Need for artificial definitions in fiscal economics

With GST coming, we had hoped that controversies of classification and problems of interpretation would vanish or get substantially reduced. Unfortunately, that is not to be. Sev­e­ral rates of duty namely 5 per cent, 12 per cent, 18 per cent and 28 per cent will keep the flags flying for taxpayers and lawyers who want to pay less duty. Particularly the rates 12 per cent and 18 per cent will be most controversial. Since we have to use the big fat Central Excise Tariff renamed as GST Tariff, all the notes at the be­ginning of the tariff will still be valid. Chapters on Paper (28), Chemicals (29), Fertilisers (31), Mechanical and Electrical Machinery (84 and 85) have a huge number of notes with definitions which are artificial.

The definition of newsprint in Chapter 48 is artificial. It is very elaborate because the identification of newsprint from other paper like printing paper, poster paper, glassine paper, etc, is necessary for giving an exemption on newsprint which is us­ually there. This definition had to be artificial because distinguishing one paper from the other by merely seeing them or considering who import them is not authentic. The distinction between handmade and power-made paper is still continuing which will bring in the question of defining what is power-made. This has been a litigated issue which will continue.

The basic principle is that if there is a statutory definition that is binding even if it is artificial. If there is no definition in the statutes or in the tariff, the definition in the market parlance will be relevant. If the definition in the market parlance is uncertain or non-existent, then the definition in the scientific book will apply.

Now we come to the question as to why the statutory definition has to be artificial. The first reason is that most products are not natural but artificial in the sense that they are mixtures of different products. Often, the products are made of mixtures of rubber and resin, leather and rubber (leatheroid), wood and resin, textile and resin, etc. The classification cannot be de­ci­ded by merely the pre­dominant use because that is uncertain.

The second reason is that there are certain products which cannot be defined scientifically with an exactitude that is necessary for the market. In the market, people know roughly what stainless steel is, but how much carbon or chromium content is necessary for calling it stainless steel cannot be definitely agreed upon. So the definition of stainless steel says that for the purpose of excise it should have the alloys up to a certain percentage. Steel has been a highly litigated subject. On the issue of whether a particular product of TISCO was skelp or strip, the litigation went up to the Supreme Court. The department lost and got stricture on the ground that there was no acceptable definition even in the scientific books. [UOI ..vs.. TISCO 1978(2)ELT439SC]. In such cases, an artificial definition is the solution.

The third reason is that even in scientific books the parameters of a product vary from country to country since the products are not strictly scientific. An example is of tallow which is bovine fat. Almost all the textbooks carry different standards for the different parameters. There was tremendous controversy until the Board issued an artificial definition. The fourth reason is that there is often a difference between a popular understanding of a geographical entity and a legal position. The classical example is that of what India means. Geographically, it means only the landmass and not the attached sea. But for purpose of Customs, India has been defined including the territorial water of India. A full Bench of the Bombay High Court held that it is this meaning of India, which is relevant for determining when an importation to this country is said to have taken place [Apar Pvt. Ltd. v.. UOI - 1985(22)ELT644 Bom]. The Calcutta High Court also affirmed the legality of artificial definition in relation to cotton fabrics [Saifuddin ..vs.. Asst. Commissioner of Sales Tax - 1976(38)STC463(Cal)].

The conclusion is that artificial definitions are essential to impart certainty in concepts. It is advisable to have more and more statutory definitions in the tariff to make controversies less and less in regard to identification of goods for the purpose of classification.

The writer is member, Central Board of Excise & Customs (retired)
 

Email: smukher2000@yahoo.com