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2010 DIGILAW 409 (KER)

SSD OIL MILLS COMPANY LTD. v. STATE OF KERALA

2010-06-08

C.N.RAMACHANDRAN NAIR, P.S.GOPINATHAN

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JUDGMENT C. N. RAMACHANDRAN NAIR :- The question raised in the revision case is whether the Tribunal was justified in holding that "margarine" is an item falling under entry 64(8) (HSN No. 1517.10) taxable at 12.5 per cent under Notification S.R.O. No. 82 of 2006 issued by the Government under section 6(1)(d) of the Kerala Value Added Tax Act and not an item falling under entry 38(19)(d) of the Third Schedule to the KVAT Act, which provides for other edible oils, including vanaspati as claimed by the assessee. We have heard counsel for the petitioner and the Government Pleader for the respondent. In the context of the entries in the Third Schedule to the KGST Act, we have vide our decision in State of Kerala v. Aluva Sugar Agency reported in [2007] 8 VST 726 (Ker) held that "margarine" cannot be treated as an item falling under the entry provided for edible oil when it is specifically covered by another entry along with hydrogenated oils and other items. However, since the petitioner has a case that entries contained in the Schedule and in the notification issued under the KVAT Act are different from those contained in the KGST Act, we proceed to decide the issue on the merits. According to the petitioner, what is sold by him under the description and name "margarine" is used in baking and is not table margarine, which is said to contain milk powder also as an ingredient. The contention of the petitioner is that margarine is essentially hydrogenated fat and its ingredient being vegetable oil, will fall under other edible oils, including vanaspati under entry 38(19)(d) of the KVAT Act. The Government Pleader, on the other hand, contended that margarine in all forms are covered by common entry 64(8) under S.R.O. No. 82 of 2006 issued by the Government under section 6(1)(d) of the Act. For easy reference, we extract hereunder the entries of S.R.O. and the Schedule herein. Entry 64 of S.R.O. No. 82 of 2006. Sl. No. Description of commodities HSN Code (1) (2) (3) 64. Milk products including, condensed milk, ghee, butter, butter oil, ice creams, margarine, whether or not bottled, canned or packed. - - (1) to (7) ... - - (8) Margarine 1517.10 - (9) ... - Relevant entry of the Third Schedule to the KGST Act is as follows : Sl. Sl. No. Description of commodities HSN Code (1) (2) (3) 64. Milk products including, condensed milk, ghee, butter, butter oil, ice creams, margarine, whether or not bottled, canned or packed. - - (1) to (7) ... - - (8) Margarine 1517.10 - (9) ... - Relevant entry of the Third Schedule to the KGST Act is as follows : Sl. No. Description of goods HSN Code (1) (2) (3) 38 Edible oils - - (1) Soyabean oil 1507.90.10 - (2) Groundnut oil 1508.90.91 - (3) Olive oil 1509.90.10 - (4) Palm oil - - (a) Refined bleached deodorized palm oil 1511.90.10 - (b) Refined bleached deodorized palmolein 1511.90.20 - (5) to (17) ... - - (18) Other edible oils 1515.90.91 - (19) Other partly or wholly hydrogenated vegetable oils - - (a) cottonseed oil 1516.20.11 - (b) groundnut oil 1516.20.21 - (c) castor oil 1516.20.31 - (d) other including vanaspati 1516.20.91 Counsel for the petitioner relied on a certificate issued by the Chief Food Inspector who has explained margarine with reference to the provisions of the Prevention of Food Adulteration Act as follows : "Margarine means an emulsion of edible oils and fats with water comes under bakery vanaspati, an industrial product, is different from the margarine made out of milk fat with vegetable oils, a consumer product, comes under milk product. Both are called margarine." Relying on the Food Inspector's letter, counsel for the petitioner contended that margarine sold by him not being table margarine will not fall under entry 64 of S.R.O. No. 82 of 2006. The Government Pleader contended that the notification does not make any difference between the various types of margarine based on use for the purpose of levy of tax. According to him, margarine in all forms and for all purposes, that is, whether it is for baking or for other use and table margarine fall under the category "margarine" under item 8 of entry 64 of the notification. Since interpretations of entries under the KVAT Act are done on HSN classification, we have referred to the Customs Tariff Act, which classifies margarine as follows : Tariff item Description of goods Unit Rate of duty 15.17 Margarine; edible mixtures or preparations of animal or vegetable fats or oils or fractions of different fats or oils of this Chapter, other than edible fats or ils or their fractions of heading 15.16. - - 1517.10 Margarine, excluding liquid margarine - - 1517.10.10 of animal origin kg. 8% ... ... ... ... From the above it is very clear that under the description of commodities, the H.S.N. Code for margarine is 1517.10. The contention of the petitioner that the item falls under entry 38(19)(d) of the Third Schedule to the KVAT Act cannot be accepted because none of the items covered by the sub-entry (19) has the same HSN code for margarine provided in the customs tariff. In fact it is clear from entry 38(19) that all four items referred to there are covered under six digit HSN 1516.20. We are of the view that petitioner's contention that margarine falls under other edible oils falling under entry 38(19) is incorrect and unacceptable. We, therefore, hold that margarine in all forms fall under HSN code 1517 under the customs tariff and consequently it is covered by entry 64(8) of S.R.O. No. 82 of 2006, which has the same HSN code taxable at 12.5 per cent. Counsel for the petitioner has raised a contention that margarine referred to in entry 64(8) of S.R.O. No. 82/06 is only margarine made with one of the milk products as an ingredient. Of course, entry 64 of S.R.O. No. 82/06 cover generally milk products and table margarine is made with skimmed milk as one of the ingredients. Therefore, according to him, only certain forms of margarine, which are milk products only are covered by specific entry for margarine under entry 64(8) of S.R.O. No. 82/06. However, the question to be considered is whether the Legislature, while framing Third Schedule intended margarine to be covered by entry 38 of the Third Schedule to the Act under the head "edible oil", no matter margarine in certain forms are made from edible oils through hydrogenation. In this context, we have already referred to the relevant entry of the Customs Tariff Act where margarine is specifically covered under HSN code 1517 and 1517.10. It is pertinent to note that the Customs Tariff Act draws distinction only between margarine of vegetable and animal origin and its physical form, that is, solid form and liquid form. However, the Third Schedule to the KVAT Act covers only various vegetable oils, including its hydrogenated form, that is, vanaspati. Margarine certainly cannot fall under this category because, it is not vanaspati or hydrogenated oil. However, the Third Schedule to the KVAT Act covers only various vegetable oils, including its hydrogenated form, that is, vanaspati. Margarine certainly cannot fall under this category because, it is not vanaspati or hydrogenated oil. Further, none of the items covered by HSN 1517 of the Customs Tariff Act, which covers margarine, is included under entry 38 of the Third Schedule to the KVAT Act. We are, therefore, of the view that the Legislature never intended margarine to be covered along with oils under the Third Schedule. On the other hand, margarine in all its forms are covered by entry 64(8) of the Third Schedule to the KVAT Act, which has the same HSN code for margarine contained in the Customs Tariff Act. Even though counsel has relied on three other notifications issued by the Government under the Entry Tax Act wherein margarine is included along with edible oils, we do not think the same can be relied on for purpose of classification under the VAT regime, where classification is done only based on HSN code numbers. Further even under the notification issued under the Entry Tax Act relied on by the petitioner margarine is treated as a separate item along with edible oils and not as edible oils or hydrogenated oil. We, therefore, uphold the order of the Tribunal and dismiss the O.T.R.V. Case.