Relief for Pidilite: Madhya Pradesh HC Classifies Steel Grip Insulating Tape as ‘Insulator’, Taxable at 5% [Read Order]

In a recent ruling, the Madhya Pradesh High Court held that Steel Grip Insulating Tape manufactured by Pidilite Industries Ltd. is to be classified as an “insulator” under Entry 50, Part II, Schedule II of the MP VAT Act and not under the residuary entry attracting a higher rate of tax.

Pidilite Industries Ltd., a public limited company engaged in the manufacture and sale of consumer products and specialty chemicals, filed a writ petition challenging the order dated 31 August 2010 passed by the Commissioner of Commercial Tax, Madhya Pradesh.

The Commissioner had classified Steel Grip Insulating Tape under the residuary entry of Part IV, Schedule II, thereby levying tax at 12.5 to 13 percent instead of 4 to 5 percent.

The petitioner’s counsel argued that the product is designed and used only as an insulator to prevent electric shocks and leakage of current, and that it ought to fall under the specific entry for insulators, which attracted the lower rate of tax.

They further argued that the Commissioner wrongly relied on a circular without examining the functional character, technical data, and market usage of the product.

They also argued that classification under a specific entry must prevail over a residuary entry, and that any determination under Section 70 of the MP VAT Act operates prospectively and cannot justify retrospective demands.

The State’s counsel argued that in common parlance insulating tape is understood as an electrical good sold by electrical dealers, not as an insulator, and that classification under VAT should follow commercial understanding rather than technical composition. They pointed out that insulators are a separate category of goods, while insulating tape is only an accessory sold in the general electrical goods market.

The Division Bench comprising Justice Vivek Rusia and Justice Binod Kumar Dwivedi observed that the main function of insulating tape is to insulate electrical wires and prevent the escape of current.

The court explained that although it also has adhesive properties, these are secondary to its primary insulating function. The court explained that if a commodity falls under a specific entry, classification under a residuary entry must be avoided, and even if there is ambiguity, the entry beneficial to the taxpayer should be applied.

The court set aside the Commissioner’s order and held that Steel Grip Insulating Tape is classifiable as an insulator taxable at 5 percent under Entry 50, Part II, Schedule II of the MP VAT Act. The writ petition was allowed with no order as to costs.

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