2016 (5) TMI 183 - HC - VAT and Sales Tax

Classification and rate of tax - Nutralite - Appellant contended that Nutralite is made by emulsification of edible oil with water and comp rises of 70% edible oil whereas Commissioner of Commercial Taxes has reached the conclusion that Nutralite would be classified as unscheduled goods - Held that - in the present case the classification only contemplates edible oil and since the Nutralite was different from edible oil the conclusion having been arrived at, may not be fair to the petitioner. The ingredients of the product are clearly shown to be consisting of 70% of edible oil and 26% of water. The other contents amounts to only 4%. Therefore, it is clearly a question of considering whether the product Nutralite which is also Margarine a generic term would describe the very product as edible oil or not. There is no reason to hold that the product shall not fall under the Entry Edible Oil and under the Un-Scheduled Goods . Therefore, the Commissioner s reasoning and conclusion are clearly erroneous. Therefore, the Nutralite would fall under the Entry 31 of the Schedule III of the KVAT Act, Edible Oil and would attract the rate of tax prescribed in respect of edible oils. - Decided in favour of appellant

Summary

Issues:
Classification of product "Nutralite" under KVAT Act, 2003 - Applicable VAT rate - Judicial review of Commissioner's decision.

Analysis:
The petitioner, a registered dealer under KVAT Act, sought clarification on the classification and applicable VAT for the product "Nutralite." The petitioner believed it should be taxed as Edible Oil at 5.5% but the Commissioner classified it as "unscheduled goods" attracting higher rates. The initial order was set aside due to procedural irregularities, but upon rehearing, the Commissioner upheld the classification, leading to this challenge.

The petitioner argued that "Nutralite" primarily consists of edible oil, making it akin to Margarine or Fat Spread, which should be considered Edible Oil per Supreme Court precedent. The composition of "Nutralite" was presented, emphasizing its edible oil content and similarity to Margarine, a recognized Edible Oil. The petitioner contended that the product's usage and composition align with the definition of Edible Oil, warranting a lower tax rate under Entry 31 of the KVAT Act.

The Commissioner's decision was based on a different interpretation, asserting that the product did not fit the specific Entry for Edible Oil and should be classified as "unscheduled goods." However, the Court disagreed, emphasizing the edible oil's predominant presence in "Nutralite" and its alignment with the definition of Edible Oil. The Court found the Commissioner's reasoning flawed, noting that the product should fall under Entry 31 as Edible Oil, thereby quashing the Commissioner's opinion and directing the application of the lower tax rate prescribed for edible oils under the KVAT Act.