2015 (8) TMI 497 - HC - VAT and Sales Tax

Whether industrial margarine was liable to attract only lesser rate of tax, as edible oil given under entry 38(19) (d) of KVAT Act, while relying upon decision of supreme court in Aluva Sugar Agency v. State of Kerala 2011 (9) TMI 11 - Supreme Court of India by which decision of this court in SSD Oil Mills Company Ltd. v. State of Kerala 2010 (6) TMI 732 - KERALA HIGH COURT was reversed Held that - Supreme Court observed that, expression used in Government Notification, using words such as groundnut oil, gingelly oil and vanaspati was only illustrative and not exhaustive Main issue for adjudication in said appeal was whether margarine could be treated as edible oil and thus would fall under entry 17A of Second Schedule to KGST Act, to have concessional rate of tax. Bench observed that, one has to consider whether margarine can be considered as edible oil, pointing out that edible oil was one which could be used for human consumption; simultaneously making it clear that, it was not necessary that all edible things should be consumed in form in which they were available Heading of entry 1516 reveals that, it could be animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, whether or not refined, but not further prepared Process of emulsification was not at all mentioned with regard to entries. It was for this reason, that product like margarine were separately enlisted under Head 1517, showing it as edible mixture All types of margarine, except liquid margarine, stand specifically included under HSN Code 1517.10 By virtue of entry 64(8) of SRO No. 82/2006 and description of commodity with HSN Code 1517.10, all margarine, except liquid margarine, were liable to attract higher rate of tax and there cannot be any distinction between table margarine and industrial/ bakery margarine Challenge raised by petitioners was not correct or sustainable Decided against the assessee.

Summary

Issues Involved:
1. Whether industrial margarine (bakery margarine) attracts a lesser tax rate of 4% as "edible oil" under entry 38(19)(d) of the Third Schedule to the KVAT Act, despite margarine being listed under entry 64 of SRO 82/2006 with a higher tax rate of 12.5%.
2. Validity of assessment orders/penalty orders and the "clarification" issued under section 94 of the KVAT Act.
3. Whether the decision in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) should be reconsidered in light of the Supreme Court's ruling in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC).

Issue-wise Detailed Analysis:

1. Tax Rate on Industrial Margarine:
The primary issue is whether industrial margarine, also known as bakery margarine, should be taxed at a lower rate of 4% as an "edible oil" under entry 38(19)(d) of the Third Schedule to the KVAT Act, or at a higher rate of 12.5% under entry 64 of SRO 82/2006. The petitioners argue that industrial margarine, made exclusively from vegetable oils, should be classified as an edible oil, attracting a lower tax rate. They cite the Supreme Court's decision in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC), which treated margarine as an edible oil for tax purposes under the KGST Act. However, the respondents argue that the Division Bench's decision in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) already established that all forms of margarine, including industrial margarine, fall under entry 64(8) of SRO 82/2006, attracting a higher tax rate of 12.5%.

2. Validity of Assessment and Clarification Orders:
The petitioners challenge the assessment orders and penalty orders issued by the concerned authority, as well as the clarification provided under section 94 of the KVAT Act, which declared that margarine is liable to attract a higher tax rate. The petitioners argue that the clarification was issued without considering the Supreme Court's ruling in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC). The respondents counter that the clarification was necessary due to the existing Division Bench decision in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker), and that the petitioners should have pursued the statutory remedy of appeal rather than filing writ petitions.

3. Reconsideration of SSD Oil Mills Decision:
The petitioners seek reconsideration of the Division Bench's decision in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker), arguing that it conflicts with the Supreme Court's ruling in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC). They assert that the Supreme Court's decision should take precedence and that industrial margarine should be classified as an edible oil for tax purposes. The respondents maintain that the SSD Oil Mills decision is consistent with the KVAT Act and the relevant HSN Code under the Customs Tariff Act, and that the Supreme Court's decision pertained to a different factual scenario under the KGST Act.

Conclusion:
The court concludes that there is no inconsistency between the decisions of the Division Bench in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) and the Supreme Court in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC). The court declares that all forms of margarine, including industrial/bakery margarine, are liable to attract a higher tax rate of 12.5% under entry 64(8) of SRO 82/2006, with HSN Code 1517.10. The court dismisses the writ petitions challenging the rate of tax and the resultant assessment and penalty orders. However, the court clarifies that disputes regarding the procedure for fixation of tax/penalty or its quantum can be pursued through appropriate proceedings before the statutory authorities.