The Madhya Pradesh High Court (Indore Bench) recently clarified that where a specific entry exists (for insulators), then classification under a general or residuary entry is improper, and the interpretation that is favorable to the taxpayer should be adopted in case of ambiguity. Thus, the Court ruled that the ‘Steel Grip Insulating Tape’, being a specific “insulator” covered by Entry 50, Part II, Schedule II of the M.P. VAT Act, 2002, shall be taxed at the lower rate specified for insulators, and not within the residuary/general entry attracting a higher rate under the Madhya Pradesh VAT Act.
While relying on the decision in the case of Chetna Polycoats (P) Ltd. v. Collector of Central Excise [37 ELT 253], the Court reiterated that classification of goods should be based on their primary function and usage rather than only their technical composition or end-use. Accordingly, the Court set aside the Commissioner’s order and quashed the tax notices and associated reassessment proceedings against the petitioner.
The Division Bench, comprising Justice Vivek Rusia and Justice Binod Kumar Dwivedi, emphasized the primary use and function of electrical insulation tape, stating that it is specifically designed to insulate electrical wires and prevent electric current leakage, thereby distinguishing it from ordinary tapes. The Bench also observed that the main criterion for classification was the product’s functional identity and its recognition as an “insulator” in commercial parlance, not just its trade channel or technical components.
Briefly, in this case, the Petitioner, a manufacturer of electrical insulating tape (Steel Grip Insulating Tape), challenged an order by the Commissioner of Commercial Tax, who had classified its product under a general (residuary) tax under Entry No.1 of Part IV of Schedule II of the M.P VAT Act, attracting tax at the rate of 13%. The Petitioner, however, was of the view that the tape should be classified specifically as an ‘insulator’ under Entry 50, Part II, Schedule II of the MP VAT Act, attracting a lower tax rate of 4% till July 31, 2009, and 5% from August 01, 2009. The dispute arose when the Commercial Tax Authorities sought to recover differential tax by treating the tape as a general electrical good, not a specific insulator.
Cases Relied On:
Chetna Polycoats (P) Ltd. v. Collector ofCentral Excise – 37 ELT 253
Appearances:
Senior Advocate P. M. Choudhay and Advocate Anand Prabhawalkar, for the Petitioner/ Taxpayer
Deputy Advocate General Sudeep Bhargava, for the Respondents/ Revenue
