entry 261 or under Entry 1149. To be more precise, the issue would be that if a product qualifies or falls within two different entries, then under which entry it should be placed for the purposes of taxation. For ready reference the two entries No. 261 and 1149, as THEY stood during the relevant period, are reproduced below :

"ENTRY 261.                                                                          10%

Chemicals of all kinds including fuel gases but excluding natural gas.

Provided that in case of natural gas, if the sale is by any of the undertakings registered as dealer in the name and style of M/s. Indian Oil Corpn Ltd, M/s. Bharat Petroleum Corpn Ltd, M/s. Hindustan Petroleum Corpn Ltd, and M/s. Indo Burma Petroleum Co. Ltd, the tax shall be levied at the point of sale by such dealer to a person other than any of the aforesaid dealers.

ENTRY 1149                                                                        15%

Refrigeration and air-conditioning plants and all kinds of refrigerating appliances and equipments, including refrigerators, deep freezers, mechanical water coolers, air-conditioners, bottle coolers, walk-in-coolers and components, parts and accessories thereof and refrigeration materials including polysterene foam."

Various tests have been prescribed for such situations, e.g.  -

(1) The test of predominant usage  -  (see Saurashtra Chemicals  v.  C.S.T., 143 STC 368 (All.)).

(2) Specific entry overriding the general entry  -  (see CCE  v.  Maharshi Ayurved Corporation, JT 2005 (10) S.C. 360).

(3) Entry more favourable to assessee  -  (see C.I.T.  v.  Vegetable Products, (1973) 88 ITR 192).

Harmonious reading of all these criterion set out in various cases results in the following principles, the earlier of which will exclude the later:-

(1) Specific entry will override the general entry.

(2) The predominant user will be seen to determine the entry.

(3) If there is no clear predominant user and the product falls more or less equally within two entries, then the entry more favourable to the assessee will be taken.

Lastly, it has been held in The State of Goa  v.  Leukoplast (India) Ltd., 1997 UPTC 512, that the question as to in which entry a particular product falls is largely a question of fact.

In the present case the impugned assessment order records the following reasons for holding that the product (CFC) falls within Entry 1149 as a refrigerant material :-

The product is a gas sold in cylinder of various weights. The list of customers who have purchased the product from the petitioner consists mostly of dealers dealing in refrigeration and air-conditioning wherein this product is used as a cooling agent.

The Andhra Pradesh High Court in M/s. Om Refrigeration and Electricals  v.  State of Andhra Pradesh, STC 1996 (237) High Court 107, has held that CFC gases are used predominantly as refrigerants and is, therefore, taxable under the entry "refrigeration material" instead of the entry "gases". In common parlance the produce in question (CFC) is not known or understood as refrigeration gas. It is sold like other gases in gas cylinders. Nobody calls it a chemical and the customers do not buy it from a chemical market. Another decision of the Karnataka High Court reported in STIE (Volume 2001) High Court 17 (M/s. Refrigeration Services  v.  Additional Commissioner of Commercial Tax, Bangalore) has been relied upon in the assessment order. In that decision the High Court held that Mafron gas also known in the trade as Freon gas is used as a refrigerant. The assessment order has taxed the product as refrigerant material under Entry 1149 on the ground of predominant use and common parlance.

We may mention here that the common parlance or popular meaning test is another shade of predominant user test because the common parlance or common usage results largely from predominant user.

In the case of C.S.T.  v.  Chhotey Lal (1979 UPTC 512) THIS court held that Soda is undoubtedly a "chemical" in the technical sense, but as it is normally used as material for washing purpose, it should be classified under the entry "washing materials" and not under the entry "chemicals". In the case of C.S.T.  v.  Fadral Chemical Works Ltd., (1983) 53 STC 425 (All.) this Court held that ''tartaric acid' should be taxed under the entry ''medicine' and not under the entry '' chemical'.

In the case of Industrial Chemical Corporation  v.  Commissioner of Sales Tax, U.P., (1972) 30 STC 172 (All.); (1972) UPTC 310 where the assessee carried on business in paints, marble chips, white cement and coal-tar, and also dealt in calcium carbide, the assessing authority assessed the calcium carbide as chemical which was disputed by the assessee and it was held by High Court that calcium carbide was taxable as chemical. It will not be out of place to mention that in the case of Indo International Industries  v.  Commissioner of Sales Tax, (1981) 47 STC 359 (SC) a question arose as to whether the hypodermic clinical syringes were glasswares. It was observed by Supreme Court that though the dictionary meaning of the expression "glassware" is "articles made of glass" but in a commercial sense glassware could never comprise articles like clinical syringes, thermometers, lactometers and the likewise, which have a specialized significance and utility. A general merchant dealing in "glassware" does not ordinarily deal in such articles which although made of gases are normally available in medical stores and it was held by Supreme Court that the clinical syringes manufactured and sold by the assessee could not be considered as "Glasswares" but fall under "hospital equipment".

From the side of the petitioner it was argued that for earlier assessment years the product was taxed as ''chemical' under Entry 261 and the mere change of opinion on the part of the Assessing Authority cannot result in now taxing the product as ''refrigeration material'. The argument does not carry any weight or conviction. We have not been shown any of the earlier assessment orders in which there is a conscious application of mind by the Assessing Authority in any earlier assessment year whether this product (CFC) should be taxed under Entry 261 as ''chemicals of all kind' or it should be taxed under Entry 1149 as ''refrigeration material'. It is well settled that if the authority was unconsciously wrong yesterday, it is no reason for it to be consciously wrong today. The doctrine of precedent does not apply. In this connection the decision of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd.  v.  Union of India and others (AIR 1985 S.C. 1585) (paragraph 19) and Synthetic and Chemicals Ltd. and others  v.  State of U.P. and others, (1990) 1 S.C.C. 109 (paragraphs 78 and 79), may be seen.

It was then urged by learned counsel for the petitioner that where the Department contends that a product should be taxed under an entry different from the entry suggested by the assessee and the entry suggested by the Department carries a higher tax, the burden of showing that the product falls within the entry carrying higher tax should be on the Department. In this very context it has been argued that where the entry under which the Department now seeks to tax the product is a departure from the earlier assessment years, the burden of proof that the product falls within the new entry or other entry should be placed upon the Department. The suggestion appears to be logical, but it need not detain us because we have already mentioned above in this order that there are enough facts collected by the Department and mentioned in the impugned assessment order regarding predominant user as well as common parlance. We may mention here that along with the counter affidavit the Department has enclosed the oral as well as documentary evidence which had been collected and considered in the petitioner's case for recording the findings about predominant user and common parlance.

At this point, we may mention that a large volume of case law has been relied upon from the side of the petitioner, a compilation of which has been retained on record. We are not inclined to burden this judgment with all these materials for the simple reason that we are not required in this decision to determine in the abstract whether the product (CFC) is a chemical or not. What is to be examined here is that where for the petitioner's product there is an option of choosing one of the following two entries, viz. (1) chemical of all kind, and (2) refrigeration materials, which of the two should be preferred. Therefore, only that case law would be relevant which considers a choice between two identical or sufficiently similar options. So far as we have been able to see, none of the authorities referred before us during arguments examines the preference in the case of a choice between two identical or substantially similar entries.

At this point we may refer to another argument from the petitioner's side. The argument is based upon an amendment of Entry 1149 vide notification No. Ka.Ni. 2-3626/Eleven-9(668)/93-UP. Act-15-48-order(68)-2001 dated 29.11.2001. The entry now reads as below :

20(i)(a) Spare parts and gas used in refrigerator and air conditioners.     8%

   (i)(b) Refrigeration and heat controlling machines and all kinds of refrigerating gadgets and equipment including refrigerator, deep freezer, mechanical water cooler, walking cooler and its component parts, spares and accessories and refrigeration material including polystyrene in addition to material mentioned in sub item (a).     16%

    (ii) Room Cooler and Air Cooler.      12%

Learned counsel for the petitioner sought to draw support from the fact that gas used in refrigerator and air-conditioners is now a separate item carrying a tax of only 8%. The argument is that considering the lower rate of tax, this gas used in refrigeration should be taxed at the lower rate of 10% under Entry 261 instead of the higher rate of 15% under the former Entry 1149.

The argument does not appeal to us. The new entry 20(i)(a) relating to gas used in refrigeration has been carved out of the former Entry 1149 and not out of the former Entry 261. This is clear from a bare reading of the amended entry, quoted above. To our mind, this is indicative of the fact that prior to the amendment Entry 1149 included within its ambit the gas used in refrigeration, which has now, after amendment of 2001, been carved out as a sub-entry, separately. The lowering of the rate of tax is not indicative of anything except the intention of the Government to tax the item at a lower rate for the post-amendment period.

As stated above, the question as to under which entry a particular product falls is largely a question of fact and once the assessment order has recorded a finding of fact, which cannot be said to be based on no material and which cannot be said to be perverse, such finding is not liable to be interfered with under writ jurisdiction of this Court.

In view of the above, the writ petition is dismissed.

Dated : 24.8.2007.



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