One of the fallouts of technological advancements in innovating new products by mixing one with the other is that there are many controversies in classifying them for tax purposes.
It becomes difficult to decide what exactly they are. They are neither fish nor foul. They are mixtures of rubber and resin, leather and rubber, wood and resin, and textile and resin. They cannot be easily defined by any natural standard.
Merely going by predominant use or predominant content by weight or value has its own problems since use is multiple and value cannot be apportioned in many cases.
For example, textile fabric, on which plastic material has been coated, laminated or impregnated, becomes such a product that it is not understood in trade parlance as either textile or plastic.
Common expressions such as vegetable (is coconut a vegetable?), food (is biscuit or cold drink food?), fish (is prawn fish or insect?) and coal (is charcoal coal?) have caused controversies.
It is mainly because the meaning of the product in scientific books is often different from the meaning in market parlance.
There are other commodities, which are extremely difficult to distinguish by scientific test either because the tests can be done by different methods or are too complicated or because the products are marginally different.
Making a distinction between rubber and resin has been a problem. Now a specific definition of synthetic rubber has been laid down. Though it is artificial, but it has solved the controversy.
The Supreme Court has in the Commissioner of Central Excise, Kanpur vs Krishna Carbon Paper case, 1988 (37) ELT 480 SC, said by incorporating definitions in the statute book the scope of controversy between the market definition and scientific definition can be eliminated.
Statutory definitions, even if artificial, are necessary to impart certainty to the identity of goods.
The Calcutta High Court also examined the legality of the artificial nature of the statutory definitions and came to the conclusion that an artificial definition of cotton fabrics was permissible as long as the statutory definition contained that special meaning (Saifuddin vs Assistant Commissioner Sales Tax 1976, vol 38 STC 463 Cal).
The conclusion about the relative importance of different definitions is:
Defining goods is imperative for imposing the correct amount of tax since there are different rates of taxes. To ward off controversies, statutory definitions have been introduced in many cases.
They are binding even if they are artificial in nature. In fact, they have to be artificial in many cases by the very nature of the goods that they are trying to define.
If there is no clear definition in the market parlance then we have to follow the scientific definition and the ISI definition.
If we introduce statutory definitions, artificial or natural, in the tariff more and more, controversies in regard to identification of goods for classification will be less and less.
The author is a former member (Budget) of CBEC.
