2017 (6) TMI 91 - HC - VAT and Sales Tax

Taxability - sale of flavoured milk - petitioner is selling flavoured milk in the name of Amul Elaichi Shake and Amul Coco Shake in tetra brick packaging. The said flavoured milk is a type of processed milk in which some permitted flavours, colour and sugar are added before they are packed as aforesaid for sale - whether the sale of such flavoured milk is subject to payment of tax under the U.P. Sales/Trade Tax Act, 1948? - Held that - milk is not taxable whereas certain forms of the milk such as condensed milk, milk powder or baby milk are taxable. In exercise of its power under Section 3-A of the Act the State Government notified tax @ of 6% w.e.f. 07.09.1981 upon milk powder, condensed milk, baby milk, baby foods and all other food stuffs or products, whether used as such or after mixing them with any other food stuff or beverage, when sold in sealed tinned containers. A combined reading of Section 4 of the Act and the aforesaid notification would reveal that milk other than condensed milk, milk powder and baby milk stand exempted by the State Government from payment of tax under the Act with the exception of certain forms of milk, milk products and products sold in sealed containers. Section 4 of the Act exempts milk from tax. It does not refer to raw milk. The milk as exempt would therefore include within its fold all forms of milk unless otherwise excluded. Thus, hot or boiled milk, cold milk, flavoured milk, bottled milk except the forms of milk which have been excluded specifically from the exemption stand ousted from tax net under the Act. Generally, milk is either sold raw or after some processing such as boiling or cooling to make it usable for a longer time but such processing even that of pasturising does not alter the nature of the milk or its characteristic. Even if milk is condensed, skimmed or toned it remains a milk though its form may change - as flavoured milk is basically a milk that stands exempted under Section 4 of the Act read with notification dated 31.01.1985 whether sold in open form or in sealed containers. The flavoured milk in controversy is a form of milk which is exempt from tax under Section 4 of the Act as no notification prescribes for levying tax upon it even if it is sold in sealed containers - the demand notice as well as assessment orders dated 08.09.2006 and 2006-07 and 2007-08 demanding and assessing tax on the sale of flavoured milk in sealed packs are not sustainable - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Taxability of "flavoured milk" under the U.P. Sales/Trade Tax Act, 1948.
2. Applicability of various notifications and circulars regarding tax exemption on milk and milk products.
3. Interpretation of Section 4 of the U.P. Sales/Trade Tax Act, 1948, and relevant notifications.
4. Whether "flavoured milk" qualifies as a "soft beverage" or a "milk product."

Detailed Analysis:

1. Taxability of "flavoured milk" under the U.P. Sales/Trade Tax Act, 1948:
The petitioner, a cooperative organization, challenged the demand notice dated 08.09.2006 and subsequent assessment orders for the years 2006-07 and 2007-08, which taxed the sale of "flavoured milk." The court examined whether "flavoured milk" sold under the brand names "Amul Elaichi Shake" and "Amul Coco Shake" is subject to tax under the U.P. Sales/Trade Tax Act, 1948.

2. Applicability of various notifications and circulars regarding tax exemption on milk and milk products:
The petitioner referred to a circular dated 27.11.2002, which indicated that "flavoured milk" should be considered as milk and thus exempt from tax. The court noted that the circular was based on the opinion of the Secretary, Dairy Development Department, U.P., which stated that adding sugar or flavors to milk does not change its fundamental nature.

3. Interpretation of Section 4 of the U.P. Sales/Trade Tax Act, 1948, and relevant notifications:
Section 4 of the Act exempts milk from tax but excludes certain forms like condensed milk, milk powder, and baby milk. The court analyzed various notifications issued under Sections 3-A and 4 of the Act. The notification dated 31.01.1985 exempted milk and certain milk products from tax but excluded products sold in sealed containers. The court clarified that the phrase "products sold in sealed containers" refers only to milk products and not to milk itself.

4. Whether "flavoured milk" qualifies as a "soft beverage" or a "milk product":
The court examined whether "flavoured milk" falls under the category of "soft beverages" or "milk products." It concluded that "flavoured milk" is a form of milk and not a derivative or milk product. The court emphasized that the addition of permitted flavors or sugar does not alter the basic characteristic of milk.

Conclusion:
The court held that "flavoured milk" is exempt from tax under Section 4 of the Act and the notification dated 31.01.1985, even when sold in sealed containers. The demand notice and assessment orders for the years 2006-07 and 2007-08 were quashed to the extent they imposed tax on "flavoured milk." The writ petition was allowed, and the petitioner was not liable for tax on the sale of "flavoured milk" in sealed containers.