1998 (3) TMI 637 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of rice bran and de-oiled rice bran cake under the Karnataka Sales Tax Act, 1957.
2. Whether the clarification issued by the Commissioner of Commercial Taxes was valid.

Issue-wise Detailed Analysis:

1. Classification of Rice Bran and De-oiled Rice Bran Cake:
The primary issue was whether rice bran and de-oiled rice bran cake are the same or different products for taxation purposes under the Karnataka Sales Tax Act, 1957. Entry 8(iii) of Part C of the Second Schedule taxes rice bran at 2 percent, while oil-cake and rice bran oil are taxed separately under different entries.

The court analyzed the composition and characteristics of rice bran and de-oiled rice bran cake. It was found that rice bran contains crude oil and fat, which are significantly reduced after the distillation process, leaving only traces of oil. Despite this reduction, the other ingredients such as moisture, ash, crude fiber, crude protein, and carbohydrates remain unchanged. The court noted that the molecular structure of rice bran does not alter, and the product does not transform into a new product with different chemical components.

The court emphasized that the essential use of rice bran, which is for manufacturing cattle feed, remains unchanged even after the oil extraction process. The de-oiled rice bran cake retains the characteristics of rice bran and can be restored to its original state by soaking it in rice bran oil.

2. Validity of the Clarification Issued by the Commissioner of Commercial Taxes:
The petitioners challenged the clarification issued by the Commissioner of Commercial Taxes, which stated that de-oiled rice bran cake does not come under the classification of rice bran and should be taxed under the residuary clause, section 5(1) of the Act.

The court referred to the principles laid down by the Supreme Court for interpreting entries in sales tax laws, emphasizing that terms should be understood in their common parlance and commercial sense. The court disagreed with the contention of the respondents that de-oiled rice bran cake is a different product due to the reduction in oil content. It held that the extraction of oil does not result in a total transformation of the product, and de-oiled rice bran cake continues to possess the character of rice bran.

The court also considered previous judgments, including Omrao Industrial Corporation (Pvt.) Ltd. v. Sales Tax Officer and Bhagwan Oil and Potato Chips Factory v. State of Uttar Pradesh, which supported the view that de-oiled rice bran retains the characteristics of rice bran and is primarily used for cattle feed.

The court rejected the respondents' reliance on the common parlance theory, as there was no difficulty in understanding the meaning of rice bran and de-oiled rice bran. It concluded that the Schedule to the Karnataka Sales Tax Act clearly indicated the classification of rice bran and rice bran oil, and there was no separate classification for rice bran oil cake.

The court held that the clarification issued by the Commissioner of Commercial Taxes was not valid and quashed it. It ruled that de-oiled rice bran falls within the ambit of the Second Schedule, Part C, item 8(iii) of the Act.

Conclusion:
The court concluded that de-oiled rice bran cake retains the characteristics of rice bran and should be classified under the same entry as rice bran for taxation purposes. The clarification issued by the Commissioner of Commercial Taxes was quashed, and the writ petitions were disposed of accordingly.