2003 (8) TMI 514 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether pasteurised milk is considered "fresh milk" under entry 23 of the Third Schedule to the Kerala General Sales Tax Act, 1963, and thus exempt from tax.
2. The applicability of the decision in Ernakulam Regional Co-operative Milk Producers Union Ltd. v. State of Kerala.
3. The legality of the notices issued to the petitioner for the assessment years 1996-97 and 1997-98.

Detailed Analysis:

1. Whether Pasteurised Milk is Considered "Fresh Milk" Under Entry 23:
The primary issue was whether pasteurised milk falls under the category of "fresh milk" as specified in entry 23 of the Third Schedule to the Kerala General Sales Tax Act, 1963, thereby making it exempt from sales tax. The court noted that pasteurisation is a process aimed at preserving milk by eliminating pathogens without altering its physical or chemical properties. The court concluded that pasteurised milk remains "fresh milk" because the process only maintains its freshness and does not create a new product. Therefore, pasteurised milk should be exempt from sales tax under entry 23.

2. Applicability of the Decision in Ernakulam Regional Co-operative Milk Producers Union Ltd. v. State of Kerala:
The respondents relied on a previous decision where it was held that pasteurised milk was not exempt from tax. However, the court distinguished the present case from the Ernakulam case, noting that the latter involved milk combined with skimmed milk powder, which was not the situation here. The petitioner was only pasteurising fresh milk without adding any other substances. Thus, the court held that the decision in Ernakulam was not applicable to the present case.

3. Legality of the Notices Issued for the Assessment Years 1996-97 and 1997-98:
The court examined the legality of the notices issued to the petitioner for the assessment years 1996-97 and 1997-98, which proposed to levy tax on the sale of pasteurised milk. The court found that the department and the government had consistently treated pasteurised milk as fresh milk, exempt from tax. This was evident from various communications and orders, including a letter from the Principal Secretary, Department of Taxes, and an order from the Sales Tax Appellate Tribunal. The court also noted that the government had issued a notification granting retrospective exemption to co-operative societies for the sale of pasteurised milk, reinforcing the view that pasteurised milk was considered fresh milk. Consequently, the court deemed the reopening of assessments and the issuance of tax notices as unjustified and set them aside.

Conclusion:
1. Pasteurisation is a preservation process that does not produce a new product, thus pasteurised milk is "fresh milk."
2. The Ernakulam decision is distinguishable and not applicable to the present case.
3. The department and government consistently treated pasteurised milk as fresh milk, and no valid reason existed for reopening the assessments. Therefore, the impugned notices were set aside, and the writ petitions were allowed.