2005 (12) TMI 533 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of saffron/kesar under the Bombay Sales Tax Act, 1959.
2. Whether saffron/kesar is a culinary and flavouring essence or an ayurvedic medicine in natural form.
3. Tax liability of saffron/kesar under different entries of the Bombay Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Classification of saffron/kesar under the Bombay Sales Tax Act, 1959:
The primary issue was to determine whether saffron/kesar should be classified under entry No. 78 of Schedule C, Part II as "culinary and flavouring essences" liable to tax at 15% or under entry No. 214 of the notification issued under section 41 of the BST Act as an "ayurvedic medicine in natural form" liable to sales tax at 4%.

2. Whether saffron/kesar is a culinary and flavouring essence or an ayurvedic medicine in natural form:
The Tribunal initially held that saffron is an ayurvedic medicine in its natural form. However, the High Court disagreed, emphasizing that there is a distinction between substances that are medicines themselves and those that have medicinal properties. The Court noted that saffron is predominantly used in cooking as a colouring and flavouring material and not as an ayurvedic medicine. The Court referred to the adjudicating authority's reliance on authoritative texts and concluded that saffron's primary use is culinary.

3. Tax liability of saffron/kesar under different entries of the Bombay Sales Tax Act, 1959:
The High Court examined various entries in the BST Act and the exemption notification. It was noted that saffron was classified under entry C-II-13 as a spice, attracting tax, until its deletion from that entry on September 1, 1990. The Court found that the Tribunal erred in holding that saffron would fall under exemption entry 214 after its deletion from entry C-II-13. The Court emphasized that if saffron were an ayurvedic medicine, it would have been taxed at 4% under entry 214 since June 25, 1985, regardless of its inclusion in entry C-II-13.

The Court further held that upon exclusion from entry C-II-13, saffron was appropriately classifiable under entry C-II-78 as "culinary and flavouring essences." The Court noted that saffron is used in small quantities in food preparations and thus fits the description of a flavouring essence.

Conclusion:
The High Court concluded that the Tribunal was in error in classifying saffron as an ayurvedic medicine in natural form under exemption entry 214. Instead, saffron should be classified under entry C-II-78 as a culinary and flavouring essence. The question referred to the Court was answered in the negative, in favor of the Revenue and against the assessee. The reference was disposed of with no order as to costs.