2015 (1) TMI 993 - HC - VAT and Sales Tax

Classification of 'Nestle Toned Milk' - 'fresh milk' or 'pasteurized milk' falling under Sl. No. 6 of Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959 Entitlement for exemption - Held that - There was no justification on the part of the Tribunal making reference to the provisions under the Tamil Nadu Value Added Tax Act for the purpose of considering the claim of exemption - even in the case of sale of toned milk, pasteurisation is an important process, that without boiling milk to a suitable temperature, the bacterial content cannot be removed - this is so required for the purpose of giving shelf life to milk - while pasteurisation is a process of heating fresh milk at least to 71.5 degree centigrade, the ultra-heat temperature goes further beyond that - The mere fact of further heat treatment to the milk to the higher degree does not mean any the less the product, being toned milk - It is no doubt true that in UHT packet, there are additives made to make good for the loss of vitamin content, therein by heating - in the absence of any specific entry to give a distinct treatment to ultra-high temperature heated milk product or milk packets under the Tamil Nadu General Sales Tax Act, toned milk would certainly call for similar treatment, be it a pasteurised milk with 74 degrees and odd treatment or pasteurised milk , treated with ultra-high temperature. Exemption is granted in respect of sale of fresh milk, pasteurised milk and directly reconstituted milk - milk treated to UHT was not separately treated as an item of taxation or as an item of exemption - when the entry reads as pasteurised milk , all that it was concerned was milk , which was subjected to pasteurisation irrespective of the degree to which it has been heated - when the entry is clear indicating the item of exemption and further on the fact that the consistent case of the assessee was that what was sold was without any additives and what was sold was only a pasteurised milk in the name of toned milk, for the purpose of finding tax liability, one need not travel beyond entry 6 of Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act - when the entry is very clear and the item sold by the assessee also admits that it is a pasteurised milk, and in the absence of any material placed by the Revenue that what was sold was flavoured milk - addition of any vitamins to the pasteurised milk nevertheless retains its character as milk for the purpose of exemption and when the Andhra Pradesh High Court dealt with UHT milk as distinct from pasteurised milk, this was done on account of the differential treatment meted out on account of the distinct entries - the entry in the Third Schedule of Part B of the Tamil Nadu General Sales Tax Act makes no distinction between pasteurised milk and UHT milk , in the absence of any such distinction made and toned milk, by itself is again a pasteurised milk only, the assessee is entitled to exemption as goods falling under the Third Schedule to the Tamil Nadu General Sales Tax Act - when the Commissioner himself has admitted that toned milk sold in sachets is also pasteurised milk qualifying for exemption, there was no justification to restrict it for a particular period alone as referred to in the clarification thus, the order of the Tribunal is set aside and assessee is entitled for exemption Decided in favour of assessee.

Issues Involved:
1. Classification of "Nestle Toned Milk" under the Tamil Nadu General Sales Tax Act.
2. Distinction between pasteurised milk and ultra heat-treated (UHT) milk.
3. Procedural fairness in the Tribunal's findings.
4. Correct tax entry for the milk product.
5. Legitimacy of penalty under section 12(3)(b) of the Tamil Nadu General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Classification of "Nestle Toned Milk":
The core issue is whether "Nestle Toned Milk" qualifies as "fresh milk" or "pasteurised milk" under Sl. No. 6 of Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959. The assessee argued that toned milk is pasteurised milk and should be exempt from tax. The court agreed, stating that pasteurisation, regardless of the degree of heat, does not change the fundamental nature of the milk. The product sold by the assessee, being pasteurised toned milk, should be treated as "pasteurised milk" for tax purposes.

2. Distinction Between Pasteurised Milk and UHT Milk:
The Tribunal had previously held that UHT treatment makes the milk different from pasteurised milk, thus not qualifying for exemption. However, the court found that UHT is merely an advanced form of pasteurisation. The court emphasized that the degree of heat treatment does not alter the essential nature of the milk. Consequently, toned milk treated with UHT should still be classified as pasteurised milk.

3. Procedural Fairness in the Tribunal's Findings:
The assessee contended that the Tribunal rendered its findings without providing an opportunity to contest the conclusions. The court did not delve deeply into this procedural aspect but focused on the substantive issue of classification and tax exemption.

4. Correct Tax Entry for the Milk Product:
The Tribunal had classified the milk under entry 4(ii) of Part E of the First Schedule, which includes milk foods and milk products. The court disagreed, noting that the relevant entry for exemption is under the Third Schedule, Part B, which covers fresh milk, pasteurised milk, and directly reconstituted milk. The court held that toned milk, being pasteurised, falls under this exempt category.

5. Legitimacy of Penalty Under Section 12(3)(b):
Given the court's decision to classify toned milk as exempt under the Third Schedule, the imposition of a penalty under section 12(3)(b) was deemed unjustified. The court set aside the penalty, stating that once the product is classified correctly as exempt, there is no basis for penal action.

Conclusion:
The court allowed the appeals, setting aside the Tribunal's order. The court confirmed that "Nestle Toned Milk," being pasteurised, qualifies for exemption under the relevant tax entry. Consequently, the penalty imposed was also annulled. The judgment emphasized the importance of correctly interpreting tax entries and maintaining consistency in tax treatment for similar products.

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