Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 180-186_OF 2019
(Arising out of SLP(C) Nos.3194-3200/2018)
THE ADDITIONAL COMMISSIONER (LEGAL), COMMERCIAL
TAXES, RAJASTHAN & ANR. ……APPELLANTS
Versus
M/S. LOHIYA AGENCIES & ANR. ….RESPONDENTS
J U D G M E N T
SANJAY KISHAN KAUL, J.
1. Leave granted.
2. ‘Gypsum’ (calcium sulphate dihydrate – CaSO 4 .2H 2 O) is a natural
mineral which is used in a variety of activities and products like pesticides, as
a soil additive, as a water additive, as a food additive, for plant treatment,
but, more importantly, in the present context, for construction purposes.
Under the Rajasthan Value Added Tax Act, 2003 (hereinafter referred to as
‘RVAT’), Entry 56 of Schedule IV specified ‘Gypsum’ as a taxable entity, at
Signature Not Verified
Digitally signed by
VINOD LAKHINA
Date: 2019.01.08
13:19:40 IST
Reason:
4%. This Entry was, however, amended and substituted vide Notification No.
F.12(63)FD/Tax/2005-19, dated 19.4.2006, notified, inter alia, to expand the
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meaning of Entry 56 of Schedule IV of the RVAT by changing it to ‘Gypsum in
all its forms’. The short question which arises for consideration in the
present appeal is whether ‘gypsum board’ would fall within this Entry 56, and
be taxed at 4%, for the relevant assessment years, or whether it would fall in
the then residuary Entry 1 of Schedule V, to be taxed at 12.5%.
3. The brief facts which have given rise to the present dispute are as
follows. M/s. Indian Gypsum Ltd. (hereinafter referred to as ‘IGL’), a
manufacturer of what is commonly known as drywall or ‘gypsum board’,
moved an application under Section 36 of RVAT before the Additional
Commissioner, Commercial Tax Department, Rajasthan, Jaipur for
ascertaining whether gypsum board would fall within the category of the
amended Entry 56 of Schedule IV of the RVAT, with 4% rate of tax applicable,
or under the residuary Entry referred to aforesaid. The Additional
Commissioner, vide order dated 27.9.2007, opined that ‘gypsum board’,
being commercially a different product would not fall under Entry 56 of
Schedule IV of the RVAT but would fall under the residuary Entry, making it
subject to the 12.5% slab of taxation. The gravamen of reasoning of the
Additional Commissioner, as found from the order, is that ‘gypsum board’ is a
separate commercial product using a different name and thus the factum of
95% of the ‘gypsum board’ being constituted of gypsum is not relevant, as
supported by the fact that a long manufacturing process is involved in
preparing ‘gypsum board’, wherein in addition to the calcination process,
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additives, paper, foam, water etc., are used, resulting in the formation of a
product having uses, quite dissimilar to gypsum.
4. M/s. Lohiya Agencies/respondent No.1, is stated to be a merchant
dealing in ‘gypsum board’ procured from IGL and, thus, came to be assessed
by the Commercial Tax Officer for the assessment year 2006-07 and 2007-08
on 25.8.2007, post-inspection of his premises. Since the sale of gypsum
board has been made with the VAT rate at 4% despite the said goods not
falling under Entry 56 of Schedule IV of the RVAT, it was alleged by the Tax
Department that there was tax evasion which led to initiation of proceedings
under Sections 25, 55 & 61 of RVAT and the respondent firm was made liable
to pay the differential tax of 8.5% for the assessment years, along with
penalty and interest. The endeavours of the respondent No.1, assessee,
before the Deputy Commissioner (Appeals) failed in terms of order dated
2.1.2009 and also before the Rajasthan Tax Board vide order dated
21.11.2012. This culminated in a revision petition being filed before the
Rajasthan High Court which, however, reversed the views expressed by the
forums below, in terms of the impugned order dated 3.2.2017. In arriving at
such a conclusion, the High Court relied upon judgments of the Bombay High
1
Court in Commissioner of Sales Tax, Mumbai v. India Gypsum Ltd. and the
2
Supreme Court in The States of Gujarat v. Sakarwala Brothers as well as in
3
Trutuf Safety Glass Industries v. Commissioner of Sales Tax, U.P.
1 (2009) 25 VST 210 (Bom.).
2 (1967) 19 STC 24 (SC).
3 (2007) 7 SCC 242.
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5. We have had the benefit of arguments and reference to judicial
pronouncements, by both the parties before us with Mr. Harsha Vinoy,
learned counsel canvassing the case of the appellant, while on behalf of the
respondent No.1, the submissions were made by Mr. M.P. Devanath, learned
counsel.
6. In our considered view, to truly appreciate the controversy at hand,
two aspects have to be kept in mind. Firstly, the change of the Entry by a
conscious decision of the legislature, whereby the Entry of mere ‘gypsum’
was changed to ‘gypsum in all its forms’. This certainly signified that
something more than basic gypsum was sought to be included in the Entry
by referring to ‘gypsum in all its forms’. The sequitur would be whether
‘gypsum board’ would fall in the expanded definition of ‘gypsum in all its
forms’ or whether it is completely a different product.
7. Secondly (it is really in order to appreciate the first), what is the
original composition of gypsum, and how does the processing convert it into
gypsum board, would have to be examined.
8. Gypsum wallboard is a cellulosic composite material, also known as
drywall, used as an interior wall in many building applications and also in
limited external applications. This composite material consists of a flat board
comprising of a gypsum core with the external surfaces covered with
paperboard. The result is a three-layer composite composed of
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paper/gypsum/paper. The primary raw material continues to be gypsum
mineral [Calcium Sulphate Dihydrate (CaSO 4 .2H 2 O)] and cellulose.
9. A perusal of the material available in public domain on manufacture of
gypsum board shows a common thread insofar as methodology is concerned.
It will be useful to extract the process from one such material as under:-
“Gypsum board is manufactured in a two step process.
In the first step, finely crushed and ground gypsum
[calcium sulphate dihydrate (CaSO 4 .2H 2 O)] is heated and
partially dehydrated (Calcined) to Calcium Sulphate
Hemihydrate (CaSO 4 .½H 2 O), called stucco in the
industry, also popularly known as ‘Plaster of Paris’. A
unique characteristic of stucco is that when it is mixed
with the proper amount of water, it forms a smooth
plastic mass which can be molded into any desired
shape. When the hardening has been completed, the
mass has been chemically restored to its rock-like state.
This characteristic has also been used in the
development and production of gypsum board. In the
second step of manufacturing process stucco is mixed
with number of additives, foam and an excess amount of
water to prepare gypsum slurry which is extruded on a
fast moving, continuous board production line between
two layers of special gypsum papers. ‘Raw’ gypsum
board is then allowed to fully hydrate – calcium sulphate
hemi hydrate is converted back to dihydrate – before it is
cut to desired size and before it enters a ‘gypsum kiln’,
where at elevated temperature the excess water is
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driven off.”
10. In commercial terms, ‘gypsum board’ is defined as gypsum between
two paper sheets. Gypsum derived from recycled gypsum board can be used
in many ways in which gypsum is originally used too, such as –
(a) The manufacture of new drywall
4 See para 2.2 of the article ‘Life Cycle Analysis of Gypsum Board and Associated Finishing
Products’ by George J Venta, The Athena Sustainable Materials Institute, Ottawa, Canada
(March 1997).
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(b) Use as an ingredient in the production of cement
(c) Application to soils and crops to improve soil drainage and plant
growth
(d) A major ingredient in the production of fertilizer products
5
(e) An additive to composting operations
11. If we look into other forms of gypsum, where gypsum is innately
present in the end product, two examples stare at us: (i) Plaster of Paris and
(ii) gypsum blocks. Plaster of Paris (stucco) is merely calcinated calcium
sulphate, a dehydrated form of gypsum. Gypsum Blocks, on the other hand,
are composed of gypsum plaster, water and in some cases additives like
vegetable or wood fibre, for greater strength. The gypsum boards are used
as thinner plasterboards for paneling stud walls. The aforesaid material itself
gives rise to the conclusion that there are no major chemical changes in
gypsum which are carried out other than dehydration and mixing of
additives, so that the paper sheets can be used on both sides, to be made
capable of being used as a board.
12. Keeping in mind the aforesaid factual findings, let us turn to the judicial
views dealing with the subject in question, whether relating to gypsum board
or in respect of other products, where there is derivation of some other end
product.
5 See Construction & Demolition Recycling Association: Gypsum Drywall, available at
http://cdrecycling.org/materials/gypsum-wall/ .
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(1) Commissioner of Sales Tax, Mumbai v. India Gypsum Ltd. (supra)
The Division Bench of the Bombay High Court was concerned with a
similar legal conundrum as to whether ‘gypsum board’ would fall under the
Entry C-41 of the Maharashtra Value Added Tax Act which reads as ‘gypsum
of all forms and descriptions’. The court opined that the legislature having
used the phraseology, some meaning would have to be assigned to the
words by which there would be an explanation of the terminology. The
Division Bench, relying on the case of State of Gujarat v. Sakarwala Brothers
(supra) observed that the expression ‘form’ was used for items with various
shapes, sizes as well as uses vis-à-vis the original product. It was the
chemical composition of the substance in question that mattered for
deciding whether it fell within the scope of a particular Entry. Since the main
composition of gypsum board continues to be gypsum, which takes the form
of the board, gypsum board was held to fall in Entry C-41 of the Maharashtra
Value Added Tax Act.
(2) Trutuf Safety Glass Industries v. Commissioner of Sales Tax (supra)
This judgment has been used as an aid in the impugned order to
support the conclusion in favour of the assessee.
’12. ……………. The word 'form' connotes a visible
aspect such as shape or mode in which a thing exists or
manifests itself, species, kind or variety. The use of the
word 'in all forms' is different from the expression
'all kinds'. The conceptual difference between the
words "all kinds' and 'in all forms' is that the
former multiplies items of the same kind while the
latter multiplies the same commodity in different
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forms. The use of the word 'in all forms' widens the
scope of the Entry .’
13. It is settled position in law that while interpreting
the entry for the purpose of taxation, recourse should
not be made to the scientific meaning of the terms
or expressions used but to their popular meaning,
that is to say, the meaning attached to them by
those dealing in them. This is what is known as
"common parlance test’. ……………..
20. The question is not what may be supposed and has
been intended but what has been said. ‘Statutes should
be construed not as theorems of Euclid". Judge Learned
Hand said, "but words must be construed with some
imagination of the purposes which lie behind them’. (See
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Lenigh Valley Coal Co. v. Yensavage ). ………………..”
(emphasis supplied)
(3) State of Gujarat v. Sakarwala Brothers (supra)
The interpretation of Entry 47 of Schedule A to the Bombay Sales Tax
Act came into question as to whether patasa, harda and alchidana were
‘forms’ of sugar containing more than 90% of sucrose. Since the chemical
composition of all three was the same and they could be converted back into
sugar upon being dissolved in water, and being subjected to ‘appropriate
processes’, the court opined in favour of the assessee. The Bench noted with
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approval that in a similar lis pertaining to the question of whether
hydrogenated groundnut oil continued to be groundnut oil, notwithstanding
the processing carried out for the purpose of rendering the oil more stable, it
was opined that two conditions have to be satisfied – firstly, it must be from
6 218 FR 547.
7 Tungabhadra Industries Ltd v. Commercial Tax Officer, Kurnool (1961) 2 SCR 14.
8
groundnut oil and secondly, it must be oil. Since hydrogenated oil was from
groundnut and, in its essential nature it remained an oil and continued to be
used for the same purpose as groundnut oil, the hydrogenated oil did not
alter its character as oil despite being semisolid.
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(4) State of Jharkhand and Ors v. LA Opala R.G. Ltd.
This court examined whether glassware manufactured by the assessee
could be understood to be a ‘type of glass or glass sheet’ so as to be taxable
at the rate of 3% vide notification S.O No. 25, dated 25.06.2001, issued by
the government of Jharkhand. It was observed as under:
‘22. It is a settled law that in taxing statutes the terms
and expressions must be seen in their common and
popular parlance and not be attributed their scientific or
technical meanings. In common parlance, the two words
“type” and “form” are not of the same import. According
to the Oxford Dictionary, whereas the meaning of the
expression “types” is “kind, class, breed, group, family,
genus”; the meaning of the word “form” is “visible
shape or configuration of something” or the
“style, design, and arrangement in an artistic
work as distinct from its content ”. Similarly,
Macmillan Dictionary defines “type” as “a group of
people or things with similar qualities or features that
make them different from other groups” and “form” as
“the particular way in which something appears or exists
or a shape of someone or something”. Therefore, “types”
are based on the broad nature of the item intended to be
classified and in terms of “forms”, the distinguishable
feature is the particular way in which the items exist. An
example could be the item “wax”. The types of wax
would include animal, vegetable, petroleum, mineral or
synthetic wax whereas the form of wax could be candles,
lubricant wax, sealing wax, etc.’
8 (2014) 15 SCC 136.
9
(emphasis supplied)
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(5) Rajasthan Roller Flour Mills Assn v. State of Rajasthan
Whether flour, maida and suji would fall under the meaning of the item
‘wheat’ under Section 14 of the Central Sales (Tax) Act was the question.
The relevant extract is as under:
23. The following observations of Venkataramiah, J.
in Raghurama Shetty [ (1) Ganesh Trading Co. v. State of
Haryana, (1974) 3 SCC 620 : 1974 SCC (Tax) 100 :
(1973) 32 STC 623; (2) Babu Ram Jagdish Kumar and
Co. v. State of Punjab, (1979) 3 SCC 616 : 1979 SCC (Tax)
265 : (1979) 44 STC 159 and (3) State of
Karnataka v. Raghurama Shetty, (1981) 2 SCC 564 :
1981 SCC (Tax) 134 : (1981) 47 STC 369] can usefully be
quoted: (SCC pp. 566-7, paras 8-11) “There is no merit in
the submission made on behalf of the assesses that they
had not consumed paddy when they produced rice from
it by merely carrying out the process of dehusking at
their mills. Consumption in the true economic sense
does not mean only use of goods in the production
of consumers’ goods or final utilisation of
consumers’ goods by consumers involving
activities like eating of food, drinking of
beverages, wearing of clothes or using of an
automobile by its owner for domestic purposes. A
manufacturer also consumes commodities which
are ordinarily called raw materials when he
produces semi-finished goods which have to
undergo further processes of production before
they can be transformed into consumers’ goods.
At every such intermediate stage of production,
some utility or value is added to goods which are
used as raw materials and at every such stage the
raw materials are consumed. Take the case of bread.
It passes through the first stage of production when
wheat is grown by the farmer, the second stage of
production when wheat is converted into flour by the
9 1994 Supp.(1) SCC 413.
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miller and the third stage of production when flour is
utilized by the baker to manufacture bread out of it. The
miller and the baker have consumed wheat and flour
respectively in the course of their business. We have to
understand the word ‘consumes’ in Section 6(i) of
the Act in this economic sense. … At every stage
of production, it is obvious there is consumption
of goods even though at the end of it there may
not be final consumption of goods but only
production of goods with higher utility which may
be used in further productive processes . …
Applying the above test, it has to be held that the
assessees had consumed the paddy purchased by them
when they converted it into rice which is commercially a
different commodity.”
’24. Applying the reasoning adopted hereinabove, it
must be held that when wheat is consumed for
producing flour or maida or suji, the commodities
so obtained are different commodities from wheat.
The wheat loses its identity. It gets consumed and
in its place new goods/commodities emerge. The
new goods so emerging have a higher utility than
the commodity consumed. They are different
goods commercially speaking… .’
(emphasis supplied)
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(6) Alladi Venkateswarlu & Ors. v. Govt. of Andhra Pradesh & Ors.
Whether parched rice and puffed rice would fall under Entry 66(b) of
Schedule I to the Andhra Pradesh General Sales Tax Act,1957 which read
‘rice obtained from paddy that has met tax under the Act’ was the question
examined.
“12. Even if parched rice and puffed rice could be
looked upon as separate in commercial character
from rice as grain offered for sale in a market,
yet, keeping in view the other matters mentioned
10 (1978) 2 SCC 552.
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above, it could not be presumed that it was
intended to exclude from entry 66 "rice", which
at any rate, had not so changed its identity as
not to be describable as "rice" at all.
'Muramaralu' was after all rice even though it
was puffed. 'Atukulu' even though parched was
still called rice. We must also remember that the
schedule which we have to interpret is in the English
language where the term rice is still found in the
rendering or description of 'palalu' as well as that of
'muramaralu' in the English language. And, in any
case, if two interpretations of a provision are
possible, we think that we ought to, in such a
case, apply the principle that the interpretation
which favours the assessee should be preferred. ”
(emphasis supplied)
(7) Tungabhadra Industries Ltd. v. The Commercial Tax Officer, Kurnool
(supra)
In this judgment already referred to aforesaid, the following extract
may be useful for our purpose:
“08. But in the case of hydrogenated oil which is prepared
from refined oil by the process of passing hydrogen into
heated oil in the presence of a catalyst (usually finely
powdered nickel), two atoms of hydrogen are absorbed. A
portion of the oleic acid which formed a good part of the
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content of the groundnut oil in its raw states in(sic.)
converted, by the absorption of the hydrogen atoms, into
stearic acid and it is this which gives the characteristic
appearance as well as the semi-solid condition which it
attains. In the language of the Chemist, an inter-
molecular or configurational chemical change takes
place which results in the hardening of the oil.
Though it continues to be the same edible fat that
it was before the hardening, and its nutritional
properties continue to be the same, it has acquired
new properties in that the tendency to rancidity is
11 To be read as ‘is’.
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greatly removed, is easier to keep and to
transport. ”
(emphasis supplied)
The aforesaid observations are important as inter-molecular or
configurational chemical changes that resulted in the hardening of the oil
was held not to exclude it from the Entry.
Our view
13. On giving consideration to the matter in issue, we find that the
amended Entry 56 of Schedule IV of the RVAT, read as ‘gypsum in all its
forms’, would include ‘gypsum board’ under the term ‘all its forms’.
14. We are persuaded to come to the aforesaid conclusion on the basis
that, it can hardly be doubted that a meaning has to be given to the Entry
made by the legislature, expanding the original Entry from ‘gypsum’ to
‘gypsum in all its forms’. If the object was to include only ‘gypsum’, then
why would the Entry be changed to ‘gypsum in all its forms’? The corollary
would also be as to what is meant by ‘in all its forms’, as it is not, as if mere
geometrical alteration of a shape would form part of the Entry. In such a
situation, the original Entry itself was comprehensive enough to have
included it. We have noticed the view taken by the Bombay High Court in an
almost identical situation except that the Entry there was ‘of all forms and
descriptions’. But the discussion was more or less confined to the expression
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‘of all forms’. This court in Sakarwala Brothers (supra) observed that it was
the chemical composition of the substance in question that mattered, to
decide whether it would fall within the scope of a particular Entry. In the
present case, there is really no chemical change which occurs in the
substance as dehydration only reduces the water content and thereafter, it is
mixed with additives for the purpose of increasing bonding and other related
purposes. Substantively, the character of ‘gypsum’ is not changed in the
mechanical exercise of converting it into a board along with, of course,
certain chemical processes of heating and mixing, to achieve an ultimate
objective.
Trutuf Safety Glass Industries
15. The observations of this Court in
(supra) are of significance, where a distinction is sought to be made between
the words ‘in all forms’ as juxtaposed to the expression ‘all kinds’. The words
‘all kinds’ are said to be restricted to multiple items of the same kind, while
the expression ‘in all forms’ is to multiply the same commodity into different
forms. Therefore, different ‘forms’ of gypsum would get included in the
expression ‘in all forms’.
16. A reference to the timeless statement of Hand, J. that ‘words must be
construed with some imagination of the purposes which lie behind them’,
would require us to construe the expression ‘in all forms’ being added to
‘gypsum’ to naturally include not only just gypsum in its original form but in
different forms as well.
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17. To fully understand the scope of Entry 56 of Schedule IV of the RVAT,
we have looked into the manufacturing process of gypsum board. A
reference to the extract aforesaid would show that the initial steps are of
only crushing and grinding the gypsum whereafter it is heated and partially
dehydrated, which in turn is called ‘stucco’ or ‘Plaster of Paris’. There does
not appear to be any doubt that such ‘stucco’ would form part of the Entry
‘in all its forms’. The unique characteristic of stucco, when mixed with water,
is that the smooth plastic mass so formed can be molded into the desired
shape, which obtains its rock-like state on hardening. This very
characteristic is stated to be used in the development and production of
gypsum board. In the second step of the manufacturing process, stucco is
mixed with a number of additives in an excess amount of water to prepare a
slurry, to be ultimately converted back into a dehydrated form, before being
cut into desired sizes. Not only that, ‘gypsum board’ is defined as real
gypsum between two paper sheets. Will that take away from the description
of gypsum? We think not. Even if the sheets are added, the wide description
‘in all its forms’ would certainly include ‘gypsum board’.
18. In the case of Sakarwala Brothers (supra), the factum of there being
the same chemical composition of patasa, harda and alchidana and the
ability to convert them back into sugar on being dissolved in water and on
being subjected to other ‘appropriate processes’, resulted in a finding that
they would be included as ’any form of sugar’. In fact, gypsum board, devoid
of its top and bottom boards, can be utilized, with some processing, in a
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similar manner as gypsum. When the meaning of the word ‘form’ is meant
to include ‘visible shape or configuration of something’, as observed in State
of Jharkhand (supra), we cannot see any reason why gypsum board would
not form a part of the expanded terminology ’in all its forms’.
19. In the same line, this Court in Alladi Venkateswarlu (supra), has given
an expanded definition to ‘rice obtained from paddy that has met tax under
the Act’ to include parched rice and puffed rice within the term ‘rice’ as it
had not changed its identity so as to not be describable as ‘rice’ at all. A
broad interpretation was, thus sought to be given by applying the ‘common
sense’ rule of interpretation. Similarly, this Court in Tungabhadra Industries
Ltd (supra) observed that even if an inter-molecular or configurational
chemical change takes place which results in hardening of the oil, its
nutritional properties continue to be the same. Moreover, even if it acquires
new properties, in the sense that the tendency to turn rancid is greatly
removed and it is easier to transport, ‘hydrogenated groundnut oil’ was held
not to be excluded from the original Entry of ‘groundnut oil’.
20. All the aforesaid examples show that wherever an expression ‘in all its
forms’ is used, it has resulted in an expanded meaning, which is a logical
corollary of such an expression being added to the original Entry. To take a
view to the contrary in the given situation would amount to giving no
meaning to the added expression as there are really not too many
possibilities on what could have been included in such an expression.
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21. We may also note another fact which has come to our notice that in
th
terms of notification No.S.O.36.No.F.12(59)FD/Tax/2014-14 dated 14 July,
2014, the RVAT was amended to include, in Schedule V, a separate Entry
under item No.19(viii) ‘gypsum board and other false ceiling material’. Thus,
the legislature by a conscious decision in 2014, sought to create a separate
Entry for gypsum board, which was not the case in respect of the assessment
years in question. This, in our view, belies the endeavor to include gypsum
board in the residuary Entry, before such specific inclusion as then there
would have been no need for such an Entry. The obvious attempt is to
exclude it from ‘gypsum in all its forms’ in Schedule IV of RVAT and create a
separate Entry in Schedule V, whereafter it would naturally be governed by
the tax rate applicable to the Entry in question.
22. We, thus, dismiss the appeals leaving it open to the parties to bear
their own costs.
…….………………………….CJI.
[RANJAN GOGOI]
…..……………………………….J.
[SANJAY KISHAN KAUL]
…..……………………………….J.
[K. M. JOSEPH]
NEW DELHI.
JANUARY 08, 2019.
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