2014 (4) TMI 595 - HC - VAT and Sales Tax

Classification of Milk Interpretation of Statute - Held that - Whether milk is a subject matter of taxation under the First Schedule or under the Third Schedule - Held that - During the relevant assessment year, 1993-94, milk was very much a subject matter of taxation under the First Schedule - Third Schedule is relevant only in the next assessment year - Therefore, the order of the Tribunal to that extent held incorrect. Exemption Notification - Whether there is any manufacturing process in making the fresh milk as pasteurised milk Interpretation of Statute - Manufacture Held that - Judgment in Aspinwall and Co. Ltd., V. Commissioner of Income Tax 2001 (9) TMI 3 - SUPREME Court followed Exemption itemises the subject matter of exemption under Notification - Going by the enumeration in notification, it is clear that they are commercially different commodities - There is no definition what manufacture is - However, Rule 3(h) of the TNGST Rules gives the clue to the understanding of what manufacturer is - It defines, manufacturer - Manufacture has to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines - Thus, when fresh milk is made as recombined milk or pasteurised milk, there being manufacture, the assessee is entitled to the benefit of Section 3(3) - Tribunal committed an error in holding that there was no manufacturing activity involved when fresh milk was converted as recombined milk/pasteurised milk. Concessional levy of Tax Penalty - u/s 3(3) & u/s 23 of the TNGST Act, 1959 Held that - Section 3(3) grants concessional levy on the sale of packing materials - The benefit of concessional levy is available in respect of purchase of polythene sheets to be used as packing material for sale of pasteurised milk - Order of the Tribunal set aside including the levy of penalty and the Revision is allowed Decided in favour of assessee.

Summary

Issues:
1. Whether the conversion of fresh milk into processed milk constitutes manufacturing?
2. Does the use of the generic term 'milk' affect the manufacturing process?
3. Is the assessee liable for penalty under Sec.23 of the TNGST Act for an alleged offense?

Analysis:
1. The assessee, a Co-operative Milk Producers Federation, purchased polythene films for packing milk products and claimed a concessional tax rate. The Assessing Authority rejected the claim, stating there was no manufacturing involved in pasteurizing milk. The Appellate Assistant Commissioner and the Tribunal upheld this decision, stating that the milk retained its characteristics and did not undergo a manufacturing process to become a different commodity.

2. The Tribunal confirmed that the milk sold did not result in a different commodity and was assessable under the Third Schedule, making the concessional levy unavailable. The Tribunal reduced the penalty, but the assessee challenged this decision. The counsel argued that the milk was a First Schedule good during the assessment year and the processing involved constituted manufacturing, making the concessional levy applicable.

3. The counsel highlighted that the Act did not define 'manufacture' but referred to Rule 3(h) of the Tamil Nadu General Sales Tax Rules, defining a 'manufacturer' as someone who produces goods for trade. The counsel argued that the process of converting fresh milk into pasteurized milk constituted manufacturing, entitling the assessee to the concessional levy for packing materials under Section 3(3).

4. The Court agreed with the assessee, stating that during the relevant assessment year, milk was taxable under the First Schedule. The Court analyzed a notification exempting fresh milk and recombined milk, indicating a distinction between the two commodities. Referring to case law and the definition of 'manufacturer,' the Court concluded that the conversion of fresh milk into pasteurized milk constituted manufacturing, entitling the assessee to the concessional levy.

5. Consequently, the Court set aside the Tribunal's decision, allowing the benefit of concessional levy on the purchase of polythene sheets for packing pasteurized milk. The order of the Tribunal, including the penalty, was overturned, and the Tax Case (Revision) was allowed without costs.