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Karnataka High Court · body

2016 DIGILAW 297 (KAR)

Pioneer Marketing v. State of Karnataka

2016-03-22

ANAND BYRAREDDY

body2016
ORDER : Heard the learned Senior Advocate Shri S.S. Naganad appearing for the counsel for the petitioner and the learned Government Advocate. 2. The controversy in this petition is in the following background. The petitioner is a registered dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (herein after referred to as KVAT Act, 2003). The petitioner, inter alia, deals with a product called “Nutralite” a brand of fat spread manufactured by M/s. Zydus Wellness Limited. According to the petitioner the said product is primarily comprised of edible oil and its use being similar to that of edible oils, the petitioner was of the understanding that the said product “Nutralite” is liable to be taxed as Edible Oil at the rate of 5.5% under Entry 31 of the Third Schedule to the KVAT Act, 2003. The petitioner in order to ascertain the applicable VAT on the said product and to pay value added tax in accordance with law, approached the respondent No.2 by an application dated 02.09.2014, under Section 59(4) of KVAT Act, 2003 seeking clarification of the classification of the product, “Nutralite”, and the applicable value added tax payable on the said product. 3. It is the complaint of the petitioner that the second respondent without affording an opportunity of hearing had passed an order dated 31.01.2015 holding that the product would be classified under Section 4(1) (b)(iii) of the KVAT Act as “unscheduled goods” and hence would attract value added tax at the rate of 12.5% from 0.104.2005 to 31.03.2010, at 13.5% from 01.04.2010 to 31.03.2011, at 14% from 01.04.2011 to 31.07.2012 and at 14.5% from 01.08.2012 and onwards vide its order dated 31.01.2015. The petitioner being aggrieved by the said order, approached this Court by way of writ petition in W.P. No.33227/2015. This court had summarily allowed the petition since it was found that the Officer who had passed the order was not the officer who had heard the matter and directed the 2nd respondent to afford the petitioner a reasonable opportunity of being heard. This court had summarily allowed the petition since it was found that the Officer who had passed the order was not the officer who had heard the matter and directed the 2nd respondent to afford the petitioner a reasonable opportunity of being heard. Thereafter the petitioner is said to have been heard and the arguments put forth by the petitioner have been negated and the second respondent has held that the product “Nutralite” will be classified under Section 4(1)(b)(iii) of the KVAT Act as “unscheduled goods” and hence would attract value added tax at the rate of interest mentioned above, by order dated 22.02.2016. It is that which is under challenge in the present petition. 4. Shri S.S. Naganand, learned Senior Advocate would submit that the composition of Nutralite Fat Spread is indicated in the tabular form as here under: Edible Oil (Palm Oil) 70% Water 26% Skimmed Milk, Emulsifiers, water, common salt, Vitamin A Vitamin D, Vitamin E, Acidity Regulator, Starch, Sequestering Agents, Antioxidants, etc 4% It is pointed out that apparently it is primarily composed of edible oil, which is emulsified with water and to this salt, stabilizers, vitamins, etc., are added which totally comprise the balance 4%. Therefore, edible oils or Vanaspati are mixed with water and emulsifiers, the product is margarine if the total fat content is more than or equal to 80% and is called fat spread if the total fat content is less than 80%. Vanaspati is manufactured when edible oils are subject to hydrogenation. Keeping the ingredients same, the mixture of edible oils and water can be made into margarine or fat spread, by simply changing the edible oil and water proportion. In terms of usage, both the products can be used exactly in the same manner viz., for spreading, cooking, baking, etc., In the instant case, Nutralite is made by emulsification of edible oil with water and comprises of 70% edible oil. 5. It is stated that Margarine is a generic term. Margarine or fat spread can be used as an alternative to butter or oil, as a raw material for preparing bakery and confectionary products, etc., In fact the Supreme Court of India in Aluva Sugar Agency vs. State of Kerala, 2011 (11) SCR 206, after considering its ingredients and composition and the usage, has held that the Margarine is to be considered as “Edible Oil”. Margarine can be used as a spread because of its utility and easy spread. It is further contended that when Margarine is heated, it will turn into oil. Merely for the reason that Margarine or fat spread is being used as a spread, the same does not cease to be edible oil and its essential constituent continues to be edible oil. For all practical purposes, the constituent components of Margarine and Fat Spreads are the same and their usage is similar. Therefore, considering these observations of the Supreme Court in Aluva Sugar Agency vs. State of Kerala, the product “Nutralite” being a Fat Spread should also be considered as edible oil and taxed at the rate of 5.5% as enumerated under Entry 31 of the Third Schedule of the KVAT Act which reads as follows: “Entry 31: Edible Oils (Non-refined and refined), but excluding coconut oil sold in sachets, bottles or tins of 200 millilitre each or less, including when such consumer containers are sold in bulk in a common container, oil cake.” 6. It is further contended that the second respondent, the Commissioner of Commercial Taxes has reached the erroneous conclusion that Nutralite would be classified as “unscheduled goods”, without properly appreciating the proposition of law laid down by the Supreme Court and thereby has come to a wrong conclusion. It is also pointed out that Nutralite is cleared from the Excise Bond Room under Chapter 15 of the Central Exercise Act, 1985, under the heading “Animal or Vegetable Fats and Their Cleavage Products; Prepared Edible Facts, Animal or Vegetable Waxes”. Entry under which Nutralite is cleared falls under 1517 – Magarine Edible Mixture or Preparations of Animal or Vegetable Fats or Oils or Fractions of Different Fats or Oils of this Chapter, other than Edible Fats or Oils or Their Fractions of Heading 1516. It is in this background that the present petition is filed and therefore seeks the opinion expressed by the Commissioner would apply across the board and would effect dealers throughout the State of Karnataka. It is in that context the present petition is taken up for consideration at the stage of preliminary hearing. 7. It is in this background that the present petition is filed and therefore seeks the opinion expressed by the Commissioner would apply across the board and would effect dealers throughout the State of Karnataka. It is in that context the present petition is taken up for consideration at the stage of preliminary hearing. 7. After having heard the learned Government Advocate it is noticed that the reasoning of the Commissioner having considered the law laid down in various decisions including the judgment of the Supreme Court in Aluva Sugar Agency’s case the ultimate reasoning of the second respondent Commissioner in negating the case of the petitioner boils down to the conclusion that Aluva Sugar Agency was rendered in a different context and could not be applied to the facts of the present case which may not be the correct proposition. His further conclusion that the classification has to be seen with reference to the specific entry in the Schedule and since the Entry in the Kerala Sales Tax Act specifically included Margarine and the Court in that case had placed the product there along with the products covered by the Entry and the classification can never be disassociated with the entry itself and that in the present case on hand the classification only contemplates edible oil. And since Nutralite was different from edible oil the conclusion having been arrived at, may not be fair to the petitioner. The ingredients of the product are clearly shown to be consisting of 70% of edible oil and 26% of water. The other contents amounts to only 4%. Therefore, it is clearly a question of considering whether the product Nutralite which is also Margarine a generic term would describe the very product as edible oil or not. There is no reason to hold that the product shall not fall under the Entry “Edible Oil” and under the “Un-Scheduled Goods”. Therefore, the Commissioner’s reasoning and conclusion are clearly erroneous and consequently the petition is allowed. The opinion of the Commissioner is quashed. It is held that “Nutralite” would fall under the Entry 31 of the Schedule III of the KVAT Act, ‘Edible Oil’ and would be attract the rate of tax prescribed in respect of edible oils.