IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 30TH DAY OF AUGUST 2012 PRESENT THE HON'BLE MR. JUSTICE K.

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1 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 30TH DAY OF AUGUST 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR BETWEEN: STA No.36/2010 3M INDIA LIMITED, RAHEJA PARAMOUNT, NO.138, RESIDENCY ROAD, BANGALORE APPELLANT (BY SRI.H.N.SREENIVASA RAO, ADV) AND: STATE OF KARNATAKA THROUGH THE COMMISSIONER OF COMMERCIAL TAXES, GANDHINGAR, BANGALORE 9. RESPONDENT (BY SMT.S.SUJATHA, AGA) * * * * * STA FILED U/S. 66(1) OF KVAT ACT, AGAINST THE REVISION ORDER DATED PASSED IN NO.AR.CLR.CR-92/06-07, ON THE FILE OF THE ADDL.COMMISSIONER OF COMMERCIAL TAXES, VTK, BANGALORE, CLARIFYING THAT POST-IT NOTE IS

2 2 LIABLE TO TAX AT 12.5% TILL AND AT 13.5% FROM AS UNSCHEDULED GOODS UNDER SUBSECTION (1)(b) OF SCTION 4 OF THE KARNATAKA VALUE ADDED TAX ACT, THIS STA HAVING BEEN HEARD AND RESERVED AND COMING ON FOR PRONOUNCEMENT OF JUDGEMENT THIS DAY, B.MANOHAR J., DELIVERED THE FOLLOWING: JUDGMENT Appellant is a registered dealer under the Karnataka Valued Added Tax, 2003 (hereinafter referred to as the Act ) engaged in the business of Gummed or Adhesive Paper or Paper Board called Post-it-Paper and Scotch-Magic-self-Adhesive Tape. He made an application before the Authority for Clarification and Advance Ruling (hereinafter referred to ACAR) seeking for clarification with regard to the rate of tax in respect of the business carried on by the appellant in 'post-it-paper' and Scotch-Magic-Self-Adhesive Tape. 2. The appellant has contended that it is a self-adhesive rolls not exceeding 20cm falls under Entry 69(i) of the III Schedule to the Act ( entry 69(i) for short). In order to clarify the doubt, he filed an application seeking for clarification from ACAR. ACAR, by its order dated held that post-it-paper falls under the

3 3 category of non-scheduled goods and liable to tax at the rate of 12.5% under Section 4(1)(b) and Scotch-Magic-Self-Adhesive Tapes in rolls not exceeding 20cm are covered under Entry 143 of the Notification dated 30 th September 2005 and liable to tax at the rate of 4% under Section 4(1)(a)(ii) of the Act. The appellant being aggrieved by the same sought for review and rectification of the order dated The said rectification application was rejected by the ACAR on Being aggrieved by the clarificatory order passed by the ACAR, the appellant filed STA No.10/2007 before this court. This court after examining the matter in detail found that without examining the matter and without assigning any reasons, ACAR rejected the application and held that the 'post-it-paper' will not fall under Entry 69(i) which is contrary to law and accordingly set aside the said order. Since the said Authority has been abolished, the matter was remanded to the Commissioner of Commercial Taxes for reconsideration. The Commissioner for Commercial Taxes after examining the matter by its order dated held that by importing the papers from America, a new and distinct commercial commodities arising out of the said paper is produced. Hence it is distinct from the paper and it will not fall under Entry 69(i) meant for the paper and paper boards

4 4 or in Entry 71 meant for Stationery articles in the III schedule and it falls under residuary clause under Section 4(1)(b) of the Act. Accordingly held that the appellant is liable to pay tax at the rate of 12.5%. Being aggrieved by the clarificatory order passed by the Commissioner of Commercial Taxes, the appellant has filed this appeal. 3. The appeal is admitted to consider the following substantial questions of law: i) Whether in the facts and circumstances of the case, the respondent is justified in law to hold post-it-paper as non-schedule goods and not coming under Entry 69(i) of the III Schedule to the KVAT Act, 2003? ii) iii) Whether in the facts and circumstances of the case, the respondent is justified in law to hold post-it-paper as not paper by over looking the respective entry in entry 69(i) of the III Schedule to the Act, which relates to paper of all kinds, whether the post-it-paper is intended for writing with other facilities? Whether in the facts and circumstances of the case, the respondent is justified in law to hold post-it-paper as not paper and considering it as a distinct commercial commodity from paper of all kinds?

5 5 iv) Whether in the facts and circumstances of the case, the order of the respondent is sustainable in law? 4. Sri.H.N.Srinivasa Rao, learned counsel appearing for the appellant contended that the order passed by the Commissioner for Commercial Taxes is contrary to law. The appellant contends that he imports jumbo rolls of different colour and rolls of papers contain strips of adhesive on one side. These are meant for converting into 'post-it-paper' by cutting into different sizes. The sheets and rolls of paper contain strips of adhesive on one side. The paper sheets are cut into long pieces by mechanical system, long paper then cut into the required size and prepare Post-it-Paper. While importing the said paper, customs department treated it as paper and duty has been paid. The Commissioner has accepted it as paper. Entry 69(i) of the Act includes all kinds of paper without stipulating the use or utility to which the said papers are put to use. The Entry 69(i) covers all kinds of papers except photographic paper. Just because adhesive is used to one side of the paper which is generally used as a flag and also used for writing purpose, it cannot be treated as the goods that falls under the residuary clause and attract the tax at the rate of 12.5%. The finding recorded by the Commissioner of Commercials

6 6 Taxes is contrary to law. He also relied upon the judgment reported in (1990) 78 STC 385(Bom) in the case of ADDITIONAL COMMISSIONER OF SALES TAX, MS, BOMBAY v/s AFSONS INDUSTRIAL CORPORATION and in (1985) 59 STC 87 (Kar) in the case of BUSINESS FORMS LIMITED v/s COMMISSIONER FOR COMMERCIAL TAXES, KARNATAKA. 5. On the other hand, Smt.S.Sujatha, learned Additional Government Advocate argued in support of the clarificatory order passed by the Commissioner and contended that when the papers have been cut into pieces and produced as Post-it-Paper with the adhesive on one side, the paper loses its identity and become a distinct commercial commodity from the paper of any kind. It has not fallen under the grouping of various papers enumerated under the Entry 69(i) of the Act. It can be attached to the wall, desk, computer display, etc., and removed for reuse. Post-it-Paper is a distinct commercial commodity as understood as a paper in trade, it cannot fall under Entry 69(i). She also relied upon the judgment reported in (2005) 139 STC 204 in the case of PARLE BISCUITS (P) LIMITED v/s STATE OF BIHAR AND OTHERS and sought for dismissal of the appeal.

7 7 6. We have carefully considered the arguments addressed by the learned counsel for the parties. 7. The records clearly disclose that the appellant imported jumbo rolls of paper of different colour, which contain strips of adhesive on one side, then cut the paper into pieces and prepare 'post-it-paper'. The adhesive at one edge on one side of the paper, which is generally used as a flag and also used for writing purposes. It can be reused number of times so long as the adhesive is working. The Customs authorities recognized it as a paper. Accordingly duty has been imposed. He made an application before the ACAR seeking clarification with regard to the applicability of rate of tax in respect of post-it-paper and Scotch Magic Self Adhesive Tape. The ACAR after considering the matter held that 'post-it-paper' falls under the category of unscheduled goods and it will not fall under entry 69(i) and liable to tax at the rate of 12.5% under Section 4(1)(b). Insofar as Scotch Magic Self-Adhesive Tape is concerned, it falls under Entry 143 of the notification dated 30 th September 2005 and liable to be taxed at the rate of 4% under Section 4(1)(a)(ii) of the Act. The application seeking for review was also rejected by the ACAR. Being aggrieved by the said order, the appellant preferred STA

8 8 No.10/2000 before this Court and this court quashed the order passed by the ACAR and remanded the matter to the Commissioner to reconsider the same whether the paper is known as 'post-it-paper', which contains adhesive on one side of the paper which will be generally used as a flag and used for writing purpose falls under Entry 69(i) of the III Schedule. The Commissioner after examining the matter held that by cutting the paper into different sizes with the adhesive, a new commercial commodity distinct from the paper which cannot fall under Entry 69 and Entry 71 of the Act. Hence the said commodity has to be regarded as an unscheduled item liable to be taxed under sub-section 1(b) of Section 4 of the Act. The said order has been questioned in this appeal. 8. Entry 69(i) of the III Schedule covers the papers of all kinds including Ammonia paper, blotting paper and straw box, triplex boards, and like other, but excluding photographic paper. Entry 69(i) and 71 of the III Schedule reads as under: 69.i)Paper of all kinds including ammonia paper, blotting paper, carbon paper, cellophane, PVC coated paper, stencil paper, tissue paper, water proof paper, art boards, card boards, corrugated boards, duplex boards, pulp boards, straw boards, triplex boards and the like, but excluding photographic paper.

9 9 (ii) Waste paper, paper waste and newsprint. 71. Printed materials other than books meant for reading; stationary articles namely.- Account books, paper envelopes, diaries, calendars, race cards, catalogues, greeting cards, invitation cards, humour post cards, picture post cards, cards for special occasions, photo and stamp albums, computer stationery. 9. Reading of the above entries makes it clear that Entry 69(i) covers papers of all kind, it obviously makes it clear that all kinds of paper including the paper referred to and the like refers to papers of different kinds which was not mentioned in Entry 69(i). Entry 69(i) is the inclusive definition and it includes all kinds of paper and the like. However, it excluded the photographic paper. In the instant case, the appellant is importing papers, the Customs Authorities have also treated it as paper with adhesive. The appellant cuts the papers into pieces and prepares 'post-it-paper' with adhesive on one side. It is generally used as a flag or used for writing purpose. Entry 69(i) clearly mentions the papers of all kind. The said entry covers 'post-it-paper' manufactured by the appellant. Entry 69(i) includes all kinds of papers without stipulating use or utility to which the said papers are put to. The contention of the

10 10 appellant is fully supported by the judgment of the Bombay High Court reported in ADDITIONAL COMMISSIONER OF SALES TAX, BOMBAY v/s AFSONS INDUSTRIES CORPORATION (supra). Paragraph 11 of the said judgment reads as under: 11. Coming then to sub-entry (2) of entry 24, it is to be noted that sub-entry (1) of entry 24 covers eight kinds of paper, art board, art cards and ivory cards. These are admittedly costly kinds of paper, cards and/or board. Sub-entry (2) opens with the expression paper of all other kinds.. The use of word other is not without significance. On the face of it is indicates that all items mentioned in sub-entry (1) are also kinds of paper including particulars kind of cards and boards mentioned in the sub-entry and subentry(2) covers paper of all other kinds, i.e., other than the kinds of paper covered by subentry(1). If that is so, there is no good reason why mill board should not be taken as covered by the expression all other kinds of paper xxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxxxxxxxx The normal function of the word including in an entry, to our mind, is to indicate that the items following the work including are though of the type of the main item in the entry, there could be some doubt as to whether the main entry covered them or not and, therefore, the legislature specially mentioned those items in the entry to remove scope for any doubt. In other words, the items so included with the prefix including would be of the type about which there could be some doubt as to whether

11 11 they are covered or not by the main entry. The item about which there is no scope for doubt or there is comparatively less scope for doubt would accordingly stand automatically covered by the main items in the entry. 10. The Hon'ble Supreme Court in a judgment reported in (1977) 39 STC 8 SC (STATE OF UTTAR PRADESH v/s KORES (INDIA) LIMITED) had an occasion to examine the word paper used in Uttar Pradesh Sales Tax Act. The Court after referring various shades of the meaning finally observed in para 11, which reads as under: It is clear that in popular parlance, the word paper is understood as meaning a substance which is used for bearing writing, or printing, or for packing, or for drawing on, or for decorating, or covering the walls. This should be the meaning with which we have to understand the scope of the entry 125 in this case also. If the goods sold by the assessee is generally used for writing, printing, packing or for drawing, decorating or covering the wall, then they must be classified as paper as popularly understood. Paper may be presented in plain sheets or in exercise books or in rolls. Paper may be in small pieces or in big rolls. It may be thick or thin, light or heavy, bleached or coloured, according to the requirements of purchasers. It may be used for writing in hand, or for printing in the press or in teleprinters. The

12 12 forms in which the paper is presented or sold is not a conclusive test, but the use to which it is put would furnish a guiding principle. Take for example, a teleprinter roll or an adding machine roll. They are paper cut and rolled into different shapes so as to suit a particular machine for the purpose of printing. Merely because the assessee has undertaken the task of cutting and rolling the paper into different shapes for being used indifferent machines, one cannot go with an impression that rolled paper cannot be regarded as paper. 11. The judgment relied upon by the learned Additional Government Advocate Smt.Sujatha in PARLE BISCUITS case is not applicable to the present case. In that case, the Hon'ble Supreme Court examined the paper, card board and cardboard box, carton and held that cardboard is different from the cardboard box. The issue in the present appeal is different. Hence, the said judgment is not applicable to the said case. The reasoning of the Commissioner that in the process of manufacture of 'post-it-paper' and post-it-brand note, the paper loses its identity and become a distinct commercial commodity from the paper of any kind and it does not fall under Entry 69(i) of the III Schedule cannot be acceptable. Since Entry 69(i) covers the papers of all kinds and the like, the 'post-it-paper'

13 13 falls under Entry 69(i). It attracts tax at the rate of 4% and it will not fall under the unscheduled goods under sub-section 1(b) of Section 4 of the Act. Hence, we answer the substantial question framed in this appeal in favour of the assessee. 12. Accordingly, we pass the following: ORDER The appeal is allowed holding that 'post-it-paper' falls under Entry 69(i) of the Act and the order dated passed by the Commissioner of Commercial Taxes is set aside. Sd/- JUDGE Sd/- JUDGE mpk/-*