2011 (3) TMI 1448 - HC - VAT and Sales Tax

Classification under Maharashtra Value Added Tax Act of 2002 (MVAT) - Whether the product, nutralite table margarine, manufactured by the respondent-assessee is a vegetable oil covered under Schedule C, entry 100 or Schedule C, entry 102 or not - palm oil is subjected to the process of emulsification and the resultant product that emerges is nutralite table margarine - table margarine is considered to be a distinct marketable commodity under the Central Excise Act Held that - product is exempted from payment of Central excise duty would not mean that the nutralite table margarine is not manufactured by the appellant, Vegetable oil falling under heading Schedule C, entry 100 when subjected to the process of hydrogenation, the resultant product is classified under heading Schedule C, entry 102 as hydrogenated vegetable oil. Hydrogenated vegetable oil when subjected to the process of emulsification, margarine is obtained. The fact that the appellant instead of using hydrogenated vegetable oil has used palm oil as the basic ingredient in manufacturing nutralite table margarine, it cannot be said that the product manufactured by the appellant is a vegetable oil covered under Schedule C, entry 100 or hydrogenated vegetable oil covered under heading Schedule C, entry 102. Nutralite table margarine manufactured by the appellant is classified under the residuary entry under heading E1 and not under heading Schedule C, entry 100 as held by the MSTT.

Issues Involved:
1. Classification of Nutralite table margarine under the Maharashtra Value Added Tax Act, 2002.
2. Determination of the applicable tax rate for Nutralite table margarine.
3. Application of various legal tests and principles to determine the correct classification.

Issue-wise Detailed Analysis:

1. Classification of Nutralite Table Margarine:
The core issue is whether Nutralite table margarine should be classified under Schedule C, entry 100 (vanaspati or hydrogenated vegetable oil), Schedule C, entry 102 (vegetable oil including gingili, castor, and bran oil), or under Schedule E, entry 1 (residuary entry). The respondent-assessee argued that Nutralite table margarine, being a margarine-vanaspati, should fall under Schedule C, entry 100. The Commissioner of Sales Tax, however, classified it under Schedule E, entry 1, attracting a higher tax rate of 12.5%. The Maharashtra Sales Tax Tribunal (MSTT) later classified it under Schedule C, entry 102, making it taxable at 4%.

2. Determination of Applicable Tax Rate:
The appellant contended that Nutralite table margarine is a separate product made by emulsification of water, salt, and vegetable oil, not by hydrogenation, and thus should not be classified under Schedule C, entry 100. The product's classification significantly impacts the applicable tax rate, with Schedule C entries attracting a lower tax rate of 4%, while Schedule E, entry 1, attracts a tax rate of 12.5%.

3. Application of Legal Tests and Principles:
Several legal tests and principles were discussed to determine the correct classification:
- Common Parlance Test: The appellant argued that Nutralite table margarine is not commonly understood as vegetable oil.
- Reversibility Test: The appellant emphasized that Nutralite table margarine, once emulsified, cannot revert to its original form, distinguishing it from vegetable oil.
- Predominant Component Test: The respondent-assessee argued that since Nutralite contains 80% vegetable oil, it retains the characteristics of vegetable oil.
- Distinct Marketable Commodity Test: The court considered whether Nutralite table margarine is a distinct marketable commodity separate from its base ingredients.

Judgment Analysis:
The court analyzed the nature and composition of Nutralite table margarine, noting that it consists of 80% palm oil and other ingredients like water, fatty acid, salt, and skimmed milk. The court highlighted that Nutralite is not obtained through hydrogenation but through emulsification, distinguishing it from vanaspati (hydrogenated vegetable oil) covered under Schedule C, entry 100.

The court applied the reversibility test, noting that Nutralite table margarine cannot revert to palm oil, and thus, it is a distinct product. The court also considered the predominant component test but concluded that the presence of other ingredients transforms Nutralite into a distinct marketable commodity, separate from vegetable oil.

The court referred to various precedents, including the principles laid down in Tungabhadra Industries Ltd. v. Commercial Tax Officer and Shreeji Traders v. State of Gujarat, to support its conclusion. The court emphasized that the classification should be based on the product's marketability and distinct identity rather than its predominant component or usability.

The court rejected the argument that usability alone could determine the classification, citing Mysore Agro Service Centre v. State of Karnataka, where it was held that the legislative intention is to levy a consistent tax rate for a particular commodity, regardless of its use by different consumers.

Ultimately, the court concluded that Nutralite table margarine is a distinct marketable commodity and should be classified under the residuary entry under Schedule E, entry 1, attracting a tax rate of 12.5%. The court held that the MSTT erred in classifying it under Schedule C, entry 102.

Conclusion:
The court answered the question in the appeal by holding that Nutralite table margarine is classified under the residuary entry under Schedule E, entry 1, and not under Schedule C, entry 100 or 102. The appeal was decided with no order as to costs.

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