2019 (5) TMI 806 - HC - VAT and Sales Tax

Rate of tax - cream milk mixed and flavoured milk - taxable at 8% or 16%? - classification of the goods - HELD THAT - It is not in dispute that the dealer/assessee has sold flavoured milk and cream milk mixed - The department itself has issued a circular clearly holding that the flavoured milk is covered by the entry 'milk'. In the instant case, the Tribunal has rightly dismissed the appeal filed by the Commissioner while affirming the order of the first appellate authority. The first appellate authority has quashed the proceedings under Section 21 of the Act. Assessee itself has admitted the tax on cream milk mixed and flavoured milk at the rate of 8%. The revision filed by the Commissioner Trade Tax U.P. is dismissed.

Issues involved:
1. Rate of tax on cream milk mixed and flavoured milk.
2. Validity of re-assessment proceedings under Section 21 of the U.P. Value Added Tax Act.
3. Interpretation of circular dated 27.11.2002 regarding taxability of flavoured milk.
4. Consideration of circulars issued by the Commissioner by the Tribunal.

Detailed Analysis:
1. The primary issue in this case pertains to the rate of tax applicable to cream milk mixed and flavoured milk sold by the assessee. The revision petition under Section 58 of the U.P. Value Added Tax Act, 2008 was filed against the order of the Trade Tax Tribunal, which imposed tax on flavoured milk at 16% and on cream milk mixed at 10% during re-assessment proceedings. The first appellate authority had initially imposed tax at 8%, which was challenged by the revenue. However, the Tribunal upheld the 8% tax rate, citing previous court decisions.

2. The validity of the re-assessment proceedings under Section 21 of the Act was also a crucial issue. The assessing authority initiated re-assessment based on a court decision regarding the tax rate on flavoured milk. The Joint Commissioner (Appeals) had quashed the re-assessment proceedings, leading to an appeal by the revenue before the Tribunal. The Tribunal's decision to dismiss the appeal was based on the dealer's admission of tax at 8% on both cream milk mixed and flavoured milk.

3. A significant aspect of the case revolved around the interpretation of a circular dated 27.11.2002 concerning the taxability of flavoured milk. The circular clarified that flavoured milk falls under the category of 'milk' for tax purposes, emphasizing that the addition of flavor does not change the essential nature of milk. The Tribunal was urged to reconsider the matter in light of this circular, as it had been applied to other dealers in different districts.

4. The Tribunal's consideration of circulars issued by the Commissioner was another point of contention. The department's circulars, including the one from 27.11.2002, were deemed binding and relevant to the case. The Tribunal's decision to uphold the first appellate authority's order and dismiss the Commissioner's revision was based on the acknowledgment of the circular's applicability to the dealer, along with the dealer's admission of tax liability at 8%.

In conclusion, the High Court upheld the orders of the first appellate authority and the Commercial Tax Tribunal, dismissing the revision filed by the Commissioner of Trade Tax U.P. The decision was grounded in the acknowledgment of the circular regarding flavoured milk taxability and the dealer's admission of tax liability at 8%, emphasizing the binding nature of departmental circulars and the essential nature of milk even when flavored.

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