Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2650 OF 2016
[Arising out of SLP(C) No. 22191 OF 2013]
Commissioner of Commercial Tax, U.P. ... Appellant
Versus
M/s. A.R. Thermosets (Pvt.) Ltd. ... Respondent
J U D G M E N T
Dipak Misra, J.
JUDGMENT
In this appeal, by special leave, the Revenue has called
in question the legal sustainability of the judgment and
order passed by the High Court of Judicature at Allahabad
in Commercial Tax Revision no. 1156 of 2009 preferred by
the assessee-respondent under Section 11 of the U.P. Trade
Tax Act, 1948 (for brevity, ‘the 1948 Act’) read with Sections
81 and 58 of the VAT Act, 2008 (for short, ‘the VAT Act’)
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whereby the learned Single Judge has allowed the revision
negativing the stand put forth in opposition by the State to
the stance highlighted by the assessee.
2. The facts on which the controversy rests is in a narrow
compass. The respondent manufactures “bitumen
emulsion”. It filed an application before the Commissioner,
Commercial Taxes, Lucknow, U.P. under Section 59 of the
VAT Act seeking a clarification about the rate of tax
applicable to the sales of bitumen emulsion. The
Commissioner of Commercial Taxes, vide order dated
23.1.1999 opined that bitumen emulsion is an unclassified
commodity and, therefore, is excisable to tax at the rate of
12.5% as it would fall under the residuary Entry.
JUDGMENT
3. Being aggrieved by the order dated 23.1.1999, the
respondent preferred Appeal No. 6 of 2009 under the VAT
Act before the Tribunal Commercial Taxes, U.P., Lucknow
(for short ‘the tribunal’) which was heard by the Full Bench.
It was contended before the tribunal by the
assessee-appellant therein that bitumen as a commodity is
taxed at 4% under Serial no. 22 Part A of Schedule II to the
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VAT Act and bitumen is found in solid state and to bring it
in the liquid form, water is added to it and very little
quantity is used in the process. Elaborating the said
submission, it was urged that when bitumen is available in
the liquid form, it is known as bitumen emulsion and is
commonly known as bitumen when it is available in the
solid form; and both the commodities are understood in the
same manner in the commercial world and the end use is
the same and, therefore, the rate of tax to be determined
has to be the same as prescribed for bitumen.
4. Be it stated, as per Notification No. 100 dated
15.1.2000 issued under the erstwhile U.P. Trade Tax Act,
1948, bitumen was taxed at 20%. Under the VAT Act,
bitumen has been classified under Part A of Schedule II and
JUDGMENT
the tax leviable is 4%. Before the tribunal, the
assessee-appellant produced reports from Harcourt Butler
Technical Institute, Kanpur to bolster the stand that there
is no difference between the two commodities and they are
to be categorised as one item, if common parlance test is
applied. To buttress the submissions, the assessee relied
upon CST v. Ashok Grah Udyog Kendra Private
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1 2
Ltd. , CST v. Bechu Ram Kishori Lal , and M/s Indodan
3
Milk Products v. Commissioner Sales Tax . The tribunal
referred to one of its earlier decisions in appeal no. 17 of
2000 decided on 3.4.2009 and on the basis of reasons
ascribed therein dismissed the revision.
5. The dissatisfaction caused by the said adjudication,
constrained the assessee to approach the High Court in
Commercial Tax Revision no. 1156 of 2009. The High Court
formulated the point in issue which reads as follows:-
“Whether the Bitumen and Bitumen Emulsion
are one and the same commodity for the
purposes of interpretation of Entry No. 22
Schedule II Part A of the U.P. Value Added Tax
Act, 2002 as was originaly enacted i.e. upto
enforcement of notification no. 2758 dated
29.9.2008?
JUDGMENT
6. The learned Single Judge took note of the various
technical materials from the Government approved
laboratory which had been brought before the tribunal, and
opined that the controversy had not been appositely
appreciated by the tribunal, for the materials clearly
establish that bitumen and bitumen emulsion is the same
1
(2004) UPTC 1827
2
(1976) 36 STC 236
3
(1974) 33 STC 381
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thing. The High Court analysed the concept of end use, i.e.
the end result of bitumen emulsion and came to hold that
bitumen emulsion makes the bitumen easily usable in its
emulsified form and both the items are used in the
construction of road, etc. It further opined that the identity,
commercial character and use of both the things are the
same, though the tribunal, despite having the material
before it, proceeded to record findings otherwise. That
apart, the High Court took note of the decision of this Court
in Commissioner of Central Excise, Bangalore v. Osnar
4
Chemical Private Limited and ultimately ruled that it
could not be said that mixing of some material would
amount to manufacture unless it results in a change when
the commodity concerned cannot be recognised as an
JUDGMENT
original commodity but rather new and distinct article
emerges having different commercial use and identity. On
the basis of the aforesaid analysis, the High Court allowed
the revision and set aside the orders of the forums below.
7. We have heard Mr. Pawan Shree Agarwal, learned
4
(2012) 2 SCC 282
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counsel for the appellant and Mr. Kavin Gulati, learned
senior counsel along with Mr. Avi Tandon, learned counsel
for the respondents.
8. Criticising the view of the High Court, it is submitted
by Mr. Agarwal that it has erred in opining that bitumen in
its emulsified form also remains bitumen. He has drawn
inspiration from the language used in Section 2(t) of the
VAT Act to structure the submission that in the process of
conversion, manufacturing takes place. It is his further
argument that the decision in Osnar Chemical Private
Limited (supra) is not applicable to the present controversy
as the said decision was rendered in the context of the
Central Excise Act, 1944 whereas the lis herein hinges on
the definition of manufacturing. For the said purpose, he
JUDGMENT
has relied upon the authority in Sonebhadra Fuels v.
5
Commissioner, Trade Tax, U.P., Lucknow . Learned
counsel for the Revenue contends that when the view
expressed by the lower authorities is neither perverse nor
arbitrary, the High Court in exercise of its revisional
jurisdiction should not have interfered with the findings and
5
(2006) 7 SCC 322
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for the said purpose he has commended us to the authority
6
in N. Eswari v. K. Swarajya Lakshmi . Mr. Agarwal has
canvassed that the intention of the legislature, as is
manifest, is to charge a particular rate of tax on bitumen
and it remotely does not conceive of bitumen emulsion and
the Court should not enlarge the scope of legislation or the
intention of it by adding a word to the term in the statute,
which is not permissible, for a taxing statute has to be
understood what is clearly stated therein and not what is
intended to be said.
9. Mr. Gulati, learned senior counsel appearing for the
assessee in support of the view expressed by the High Court
would contend that four principles relating to interpretation
of entries and taxing statute are required to be considered
JUDGMENT
in the present case. According to Mr. Gulati, they are (a)
plain meaning to be given to the taxing provision; (b) burden
to prove classification in a particular Entry is always on the
Revenue; (c) any ambiguity has to be resolved in favour of
the assessee; and (d) resort to residuary Entry is to be taken
as a last measure. He would put forth that in the instant
6
(2009) 9 SCC 678
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case, the Revenue, prior to taxing the respondent under the
residuary Entry, did not place any evidence before the
Commissioner or the tribunal to show that the emulsified
bitumen is not covered by the expression bitumen as found
in Entry 22 of Part A of Schedule II to the VAT Act. It is
urged by him, whether the activity of mixing water with
bitumen amounts to manufacture under Section 2(t) of the
VAT Act is wholly irrelevant for deciding the issue at hand.
It is, according to Mr. Gulati, where goods are purchased on
paying tax and process thereafter is undertaken, a question
often arises as to whether such process amounts to
manufacture or not, and if it amounts to manufacture, then
it would enable the department to levy tax again as the
commodity in different, a new one, for the purposes of this
JUDGMENT
Act and the tax can be imposed as a single point levy again,
but in the case at hand, that is not the situation. Learned
senior counsel further submits that every process involved
in the manufacture of a commodity does not relate to
manufacture of a new product as the end product continues
to retain the character of the original product. According to
him, solely because some process has been carried out, it
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cannot be held that a new product has come into existence.
Expatriating the said submission, it is put forth that the
process of heating on high degree temperature and then
adding water to it to obtain emulsified bitumen does not
alter the basic nature of bitumen but only brings a change
in physical appearance of the product. He has heavily relied
on Osnar Chemical Private Limited (supra) to highlight
that bitumen would include bitumen emulsion.
10. The principal controversy, as we perceive, is “whether
“bitumen emulsion” is covered within Entry 22 of Schedule
II of the VAT Act which only refers to “bitumen””.
According to Academic Press Dictionary of Science and
Technology, “bitumen” means:-
“Bitumen Geology and naturally occurring
flammable substance mainly of a mixture of
hydrocarbons such as petroleum or asphalt.
JUDGMENT
Materials 1. Originally, a type of asphalt
occurring naturally in Asia Minor. 2. Any similar
black, sticky mixture of hydrocarbons occurring
naturally or pyrolytically in the atmosphere and
completely soluble in carbon disulfide: obtained
mainly from natural oxidized petroleum products
or from a petroleum distillation process.”
11. The McGraw-Hill Concise Encyclopedia of Science &
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Technology (Third Edition) defines “bitumen” as under:-
“Bitumen A term used to designate naturally
occurring or pyrolytically obtained substances of
dark to black color consisting almost entirely of
carbon and hydrogen with very little oxygen,
nitrogen, and sulphur. Bitumen may be of
variable hardness and volatility, ranging from
crude oil to asphaltites and is largely soluble in
carbon disulfifde.”
12. The above definitions when appreciated clearly show
that they expressively define the word “bitumen” as a
commodity and explain its chemical composition, colour or
appearance and qualities and the process by which it comes
into existence.
13. Bitumen emulsion, as per Indian standards ICS
293.08.0.20 published by the Bureau of Indian Standards is
a destruction of very fine particles in an aqueous medium.
JUDGMENT
Harcourt Butler Technological Institute, Kanpur, in its
report dated 11.4.2008 states that:-
“The components derived from fractional
distillation of petroleum, at various temperature
levies, are (I) Gas (II) Naphtha, (III) Kerosene, (IV)
Diesel and lubricating oil, (V) Bitumen and
furnace oil, and (VI) residue. This bitumen is
known as penetration grade bitumen because the
specification, by which it is designated, is
obtained from the penetration test. There could
be two other forms of Bitumen: Namely (I)
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Emulsion and (II) Cutback. In the emulsion,
bitumen is in the suspension from as small
globules in water, whereas in cutback, the
bitumen is dissolved in suitable solvent. In
bituminous construction, the choice between
penetration grade bitumen and the bitumen
emulsion is made depending upon the factors
like, weather conditions, availability, economy
and available construction time.”
14. The said report discussing about its composition
explicates:-
“Bitumen is basically a hydrocarbon with 10% by
weight of atoms of sulphur, nitrogen and oxygen,
attached to hydrocarbon molecules. The carbon
content in bitumen is 80-87%. Three basic
components of bitumen are (I) asphaltene, (II)
maltene and (III) carbine. The chemical bonds in
bitumen are weak and break when heat is
applied. When it is cooled, it comes back to its
original structure, but not necessarily the same
as before.”
15. The said report has further proceeded to state that
JUDGMENT
emulsion is a two phase system consisting of two immiscible
liquids, one being dispersed as finite globules in the other.
In bitumen emulsion, bitumen globules are suspended as
emulsion in water with the help of emulsifiers, which are
used to stabilize the emulsion. Emulsifiers break into ions
and charge the bitumen particles. Charged particles repel
each other and the suspension remains stable and this
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stability remains as long as water does not evaporate, freeze
or emulsifier does not break.
16. About the characterization of the bitumen, report
states:-
“Bitumen materials have certain characteristics
such as (I) waterproofing (II) durability, (III)
resistance to strong acids and (IV) cementing
properties. At normal temperature, bitumen is
semi-solid and takes time to flow. At higher
temperatures, it behaves like a viscous liquid,
whereas at very low temperature, is brittle as
glass. Bitumen is believed to behave
‘viscoelastically’ at the standard operating
temperature at highways.”
17. According to the report when a state of liquefaction is
achieved and the same is constant for a longer period, it can
be used under diverse moisturic conditions and has a very
wide range of applications such as surface dressing of low
JUDGMENT
volume roads, curing purposes base for high volume roads,
surface dressing, tack coat, premix carpets, soil
stabilization, etc. The report has clearly stated that the use
of bitumen is because of its characteristics which includes
cementing properties. Be it noted, the use of both bitumen
and bitumen emulsion is similar, that is, surface dressing,
tack coat, premix carpets, soil stabilization, etc. The
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concluding remarks of the report is extracted below:-
“Bitumen and Emulsion are two forms of
bituminous binders which serve some common
purposes in road construction and maintenance.
Bitumen and emulsion are selected for various
applications depending upon some parameters
like weather conditions, availability of material,
economic aspects and availability of construction
time. Bitumen needs preheating whereas
emulsion is ready to use. It has been observed
from previous studies that the physical properties
of the emulsion after natural sun drying are
almost similar to that of bitumen as the water
present. In the binder evaporates and makes the
matrix harder as obtained with the bitumen. It
may, therefore, be concluded that bitumen and
emulsion may be treated at par as far as their
significance for application. In their respective
area is concerned.”
18. A reading of the aforesaid definitions and the scientific
text clearly reveal that bitumen in its original form is solid
but melts when heated, for it is used in molten stage. There
JUDGMENT
is no difficulty to appreciate that bitumen emulsion comes
into existence when bitumen is treated with emulsifiers and
other chemicals to attain a liquid form. It has a huge
advantage and add benefit because it is not to be heated
and detained in its liquid form and has better stability and
thus, saves time and cost components. That apart, it
ensures its use at the stage of application. Needless to say
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it is comparatively less hazardous. Bitumen consists of four
forms of variants, namely, solid bitumen, polymer bitumen,
crumbler rubber modified bitumen and bitumen emulsion.
The stand of the Revenue is that the word “bitumen” must
be conferred a narrow meaning for the reason that the
legislature has not thought it appropriate to use the prefix
or suffix like “all”, in all forms or of all kinds. It may be
immediately clarified that bitumen is a generic expression
which would include different types of bitumen. Revenue,
however, as stated earlier, intends to apply it restrictively.
The said submission has a fundamental fallacy. Entry 22
does not exclude or specify that it would not include
bitumen of all types and varieties. This is not the principle
or precept applied to interpret the entries under the
JUDGMENT
Schedule of the Act. We will be deliberating in detail on the
said aspect at a later stage. Prior to that, we would like to
advert to certain other aspects.
19. At the very inception, we think it absolutely seemly to
state that the nature and composition of the product or the
good and the particular entity in the classification table is
important. Matching of the good with the Entry or Entries
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in the Schedules is tested on the basis of identity of the
goods in question with the Entry or the contesting entries
and by applying the common parlance test, i.e., whether the
goods as understood in commercial or business parlance
are identical or similar to the description of the Entry.
Where such similarity in popular sense of meaning exists,
the generic entity would be construed as including the
goods in question. Sometimes on certain circumstances the
end use test, i.e., use of the good and its comparison with
the Entry is applied.
20. The Entry in question uses the word “bitumen” without
any further stipulation or qualification. Therefore, it would,
in our opinion, include any product which shares the
composition identity, and in common and commercial
JUDGMENT
parlance is treated as bitumen and can be used as bitumen.
When we apply the three tests, namely, identity, common
parlance and end use to the goods and the Entry in
question, bitumen emulsion would be covered by the Entry
bitumen. It is worthy to note that bitumen emulsion
matches the Entry as it is only one of the varieties of
bitumen. Bitumen emulsion is processed bitumen, but the
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process has not changed its composition, commercial
identity or its use. Bitumen emulsion is regarded and
performs the same function as bitumen. As a result of
processing, neither the primary character nor the
composition is lost. Emulsification only eases and provides
proficiency to the use of application of bitumen. Hence, in
popular and commercial sense, bitumen emulsion is
nothing but bitumen, which is in liquid form and is user
friendly.
21. It is perceivable that the legislature has used the word
“bitumen” and treated it as a separate entity. As we notice,
it has not indicated that this was done with the intention
and purpose to exclude some type or variety of bitumen. All
bitumen products, which share and have common
JUDGMENT
composition and commercial entity, and meet the popular
parlance test, is, therefore, meant to be covered by the said
Entry. In the instant case, even the end use test is satisfied.
There is nothing in the Entry to suggest and show that the
Entry is required to be given a restrictive and a narrow
meaning.
22. In this regard, another aspect needs to be noted. The
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Revenue does not rely upon another Entry under which
bitumen emulsion can be taxed. The Revenue relies upon
the residuary Entry which would only include goods, which
cannot be covered under any other Entry in the schedule on
application of the three-fold criteria. In the State of
7
Maharashtra v. Bradma of India Limited , the Court had
observed that the general principle is that specific Entry
would override a general Entry. Referring to the decisions in
the case of Collector of Central Excise, Shillong v. Wood
8
Craft Products Ltd. , it has been ruled that resort can be
made to a residuary heading only when by liberal
construction the specific Entry cannot cover the goods in
question. Referring to Entry No. 90 in the said case, which
covered tabulating, calculating, cash registering, indexing
JUDGMENT
and data processing, etc, other than computer machines, it
was held that the words did not contain words of limitation
and would cover every species of cash registering machines,
irrespective of their mode of operation. In the absence of
any limitation or qualification as to the different kind of
cash registering machines, there was no reason for such
7
(2005) 2 SCC 669
8
(1995) 3 SCC 454
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qualification and limit the Entry to a particular kind of cash
registering machine. However, computers had been
specifically excluded and were separately dealt with in Entry
97(a). The assessee, who was manufacturing electronic cash
registers would, therefore, be covered by Entry 90 and not
by the Entry relating to computers. A similar opinion has
been expressed in Hindustan Poles Corpn. v.
9
Commissioner of Central Excise, Calcutta stating that
residuary Entry is made to cover only those category of
goods which clearly fall outside the ambit of the main Entry.
The opinion proceeds further to state that unless the
Revenue can establish that the goods in question can by no
conceivable process of reasoning be brought under any of
the tariff items, resort cannot be made to the residuary
JUDGMENT
Entry.
23. In this context, reference to the authority in
10
Commercial Taxes Officer v. Jalani Enterprises would
be profitable. While dealing with the question of sales
tax/VAT under the Rajasthan Sales Tax Act, it was held
that if from records it was established that the product in
9
(2006) 4 SCC 85
10
(2011) 4 SCC 386
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question could be brought under a specific Entry, then
there was no reason to take resort to the residuary Entry.
Revenue cannot be permitted to travel to the residuary
Entry when a product can be covered under a specific
Entry.
24. In the present context, when the word “bitumen” has
been used as a generic expression, it would be erroneous
not to cover a product that is only a type or form of bitumen
and retains all its essential characteristics, and treat it as
covered by the residuary Entry by some kind of ingenuous
reasoning. Taking it outside the purview of the specific
Entry is incorrect.
25. At this juncture, we may refer to certain
pronouncements commended to us by the learned counsel
JUDGMENT
for the appellant. In Collector of Customs and others v.
11
Kumudam Publications (P) Limited and others , while
adverting to the issue of classification it has been held that
it would not be correct to say that in no case can the end
use or function of the goods be relevant in the question of
classification, as was held in Indian Tool Manufacturers
11
(1998) 9 SCC 339
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12
v. Asstt. Collector of Central Excise, Nasik and others .
The decision in Commissioner of Central Excise, Cochin
13
v. Mannampalakkal Rubber Latex Works emphasizes
and holds that in the matters of classification, “composition
test” is important test and the “end user test” would only
apply if the Entry says so. We have referred to the aforesaid
authorities for sake of completeness only because we have
applied the “composition test” as well as the “commercial or
common parlance” test in addition to the “end use test”.
26. Reliance placed by the Revenue on the decision in the
case of Hindustan Aluminium Corporation Ltd. v. State
14
of Uttar Pradesh and another , is of no assistance, for in
the context of the particular notification it was held that
aluminium ingots, billet, roll products, extrusion, etc. would
JUDGMENT
not be covered by the exemption, which was granted to all
kinds of minerals, ore, metals or alloys, including sheets
and circles used in the manufacture of brasswares and
scraps. In this context, referring to Section 3A of the U.P.
Sales Tax Act and the notification as applicable, it was held
that the earlier notifications issued from time to time would
12
(1994) Supp (3) SCC 632
13
(2007) 217 ELT 161 (SC)
14
(1981) 3 SCC 578
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show that the expression “metal” had been employed with
reference to metal in its primary sense. The principle laid
down in the said authority is in the context in issue and is
based upon the schematic arrangement indicated and
specified in the notification under consideration therein.
That apart, the said decision also emphasizes that a word
describing a commodity in a sales tax statute should be
interpreted according to its popular sense and words of
everyday use must be construed not in their scientific or
technical sense, but as understood in common parlance.
27. We have also been commended to a judgment of the
Customs, Excise and Service Tax Appellate Tribunal in
Allied Bitumen Complex (India) Private Limited v.
15
Collector of Central Excise, Calcutta – 1 , which holds
JUDGMENT
that conversion of bitumen into bitumen aqueous emulsion
amounts to manufacture. Per contra , the
respondent-assessee has relied on judgment of the
Karnataka High Court in SR Projects Limited v.
16
Commissioner of Commercial Taxes . However, it is not
necessary to dilate on the said aspect for there is a
15
(1997) 90 ELT 374 (Tribunal)
16
(2013) 63 VST 49 (Kar)
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distinction between what can be regarded as manufacture
under the Excise Act and what is the sale or transfer of
property in goods under the Sales Tax Act and the Value
17
Added Tax Act. In M.P. Agencies v. State of Kerala , it
has been held that the decisions under the Excise Act may
have some play and relevance, but the question of
manufacture by itself would not be per se relevant under
the Sales Tax or Value Added Tax Act. Thus, there is a
distinction between what is exigible to tax under the excise
law and the incidence of tax when the legislation relates to
sales or value added tax. What is relevant is the
classification. In this context, the verdict in Osnar
Chemical Private Limited (supra) is significant. The said
authority refers to two other variants of bitumen, namely,
JUDGMENT
polymer modified bitumen and crumbled rubber modified
bitumen which are created by the process of mixing of
polymer and additive to bitumen. It has been held that the
aforesaid processes result in improvement of the quality of
bitumen and there is no change in the characteristics or
identity of bitumen so as to transform bitumen into a new
17
(2015) 7 SCC 102
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product having an identity, characteristic and use. It has
been ruled therein that there is a fallacy in the argument
raised by the Revenue that bitumen per se would only
include its solid hard form which melts at high temperature
and not bitumen emulsion. The two varieties and types
carry the same composition, do not differ in character and
have the same commercial identity i.e. bitumen. That apart,
the use or end use test is also satisfied.
28. In view of the aforesaid analysis, we find the view
expressed by the High Court to be absolutely flawless and,
accordingly, we concur with it. Our concurrence with the
view of the High Court entails dismissal of the appeal and,
accordingly, it is so directed. There shall be no order as to
costs.
JUDGMENT
.............................J.
[Dipak Misra]
............................J.
[Prafulla C. Pant]
New Delhi
September 6, 2016
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