2017 (4) TMI 631 - HC - VAT and Sales Tax

Taxability of flavoured milk - classification of the product - case of Revenue is that flavoured milk being in the nature of soft beverages, is liable to tax under circular dated 12.10.1983 - flavoured milk, whether milk or milk product? - Held that - what is sold by the assessee is flavoured milk in sealed container. The department itself has issued a circular clearly holding that flavoured milk is covered by the entry milk . Once it be so, the first part of the entry 973, which deals with milk , would apply and entry milk products , would have no applicability. The Tribunal, therefore, was justified in holding that the flavoured milk is not liable to tax, as the product itself is not liable to be taxed - revision dismissed - decided against Revenue.

Summary

Issues:
1. Taxability of flavoured milk sold in sealed containers.

Analysis:
The dispute in this case revolved around the taxability of flavoured milk sold in sealed containers. The High Court revisited a previous order where the State's revision petition was allowed, stating that flavoured milk is liable to tax under a circular from 1983. However, a subsequent circular from 2002 clarified the tax liability of flavoured milk, stating that it remains classified as milk and is not considered a separate taxable product. The High Court emphasized the binding nature of departmental circulars and the need for consistency in tax treatment across districts.

The High Court highlighted that the circular from 2002 explicitly included flavoured milk under the definition of milk, emphasizing that the product does not lose its identity as milk due to the addition of flavor. The Court noted that the Tribunal correctly applied the circular in determining that flavoured milk falls under the entry of 'milk' and is not taxable under the category of 'soft beverages.' The Court also referenced a previous decision supporting the tax-exempt status of milk sold in sealed containers, further reinforcing the non-taxable status of flavoured milk.

The opposing arguments centered around whether the sale of flavoured milk in sealed containers should categorize it as a milk product subject to taxation. The revenue contended that sealed packaging would place flavoured milk under the 'milk products' category for taxation. However, the Court upheld the Tribunal's decision, emphasizing that the circular's classification of flavoured milk as milk itself precludes its taxation as a separate milk product. The Court reiterated that the nature of the product, as determined by the circular, is crucial in determining its tax liability.

In conclusion, the High Court upheld the Tribunal's decision, affirming that flavoured milk sold in sealed containers is not subject to taxation as a separate milk product. The Court emphasized the importance of adhering to departmental circulars and ensuring consistent tax treatment based on the nature of the product. The judgment clarified the tax status of flavoured milk, aligning it with the definition of milk under the relevant circular and precluding its classification as a taxable milk product.