2015 (10) TMI 2629 - HC - VAT and Sales Tax

Whether spent grain , generated in a brewery in the manufacture of 'beer', is an article that would fall within the Entry at Serial No.3 in the First Schedule of the Kerala Value Added Tax Act, 2003, which relates to exempted goods; or whether, it is assessable to tax, by treating them as not goods falling under clause (a) or (c) of section 6(1) of that Act? Held that - In the larger expanding horizon of commerce and scientific attempts to utilise all leftovers of different processes of production, we see that there are efforts being made, and suggestions extended; in the international scientific domain; to utilise spent grain , primarily as fodder, and even as food substitutes even for humans, particularly in exceptionally marginalised and economically challenged social groups in certain parts of the world. But, in the contextual content of a taxing statute in a land like India; particularly in the State of Kerala; with the judicial prudence that we are expected to have, we are unable to visualise that 'spent grain' would be reckoned as an edible substitute for human beings; here and now. In this view of the matter, we cannot but repel the suggestion on behalf of the Revenue as to the probable varied utility of spent grain and to hold that the Revenue had established that the said substance is excluded from Sl. No.3 (three) in the First Schedule of the Act - the decisions rendered by the Appellate Tribunal are liable to be reversed holding that spent grain does not fall either under clause (a) or (c) of section 6(1) of the Act. - Decided in favor of petitioner.

Summary

Issues involved:
Interpretation of the Kerala Value Added Tax Act, 2003 regarding the classification of 'spent grain' from a brewery as either exempted goods under the Act or assessable to tax.

Detailed Analysis:

1. Issue of Classification: The main issue in this judgment revolves around determining whether 'spent grain', produced in a brewery during the manufacture of beer, falls under the exempted goods category as per the Kerala Value Added Tax Act, 2003. The Court considered if 'spent grain' could be classified under the Entry at Serial No.3 in the First Schedule of the Act, which pertains to exempted goods, or if it should be subject to taxation under section 6(1) of the Act.

2. Assessee's Arguments: The Assessee argued that the burden of classification was incorrectly placed on them, contending that the Revenue failed to provide evidence supporting their classification. They also emphasized that 'spent grain' should be considered as 'an article of cattle feed' based on trade parlance and usage, thus falling under the exempted goods category. The Assessee challenged the decisions of the Appellate Tribunal, claiming they were legally unsustainable.

3. Revenue's Position: The Revenue, represented by the Government Pleader, maintained that 'spent grain' did not have a specific entry in the First Schedule, and the burden of proving its exemption from tax lay with the Assessee. They argued that the Appellate Tribunal correctly determined that 'spent grain' did not fit within the exempted goods category, as it was a residue of the brewing process used as cattle feed, which was not explicitly listed in the First Schedule.

4. Legal Interpretation: The Court examined the relevant statutory provisions, particularly Section 6(4) of the Act, which exempts goods specified in the First Schedule from tax. They analyzed the description of goods at Serial No.3 in the First Schedule, emphasizing that 'spent grain' did not fall under any exclusion listed in Schedule III. The Court noted that the Revenue failed to demonstrate that 'spent grain' was specifically mentioned in Schedule III, thereby concluding that it was exempt from taxation under the Act.

5. Judicial Analysis: The Court highlighted the distinction between strict and purposive construction in tax matters, acknowledging the evolving uses of 'spent grain' internationally. However, they concluded that under the current taxing provisions in Kerala, 'spent grain' could not be considered an edible substitute for humans. The Court rejected the Revenue's arguments and held that 'spent grain' was not chargeable under the Act, as it fell outside the taxable clauses of Section 6(1).

6. Decision: The Court ruled in favor of the Assessee, overturning the decisions of the Appellate Tribunal. They held that 'spent grain' did not fall under any taxable clauses of the Act and quashed the orders of the Appellate Tribunal and other authorities. The Court also allowed the writ petition filed by the Assessee, declaring the assessing authority's decision as without jurisdiction.

In conclusion, the judgment clarifies the classification of 'spent grain' under the Kerala Value Added Tax Act, emphasizing the Assessee's burden of proof and the statutory provisions governing tax exemptions.