2015 (1) TMI 639 - HC - VAT and Sales Tax

Taxability of Women s Horlicks - Classification of product - Clarification regrading rate of tax - Whether Women s Horlicks can be taxed under residuary entry as against the specific entry arrived tax at 4% on Part B of the First Schedule. - Petitioner contends that Women s Horlicks is not made up of milk alone but with other ingredients, therefore, it is taxable under the residuary entry - Held that - Under the Exemption Notification dated 17th March, 1986 the goods would attract tax at 4 percent if it falls under item (viii) or 10 pecent if it falls under item (x). The High Court has taken into consideration the manner in which Horlicks was treated as falling within milk food occurring in the earlier Entry 24 and has come to find against the Revenue. - respondent is required to apply the proper tests, ascertain the essential character of the product bearing in mind the certificate filed by the petitioners under the provisions of the Milk and Milk Products 92, take note of the principles laid down by the Hon ble Supreme Court 2007 (3) TMI 260 - SUPREME COURT OF INDIA in the decisions referred, with regard to the manner in which the clarification of the products is to be done and the decision of Hon ble Division Bench of this Court in H.M.M Limited (1990 (10) TMI 331 - MADRAS HIGH COURT) confirmed by the Hon ble Supreme Court and then take decision on merits and in accordance with law after affording an opportunity of personal hearing. Further the petitioner has placed reliance on the decisions of Authority for Clarification and Advance Ruling, where they have clarified regarding the rate of tax for milk based products and held that product is a milk product since it is pre-dominently milk In the light of the above, the Writ Petitions are allowed and the impugned clarification is quashed and the 2nd respondent is directed to place the matter before the Authority for Clarification and Advance Ruling - decided in favour of petitioners.

Summary

Issues Involved:
1. Tax classification of Women's Horlicks under the Tamilnadu Value Added Tax Act, 2006.
2. Validity of the impugned clarification issued by the 2nd respondent.

Detailed Analysis:

Issue 1: Tax Classification of Women's Horlicks
The primary question for consideration was whether Women's Horlicks should be taxed at 4% under Part B of the First Schedule or at 12.5%/14.45% by applying the residuary entry. The petitioners argued that Women's Horlicks, launched during 2007-2008, contains a significant percentage of milk by weight and value, classifying it as a milk product. They supported their claim with the product's registration under the Milk and Milk Products Order, 1992, and a certificate from the Government of India. The petitioners also cited a precedent where the Division Bench of the Madras High Court, affirmed by the Supreme Court, classified Horlicks as a milk product due to milk predominating by weight and value.

The respondents countered that Women's Horlicks is a new product and not a milk food, arguing that it contains only 20% milk. They justified taxing it at 12.5% under the residuary entry, emphasizing that not all products with milk components qualify as milk products.

Issue 2: Validity of the Impugned Clarification
The court first addressed whether the impugned clarification was arbitrary for lacking reasons. The 2nd respondent's clarification stated that Women's Horlicks is not a milk product as it contains other ingredients, thus taxable under the residuary entry. The petitioners contended that the clarification was a non-speaking order, failing to consider the significant milk content and relevant legal precedents. The court noted that the 2nd respondent did not apply proper tests or ascertain the essential character of the product, nor did it address the petitioners' detailed submissions or the precedent set by the Division Bench and the Supreme Court.

The court referenced the essential tests for classifying products, including the predominance by weight and value, as established in various Supreme Court decisions. It highlighted that the residuary entry should only be applied when goods cannot be classified under specific entries. The 2nd respondent's failure to apply these principles rendered the clarification arbitrary and devoid of reasons.

Conclusion:
The court concluded that the impugned clarification was arbitrary and non-speaking, thus invalid. It quashed the clarification and directed the 2nd respondent to refer the matter to the Authority for Clarification and Advance Ruling. The petitioners were instructed to file an application with supportive records, and the Authority was to decide the matter on merits, considering the court's findings and observations. Until the Authority's decision, no recovery actions were to be initiated against the petitioners. The writ petitions were allowed, and the connected miscellaneous petitions were closed without costs.