2018 (1) TMI 1195 - HC - VAT and Sales Tax

Classification of goods - Rate of tax - bakery shortening - appellant claims that the goods falls under Entry 38 of the Third Schedule of the KVAT Act exigible to tax @ 5% - The clarification sought was in the context of the Department having the opinion that it would not fall under Entry 38, for reason of the product not being covered under the specific Harmonised System of Nomenclature (HSN) Code shown against Entry 38(18) (d) Others including vanaspati . Held that - Rule (v) of the Rules of Interpretation of Schedules under the KVAT Act, applies in so far as the doctrine of ejusdem generis commends the general words to take the colour of the specific words. The word others under Entry 38(18)(d) has to be understood as including all partly or wholly hydrogenated vegetable oils. But the words including vanaspati cannot be taken as including any preparation of vanaspati. The inclusion of vanaspati, being by way of a specific word following the general word others cannot be understood as enlarging the scope of the entry, but is one restricting the inclusion to vanaspati alone which is a hydrogenated vegetable oil. Though the inclusion of vanaspati does not restrict the more general commodities included in the entry; there cannot be a further expansion or enlargement inferred. Clause (b) of item 3 of the General Rules for the Interpretation of the Schedule under the First Schedule - Import Tariff would be applicable only if the commodity cannot be classified by reference to (a) , which is the specific words used in that sub-clause. Clause (a) provides for classification under the heading which gives a specific description which has to be preferred, to headings providing a more general description. HSN heading 1516 provides for inter alia hydrogenated vegetable oils which are not prepared and HSN heading 1517 provides for edible mixture or preparations inter alia of vegetable oils other than edible oils and their fractions under HSN heading 1516. Bakery shortening being a preparation of hydrogenated vegetable oils, it cannot be included under HSN heading 1516 nor under the category 1516.20.91; the HSN code with which is aligned Entry 38(18)(d) of the Third Schedule of the KVAT Act. The products under HSN heading 1517 having not been included in any of the entries, come under the residual entry of S.R.O. No.82/2006. Tribunal has extracted the notification published in the Gazette of India Extraordinary, Public Notice No.07 (RE-2008)/2004-09 dated 22.04.2008 of the Government of India, Ministry of Commerce and Industry, Department of Commerce, which, on a reference to the Indo-Sri Lanka Free Trade Agreement, details the items Vanaspati, Margarine and Bakery Shortening, having been included under the respective HSN Codes of 1516.20, 1517.10 and 1517.90. The order of the Clarification Authority is sustained - appeal dismissed.

Summary

Issues Involved:
1. Tax rate applicable to 'bakery shortening' under the Kerala Value Added Tax Act, 2003 (KVAT Act).
2. Classification of 'bakery shortening' under the Harmonised System of Nomenclature (HSN) Code.
3. Reliance on dictionary definitions versus statutory definitions.
4. Interpretation of entries and rules under the KVAT Act and Customs Tariff Act.

Issue-wise Detailed Analysis:

1. Tax Rate Applicable to 'Bakery Shortening':
The appellant/dealer sought clarification on the applicable tax rate for 'bakery shortening', arguing it falls under Entry 38 of the Third Schedule of the KVAT Act, taxable at 5%. The Department contended that 'bakery shortening' does not fall under Entry 38 due to its specific HSN Code and should be taxed under the residual entry in S.R.O. 82 of 2006 at a higher rate (12.5/13.5/14.5% for various periods). The Authority for Clarification upheld the Department's view, classifying 'bakery shortening' under the residual entry.

2. Classification of 'Bakery Shortening' under HSN Code:
The appellant argued that 'bakery shortening' should be classified under HSN Code 1516.20.91 as 'vanaspati', a hydrogenated vegetable oil, and thus taxable at 5%. The Department countered that 'bakery shortening' is a mixture of hydrogenated vegetable oils and undergoes further preparation, thus falling under HSN Code 1517, which pertains to mixtures or preparations of animal or vegetable fats or oils. The court analyzed the HSN Codes and concluded that 'bakery shortening', being a preparation of hydrogenated vegetable oils, falls under HSN Code 1517 and not 1516.

3. Reliance on Dictionary Definitions versus Statutory Definitions:
The appellant criticized the reliance on dictionary definitions by the Clarification Authority, arguing that statutory definitions under the Food Safety and Standards Act, 2006 (FSS Act) should prevail. The court noted that the FSS Regulations and the Vegetable Oil Order define 'bakery shortening' as 'vanaspati' but treated them as distinct products due to their different uses and characteristics. The court held that reliance on dictionary definitions is permissible when there is no statutory definition in the taxing statute.

4. Interpretation of Entries and Rules under the KVAT Act and Customs Tariff Act:
The court emphasized the importance of the HSN Codes for classification under the KVAT Act. It referred to the Rules of Interpretation of Schedules under the KVAT Act, which mandate that commodities with an eight-digit HSN number should be interpreted strictly according to that number. The court concluded that 'bakery shortening', being a prepared product, does not fall under HSN Code 1516 but under 1517, which is not included in the Third Schedule of the KVAT Act and thus falls under the residual entry.

Conclusion:
The court upheld the Clarification Authority's order, classifying 'bakery shortening' under the residual entry of S.R.O. No. 82/2006, taxable at higher rates. The appeal was dismissed, affirming that 'bakery shortening' does not fall under Entry 38 of the Third Schedule of the KVAT Act. The court emphasized the adherence to HSN Codes and statutory definitions in determining tax classifications.