2011 (9) TMI 11 - SC - VAT and Sales Tax

Whether margarine can be treated as edible oil and thus, fall under Entry 17A of the Second Schedule of the said Act - Taxable at 4% or 8% - Circular no.2439/96/TD dated 19.2.96 - Held that - normally anything which is used for preparation of a food article is edible because ultimately it is being consumed by human beings. Though one may not consume margarine directly or may not use for normal cooking, the fact is that margarine is used for preparing bakery items which are consumed by human beings and, therefore, margarine is also edible. Having around 80% fat, and being in the nature of oil, in our opinion, it should be considered as edible oil. Circular dated 19th February, 1996, explaining the term edible oil - intention of the government was to give relief in tax to edible oils. So as to clarify the doubt, it has been specifically stated in the said circular that edible oils would also include hydrogenated oils such as ground nut oil, gingely oil, refined oil and vanaspathi oil. The aforestated circular clarified that hydrogenated edible oil like vanaspathi oil should be treated as edible oil. - The Tribunal was right when it came to the conclusion that margarine should be taxed @ 4% as it is edible oil. - Order of HC quashed. - Decided in favor of assessee

Summary

Issues Involved:
1. Tax rate applicable to margarine under the Kerala General Sales Tax Act, 1963.
2. Classification of margarine as edible oil or otherwise.
3. Applicability of concessional tax rate to margarine.

Detailed Analysis:

1. Tax Rate Applicable to Margarine:

The primary issue in this case was whether margarine should be taxed at 8% or 4% under the Kerala General Sales Tax Act, 1963. The Sales Tax Officer initially held that margarine should be taxed at 8% as it is classified under Entry 90 in the First Schedule of the Act, which includes oils, both edible and inedible, including refined or hydrogenated oils and margarine.

2. Classification of Margarine as Edible Oil or Otherwise:

The appellant argued that margarine should be considered as edible oil and thus be eligible for a reduced tax rate of 4%. The Tribunal supported this view, referencing various dictionaries and stating that margarine is a substitute for butter and made from edible fats extracted from vegetable oils. The Tribunal also noted that the government circular clarified that hydrogenated oils like vanaspathi are included under edible oils, and thus margarine should also be considered as edible oil.

The High Court, however, disagreed with the Tribunal, stating that bakery margarine is specifically made for use in the bakery and confectionary industry and cannot be used for all purposes for which edible oils are used. The High Court emphasized that margarine is not similar to the items listed in the circular and thus cannot be considered as edible oil.

3. Applicability of Concessional Tax Rate to Margarine:

The appellant contended that margarine, being an edible vegetable oil, falls under Entry 17A of the Second Schedule of the Act, which allows for a concessional tax rate of 4%. The appellant provided labels and descriptions of various margarine products to substantiate that margarine is made from vegetable oils and is enriched with vitamins, making it an edible product used in eatables.

The respondent argued that the concessional rate is only applicable to edible oils explicitly mentioned in the notification and that margarine, being included in Entry 90 of the First Schedule, is not eligible for the reduced rate. The respondent also cited a Supreme Court judgment in Commissioner of Trade Tax, UP v. Associated Distributors, to argue that margarine, though edible, does not fall within the common parlance of edible oil used for cooking.

Supreme Court's Judgment:

The Supreme Court examined the contents and usage of margarine, noting that it is made from vegetable oils and used in preparing bakery products, thus making it an edible product. The Court referred to the government circular which clarified that hydrogenated oils like vanaspathi are included under edible oils and concluded that the circular's list is illustrative, not exhaustive.

The Court emphasized that edible oil is defined as oil used for human consumption, and since margarine is used in preparing food items consumed by humans, it qualifies as edible oil. The Court also noted that the intention of the government was to provide tax relief on edible oils, including hydrogenated oils like vanaspathi.

Conclusion:

The Supreme Court concluded that margarine should be considered as edible oil and thus be eligible for the concessional tax rate of 4%. The Court allowed the appeal, quashing the High Court's order and upholding the Tribunal's decision that margarine is an edible oil entitled to the reduced tax rate. The appeal was allowed with no order as to costs.