The fiscal law of the vanity bag

It is all about the vanity bag. The vanity bag has travelled recently to the Supreme Court on two occasions when an exemption was denied to it.

What was a vanity bag and how it was different from handbag was the question. The finance minister in his wisdom exempted vanity bag from excise duty in 1993 and continued it till 1996 (Notifications number 2793 and 1895 central excise). Some manufacturers of handbags demanded exemption claiming them to be vanity bags.

In the notification, no definition was given for vanity bag. So it became a free for all. Many handbag makers claim-ed exemption meant for vanity bags. At the tribunal stage the definition became an issue.

There are three definitions for fiscal statutes: statutory definition, definition in market parlance and a scientific definition. Judicial pronouncements have propounded the rule of interpretation for articles of daily use and commonly traded, which are mentioned in taxing statutes. We have to follow the definition in the statute, even when it is artificial.

If there is no definition in the statute, then we have to follow the understanding in the market parlance or common man's perception.

In the absence of a clear understanding in the market parlance, we can fall back on the scientific or dictionary meaning.

The judiciary in India accepted this principle and enunciated it in detail for the first time in the Ramavatar Budhiprasad vs Assistant Sales Tax Officer case, AIR 1962 SC 1325.

This judgment lays down the basic principle: If there is no definition in the statute, the market parlance is to be followed. The apex court and high courts have quoted this judgment in many subsequent orders.

In the case of vanity bag, there being no statutory definition, the market parlance was to be relied upon. But there was no clear-cut opinion obtainable on the issue.

So the tribunal relied on several dictionaries to come to the commonly acceptable meaning that vanity bag is one, which is specifically made to accommodate cosmetics that a woman would ordinarily use and to facilitate carrying of these articles.

One common thing about all the dictionaries is that they make it necessary that a vanity bag be fitted with a mirror. The handbag is not fitted with a mirror, which disqualifies it from getting the exemption for vanity bag.

The tribunal decided accordingly in the Teja Industries vs Commissioner of Central Excise, Mumbai, 2002 (149) 1380 (T).

The apex court also agreed to the tribunal's analysis when it dismissed the appeal (2003 (158) ELT A177 (SC)) and also the review petition on the appeal (2003(157) ELT A205 (SC).

This shows how items, which are either indefinable or amenable to imprecise meanings, cause litigations. An artificial definition could have led to easier solutions to such litigations.

Ideally such populist exemptions should not be issued, far less without definitions attached to the notifications.

The main proposition that gets espoused is that if there is no definition in the statute, we go by the understanding in the market parlance or popular meaning.

But if there is neither statutory definition nor a clear understanding in the market parlance, then the scientific definition, as in the dictionary or technical book, will prevail.

smukher2000@yahoo.com

The author is a former member (Budget) of CBEC