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2023 (3) TMI 6 - HC - VAT and Sales TaxClassification of goods - KINLEY WATER - falls within the scope of Entry No.4 of Taxable List or within the ambit of Entry 39 of Tax-free List - dealer had collected sales tax from its customers/consumers - whether the finding of fact by the learned Odisha Sales Tax Tribunal is based on no evidence and/or erroneous appreciation of evidence and the conclusion arrived at by the Tribunal is untenable in the eye of law? HELD THAT - It is admitted by the Revenue that the dealer-company has added only sodium and magnesium salts to the treated water. The description of commodity as is given by the opposite party-company shows that the water is the potable water which is subject to treatment such as decantation, filtration, demineralization, re-mineralisation, reverse osmosis. These processes are as per the requirements of specification of the Bureau of Indian Standards as also the Prevention of Food Adulteration Act. On comparison of definitions of mineral water and packaged drinking water as defined in the Prevention of Food Adulteration Rules, 1955, it is but clear that the process undertaken by the opposite party conforms to the packaged drinking water . Mere addition of sodium and magnesium salts may not convert water into mineral water unless other ingredients as specified in the Prevention of Food Adulteration Rules, 1955 are demonstrated to be present. The Revenue has utterly failed to bring on record that the product which is sold by the opposite party does contain other contents as enumerated in Appendix-B to the said Rules - If the Revenue could bring on record the fact that the product in question contained the ingredients specified for water to fall within the comprehension of mineral water as per A.32 of Appendix-B appended to the Prevention of Food Adulteration Rules, the matter would have been different. On the contrary, the opposite party-company having demonstrated that it has produced packaged drinking water in conformity with the specification of A.33 of Appendix-B of said Rules, it has discharged its onus. The Hon ble Delhi High Court in Bottled Water Processors Association Vrs. Union of India, 2010 (5) TMI 956 - DELH HIGH COURT , held that it is mandatory for packaged drinking water to be manufactured, sold or exhibited for sale only with a BIS Certification Mark. Packaged drinking water has to conform to the stipulated Indian Standards Specification as per IS 14543 2004. Rule 37 of the Prevention of Food Adulteration Rules requires the label to state that it is packaged drinking water and the label shall not contain any statement, claim, design, device, fancy name or abbreviation which is false or misleading in relation to the place of origin of the drinking water - Consequently, if packaged drinking water is sold without the usage of the BIS Mark, then the offence under Section 14 read with Section 33 of the Bureau of Indian Standards Act, 1986 stands attracted, which prescribes for the punishment. Test commonly applied to such cases where the statute is silent in respect of definition of a particular commodity, is how the product gets identified by the class or section of people dealing with or using the product. This is a test, which is attracted whenever a statute does not contain any definition. It is a matter of common experience that the identity of an article is associated with its primary function. When a consumer buys an article, he buys it because it performs a specific function for him. There is a mental association in the mind of the consumer between an article and the need it supplies in his life. It is the functional character of the article, which identifies it in his mind. The competing entries, viz., Entry 39 of the Tax-free List vis-a-vis Entry 4 of Taxable List, do not confine the item to water simpliciter for classification. This Court is called upon to adjudicate whether packaged drinking water sold in the brand name KINLEY WATER falls within the sweep of expression water but not aerated or mineral water sold in bottles or sealed containers . The key words are sold , aerated water and mineral water . The word sold in the entry is indicative that it is the trade circle in which the commodity is traded or understood by the manufacturer, the trader and the consumer. In the trade mineral water and packaged drinking water are understood in the same sense in which Bureau of Indian Standards and the Prevention of Food Adulteration Act have specified/defined. Thus considered, the contention of the petitioner-Revenue deserves to be rejected. Only conclusion that can be arrived at when Entry 39 of Tax-free List and Entry 4 of the Taxable List are pitted against each other is that what is taxable is sale of aerated water or mineral water. The scope of taxability cannot be expanded by giving the extended meaning to the excepted expressions for the purpose of narrowing down the exemption granted to water which falls within the ken of Entry 39 of Tax-free List - it is held that sale of packaged drinking water in the brand name KINLEY WATER falls within the expression water but not aerated or mineral water sold in bottles or sealed containers vide Entry No.39 of Tax-free List. The issue is answered in the negative, i.e., in favour of the opposite party-assessee and against the Revenue.
Issues Involved:
1. Classification of "KINLEY WATER" under the Odisha Sales Tax Act, 1947. 2. Justification of the Odisha Sales Tax Tribunal's decision. 3. Applicability of the Mafatlal Industries Ltd. v. Union of India precedent. 4. Evaluation of the evidence and findings of the Odisha Sales Tax Tribunal. Issue-wise Analysis: 1. Classification of "KINLEY WATER": The primary issue was whether "KINLEY WATER" falls under Entry No.4 of the Taxable List, attracting a 12% sales tax, or under Entry No.39 of the Tax-free List. The petitioner (State of Odisha) argued that "KINLEY WATER" is mineral water, subject to tax, while the opposite party (Hindustan Coca-Cola Beverages Pvt. Ltd.) claimed it as packaged drinking water, exempt from tax. The court examined the manufacturing process of "KINLEY WATER," which involves double reverse osmosis and the addition of sodium and magnesium salts to improve taste. The product adheres to the standards prescribed by the Bureau of Indian Standards (BIS) and the Prevention of Food Adulteration Act, 1954. The court concluded that "KINLEY WATER" is packaged drinking water, not mineral water, as it does not meet the criteria for mineral water defined under the Prevention of Food Adulteration Rules, 1955. The addition of sodium and magnesium salts does not change its classification from water to mineral water. 2. Justification of the Odisha Sales Tax Tribunal's Decision: The Tribunal had ruled in favor of the opposite party, classifying "KINLEY WATER" under the Tax-free List. The court upheld this decision, noting that the Tribunal correctly interpreted the entries in the Tax-free and Taxable Lists in light of statutory definitions and commercial parlance. The court emphasized the importance of understanding terms like "mineral water" and "packaged drinking water" in their common commercial sense, as understood by consumers and traders, rather than in a strict scientific or technical sense. 3. Applicability of the Mafatlal Industries Ltd. v. Union of India Precedent: The petitioner had raised a question regarding the applicability of the Mafatlal Industries Ltd. v. Union of India case, which deals with the collection of sales tax from customers. However, this argument was not pressed in the written submissions, and the court did not address it. 4. Evaluation of Evidence and Findings: The court found that the Assessing Authority and the First Appellate Authority had not provided objective evidence to support their classification of "KINLEY WATER" as mineral water. The Tribunal's decision was based on a thorough analysis of the product's manufacturing process, statutory definitions, and commercial understanding. The court noted that the price difference between mineral water and packaged drinking water further supported the classification of "KINLEY WATER" as packaged drinking water. The court also highlighted that the product's label and marketing complied with BIS standards and the Prevention of Food Adulteration Act, reinforcing its classification as packaged drinking water. Conclusion: The court concluded that "KINLEY WATER" sold by Hindustan Coca-Cola Beverages Pvt. Ltd. falls within the scope of Entry No.39 of the Tax-free List, exempting it from sales tax. The Sales Tax Revision petition by the State of Odisha was dismissed, and the Tribunal's order was upheld.
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