K.S. Radhakrishnan, C.J.@mdashThe question that has come up for our consideration is whether ''tissue paper'' imported by the appellant company within the Octroi limits of the Municipality be classified under Item 13 (Perfumed oil and Toilet goods) of Class I of Schedule I to the Vankaner Municipality Octroi Bye-laws thereby attracting Octroi duty at the rate of 2.5% ad-valorem or under the Residual item No. 12 of Class II to Schedule II, attracting Octroi duty at the rate of 1.5% ad-valorem.
2. The demand for levy of octroi relates to the period prior to December, 1995. Levy of octroi has since been done away with and hence the general issue of applicability of rate of octroi and assessment thereof now no more survives, but since the Municipality was demanding octroi for the period prior to abolition of octroi, it gave rise to dispute between the petitioner company and the Municipality.
3. Petitioner company initially challenged the demand notice before District Collector u/s 258 of the Gujarat Municipalities Act, 1963 (hereinafter referred to as ''the Act''). The Collector by order dated 10th October, 1995 directed petitioner company to prefer an appeal before the Executive Committee of the Municipality. Appeal was preferred, but was also rejected by order dated 22.11.1995. Order was once again challenged before the District Collector u/s 258 of the Gujarat Municipalities Act. Collector had expressed the opinion that the company should approach Judicial Magistrate u/s 138 of the Act. Company had however, preferred to approach this Court seeking a declaration that ''issue paper'' brought by the petitioner within the octroi limits of the Municipality for use as raw-material in the production of carbon paper and was not toilet goods within the meaning of Item 13 in Class I of Schedule I to the Municipality Octroi Bye-laws and not chargeable to octroi duty at the rate of 2.5% ad-valorem. Petitioner also sought for a direction on the respondent to refund the differential amount of octroi levied in excess of duty calculated at the rate of 1.5% ad-valorem under residual item in Class II of Schedule I of the Octroi-Bye laws, and for other consequential reliefs.
4. Company maintained the stand before the learned Single Judge that it was engaged in the manufacture of carbon paper and for the same, company had imported tissue paper, which was one of the raw-materials used for manufacture of carbon paper. Tissue paper imported by petitioner was never intended to be used as toilet goods, but was used as a base raw-material for the manufacture of carbon paper. Company maintained the stand that tissue paper was not specifically mentioned in any of the item of the Schedule, especially in Item No. 13 of Class I of Schedule I, where the expression used was ''perfumed oil and toilet goods''. The claim made by the company was refuted by the Municipality, stating that product imported by petitioner company was inspected by the Administrator of the Municipality and on spot visual inspection, he was of the opinion that the same could be used as toilet goods and was therefore, liable to levy of octroi at the rate of 2.5% ad-valorem and hence, Municipality rightly levied octroi duty at the rate of 2.5% ad-valorem.
5. We noticed, before the learned Single Judge, Municipality did not dispute the fact that tissue paper in general have many applications. Municipality also did not dispute that tissue paper imported by the petitioner company was used for manufacture of carbon paper. However, it was contended that the correct test to be applied in such a situation was how the consumer would understand it in common parlance. It was also pointed that the Administrator of the Municipality on visual inspection had opined that the same could be used as toilet paper. Further, Municipality also submitted before the learned Single Judge that company should have availed alternative remedy of appeal u/s 138 of the Gujarat Municipalities Act.
6. Learned Counsel for the company had submitted before the learned Single Judge that Municipality had not discharged its burden to prove that tissue paper imported by the petitioner was in fact used as toilet goods or that the material imported could not have been used as raw-material for manufacture of carbon paper. Further, it was also pointed out by the company that visual inspection could not have been formed the basis for determining the nature of the goods imported, and the Municipality should have applied functional test to decide as to whether the tissue paper imported by the company could have been used as raw-material for manufacture of carbon paper.
7. Learned Single Judge had expressed the opinion that for the purpose of classification, administrator''s visiting the site and taking visual inspection of the material in question was sufficient to discharge the onus of proof that lay upon the Municipality. Learned Single Judge further opined that tissue paper in general is connected with the toilet paper in common parlance and if the visual inspection of the material satisfied the Administrator that it was the same as toilet paper available in the market, he was not required to do anything more to prove that it was not toilet paper, which can be classified as toilet goods. The learned Single Judge also opined that if the company was of the opinion that the tissue paper imported by it was not the same as the toilet paper available in the market popularly known as ''tissue paper'' and it was a special kind of tissue paper having the specific constituents and chemical and physical properties which rendered it unfit for use as toilet paper, the burden to prove the special qualities lay upon the company, and on the basis of above reasoning, learned Single Judge dismissed the petition. Aggrieved by the same, these appeals have been preferred.
8. Learned Senior counsel appearing for the company Shri S.N. Soparkar submitted that the reasoning of the learned Single Judge cannot be sustained in law. Learned Counsel submitted that the Municipality had not discharged its burden to show that tissue paper imported by the company could be used as toilet paper and thereby would fall within Item No. 13 i.e. Perfumed oil and Toilet goods of Class I of Schedule I so as to attract octroi duty at 2.5% ad-valorem. Learned Counsel submitted that petitioner had not imported toilet paper, but only tissue paper and had the petitioner imported toilet paper, it would have been contended that toilet paper would fall within the expression ''toilet goods''. Admittedly, company had imported tissue paper which would be useful for variety of purposes. Counsel pointed out that it was admitted before the learned Single Judge by the Municipality that tissue paper imported by the company could be used as a base raw-material for manufacture of carbon paper. Under the circumstances, learned Counsel submitted that since tissue paper as such was not included in item No. 13 of Class I of Schedule I, the Municipality would have applied functional test to decide as to whether tissue paper imported by the petitioner could have been used as toilet goods. Apart from the interested version of the Administrator of the Municipality, no other independent material was produced to corroborate the view of the Administrator that the tissue paper imported by the company could have been used as toilet goods. In support of the contention, counsel placed reliance on the decision of the apex Court in
9. Learned Counsel Mr. Mehul S. Shah, appearing for respondent Municipality submitted that there is no reason to interfere with the judgment and order of the learned Single Judge and Municipality was fully satisfied that the tissue paper imported by the petitioner company could be used as toilet goods and therefore, the same was rightly classified under Item No. 13 of Class I of Schedule I, and octroi was accordingly levied at 2.5% ad-valorem. Learned Counsel submitted that the taxable event for levy of octroi is nature and type of goods at the point of time of entry into Municipal limit, and not its subsequent use. Counsel placed reliance on the decision of the apex Court in
10. We may at the out-set point out that it is the common case that petitioner company had not imported any toilet goods or toilet paper as such, but had imported only tissue paper. Tissue paper could be used for variety of purposes. Indisputedly tissue paper can be used as a base raw-material for the manufacture of carbon paper. Admittedly, petitioner is engaged in the manufacture of carbon paper. Tissue paper imported by the petitioner forms part of raw-material for manufacturing carbon paper and the same is included in the Classification of item No. 48.02 of the Central Excise Tariff. The question is whether tissue paper imported by the petitioner was used, or was capable of being used as toilet goods. Tissue paper is not exclusively used as toilet paper so as to be branded as Toilet-goods. Tissue paper is being used for a variety of purposes like in arts and crafts, mosaics, stamping, gift wrapping, ornaments, garlands, paper sculpture, and pomps for parade floats. Tissue paper is also used as facial tissue and as household towels. Tissue paper can be crumpled up to form objects, such as flowers. So far as toilet paper is concerned, it is a kind of lavatory paper, which is easy and intuitive to use, fairly absorbent, and it can be flushed out.
11. In our view, the burden to prove the tissue paper imported by the company was toilet goods, squarely lies upon the taxing authority. The only evidence on which the taxing authority placed reliance is the opinion expressed by the Administrator of the Municipality, that too on visual inspection, which according to us is a self-serving evidence. No independent material or evidence has been produced by the taxing authority to show that tissue paper imported by the company was used, or could be used as toilet goods falling under Item 13 of Class I of Schedule I. The Apex Court in Union of India v. Garware Nylons Ltd. (supra) has held that burden of proof is on the taxing authorities to show that the particular case or item in question, is taxable in the manner claimed by them and mere assertion in that regard is of no avail. The Court held that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary and it is for the taxing authority to lay evidence in that behalf. The principle laid down in UOI v. Garware Nylon Ltd. (supra) was followed by the apex Court in HPL Chemicals Ltd. v. Commissioner of Central Excise 208. The apex Court in State of Andhra Pradesh and Anr. v. Concap Capacitors (supra) also referred to the application of ''functional test'', ''operating principle'' or ''user test'' and held that whether an item could be said to be included in the list is to be determined on the basis of functional test. In the above mentioned case the apex Court was dealing with classification of goods with specific reference to Electronic goods, and the Court held that if the item is not included in the list, it has to be treated as such and tax has to be levied on the basis of functional test as to whether such item could be said to be electronic goods.
12. We have already indicated that tissue paper could be used for variety of purposes. Tissue paper is usually found in single sheets or sheet collections of 25, 40 or 50. Tissue paper is commonly used for facial tissue and household towels. Since it is established that tissue paper could be used for variety of purposes including as a base raw-material for manufacture of carbon paper as per the specifications published by Indian Standard Institution, unless and until tissue paper is specifically included as an item in the Schedule of Rate List issued by respondent Municipality for collection of octroi, it was not open for the respondent to levy octroi on the tissue paper imported by the petitioner. The burden is entirely on the taxing authority to show that tissue paper imported by the petitioner company was capable of being used as toilet goods and it would fall within Item 13 of Class I to Schedule I.
13. We are of the view that since the matter was pending before this Court since last several years, it is not just and fair for this Court to drive petitioner company to resort to appeal u/s 138 of the Gujarat Municipalities Act. Even otherwise also, the issue involved in the petition could not have been decided by the jurisdictional Magistrate exercising powers u/s 138 of the Municipalities Act and in our opinion, this does not fall within the scope of Section 138 of the Gujarat Municipalities Act, since interpretation of item and classification was involved.
14. In our view, the revenue has failed to discharge onus of proof. We are therefore, inclined to allow the appeals and set aside judgment and order dated 15/16.10.1997 passed by the learned Single Judge. Order accordingly. We also hold that the item imported by the petitioner company would fall only in the residual item, and octroi be calculated at the rate of 1.5% ad-valorem. We also uphold the claim for refund and direct that excess amount collected be refunded to the petitioner company.
15. Consequently, Civil Applications also stand disposed of.
As soon as judgment was pronounced, learned Counsel for respondent Municipality requested for stay. We find no reason to grant stay. Request is refused.
