2009 (8) TMI 1102 - HC - VAT and Sales Tax

Coconut oil - whether liable to be taxed at 12.5 per cent VAT on sale price? Held that - The legislative mandate was to treat coconut oil differently from edible oil in entry 47 and therefore the claim of the petitioner that coconut oil would come under serial Nos. 124 and 125 cannot be accepted. In the aforesaid premises it is clear that the intent of the legislation was to exclude coconut oil from Part II of Schedule B to the OVAT Act and consequently making the same taxable at 12.5 per cent under Part Ill of the Schedule B. Appeal dismissed.

Summary

Issues:
1. Challenge to the taxation of "coconut oil" at 12.5% VAT instead of 4% under the Orissa Value Added Tax Act, 2004.
2. Challenge to the notification dated May 31, 2007, amending the entry for "coconut oil" in the tax schedule.

Analysis:

1. The petitioner challenged the taxation of "coconut oil" at 12.5% VAT instead of 4%, arguing that it should be classified as edible oil or vegetable oil. The petitioner contended that the product falls under serial No. 124 or 125 of Schedule B, Part II of the Orissa Value Added Tax Act, 2004, making it eligible for the lower tax rate. The petitioner claimed unfair discrimination due to the higher tax rate. However, the Revenue argued that a similar issue was raised in West Bengal, where the Taxation Tribunal ruled that "coconut oil" is not generally used as edible oil, but more commonly as "hair oil." The Tribunal in West Bengal also found that the legislature treated "coconut oil" as a distinct commodity, justifying its separate tax treatment. The Orissa High Court cited precedents supporting legislative discretion in taxing specific products differently, such as the taxation of "sugar-candy" distinct from "sugar."

2. The petitioner also challenged a notification from May 31, 2007, amending the entry for "coconut oil" in the tax schedule. The Revenue argued that this amendment was clarificatory and not retrospective, citing the Supreme Court's judgment in Manickam and Co. v. State of Tamil Nadu. The amendment excluded "coconut oil" from being classified as "vegetable oil," supporting the higher tax rate. The court noted that the legislative intent was to treat "coconut oil" differently from edible oil, as evident from the amendments to the tax schedule. The court agreed with the West Bengal Taxation Tribunal's view that "coconut oil" is primarily used as "hair oil" rather than for cooking, justifying its classification for taxation at 12.5%.

In conclusion, the court dismissed both writ petitions, upholding the taxation of "coconut oil" at 12.5% VAT and the validity of the notification amending its classification in the tax schedule.