HARAN D MANUFACTURING CO Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THE Gujarat Sales Tax Tribunal, Ahmedabad, has referred the following two questions for the decision of this Court under section 69 of the Gujarat Sales Act, 1969, hereinafter referred to as "the Act". " (1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that what was manufactured and marketed by the applicant was not soap but detergent, is perverse, being contrary to the evidence produced in the case and contrary to the principles of natural justice ? (2) If answer to the above question is in the negative, i. e. , against the applicant, whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that 'detergent' is not one kind of soap and hence not covered under entry 34 of Schedule II, Part A to the Gujarat Sales Tax Act, 1969, but covered under entry 13 of Schedule III thereof ?"

(2.) THE aforesaid questions arise in the following factual background : (i) THE applicant Messrs. Haran D. Manufacturing Co. is a partnership firm and a dealer registered under the Act,, engaged in manufacture and sale of soaps. While assessing the applicant for samvat year 2032 corresponding to the period from November 4, 1975 to October 23, 1976 and samvat year 2033 corresponding to the period from October 24, 1976 to November 11, 1977, the concerned Sales Tax Officer considered the applicant's product as "soap" covered by entry 34 of Schedule II, Part A to the Act, and applied the rate of 5 per cent for the purpose of calculating sales tax dues. Before August 1, 1977, the relevant entry 34 read as under : " 34. Soaps (excluding shampoo) Taxable at five paise in the rupee. " As per amendment effected from August 1, 1977, the said entry reads as under : " 34. Soaps and detergents Taxable at six paise in the (excluding shampoo) rupee. " Thus, before August 1, 1977, detergents were not specifically included in entry 34. (ii) On scrutiny of these assessments the Assistant Commissioner of Sales Tax (Administration-cum-Appeals), Circle VIII, Rajkot, was prima facie of the view that the said turnovers of sales were not in respect of "soap" but of "detergent" which would fall under residuary entry 13 in Schedule III of the Act attracting higher rate of tax. In the view of the Assistant Commissioner the products lacked essential raw materials, namely, oil and caustic soda required for the manufacture of soaps, and that acid slurry, silicate, sulphate, stone soap powder used for manufacturing the said product were raw materials in the manufacture of detergent. THE Assistant Commissioner, therefore, issued a notice in form No. 45 for appearing before him with the requisite accounting materials. THE applicant appeared with the requisite materials. It was found that in so far as the period of samvat year 2032 was concerned, consumption of oil and fatty acids taken together was of 5,462 kilograms out of the total consumption of different raw materials weighing 4,95,979 kilograms. In samvat year 2033 the consumption of oil was found to be nil; while that of fatty acid was 280 kilograms only, out of the total consumption of the raw materials weighing 4,65,507 kilograms. On perusal of the account books and the sale bills as well as the advertisement published by the applicant, the Assistant Commissioner was prima facie of the view that what was sold by the applicant during the relevant periods was "detergent" and not "soap". He, therefore, issued the requisite notice for revision of the assessment on the disputed turnover, and also for levying penalty under sub-section (6) of section 43 as a result of the proposed revision. THE dealer made oral and written submissions and relied on the judgment of the Bombay High Court in C. C. Mahajan and Co. v. State of Bombay [1958] 9 STC 133, and also another judgment of the Tribunal itself. However, the Assistant Commissioner held that the products sold by the dealer hardly contained 1 per cent of oil or fatty acids, and, therefore, the product could not be said to fall under the term "soap". He revised the assessment and imposed penalty of Rs. 16,492 for samvat year 2032, and penalty of Rs. 11,937 for the earlier part of samvat year 2033 before amendment of the entry. (iii) THE assessee, therefore, filed two revision applications before the Tribunal in respect of the two different assessments. Both the revision applications involved identical points of facts and, therefore, they were heard together and disposed of by a common judgment by the Tribunal. (iv) THE Tribunal was of the view that the fat and fatty acids and caustic soda were essential raw materials for the formation of soap and the applicant's products which lacked the basic raw materials of oil and fatty acids could not be termed as soap. THE Tribunal, therefore, confirmed the reassessment, but set aside the orders of penalty on the ground that the applicant was labouring under a bona fide belief that what was sold by it was "soap" and it paid the tax accordingly. (v) THE applicant thereafter filed two different applications numbering 30 and 31 of 1988 for referring the aforesaid two questions for the decision of this Court. THE Tribunal held that these questions were questions of law which deserved reference to the High Court.

(3.) MR. Pathak submitted that the product sold by the applicant-dealer was known as soap in popular parlance and by the trading community. He, therefore, submitted that the real test for determining whether the product of the applicant is "soap" does not involve the comparison and determination of the ingredients of the product, but the predominant use to which it is put by the consumers. He further submitted that the entry itself was amended in order to include such products within the fold of "soap" with effect from August 1, 1977, which also reflected the intention of the Legislature.