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TMI Blog2015 (8) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the KVAT Act and the HSN Code (Harmonious System of Nomenclature) under the Customs Tariff Act, holding it in favour of the Revenue, the proposition mooted by the petitioners is that the said decision is no more a good law, in view of the ruling rendered by the apex court, in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC) (under the KGST Act and with reference to the relevant notification) holding that margarine is liable to be assessed with the concessional rate of tax at four per cent., treating it as an edible oil (having given the benefit of a lesser rate to "edible oils", as per the relevant notification, notwithstanding the entry under 90 of the First Schedule to the KGST Act which specifies a higher rate of tax at eight per cent. in respect of oils-edible or inedible including refined or hydrogenated oils) and that "margarine" is not mentioned elsewhere in the said Schedule or in the Second Schedule. The verdict passed by a Division Bench of this court in State of Kerala v. Aluva Sugar Agency [2007] 8 VST 726 (Ker) holding that margarine was to attract higher rate of tax, (as it was not liable to be treated as edible oil because of the nature and difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no dispute with regard to the factual aspects and that the dispute is only with regard to the question of law involved. It is also pointed out that, though this court had relegated the aggrieved parties to avail of the statutory remedy at different points of time, also with reference to the decision rendered by this court in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) and the subsequent verdict passed by the apex court in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC), the matter requires to be considered on merits, to have an authentic pronouncement of law, particularly as to the effect of the verdicts passed by the Division Bench of this court and the apex court as mentioned above, so as to solve the situation once and for all, to be followed by the departmental authorities/concemed Tribunal. As agreed by both the sides, all the writ petitions were heard on merits, at length, on different dates. Case of the petitioners: 5. Mr. Mayankutty Mather, learned counsel for most of the petitioners addressed the court on behalf of the petitioners, referring to the genesis of the dispute, the clarification issued by the competent authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained and assessed as an "edible oil" under entry 38(19)(d) of the Third Schedule to the KVAT Act. - Industrial margarine is liable to be included under the Head- "Others including vanaspati" with HSN Code 1516.20.91. Applying the Rules of Interpretation, six digit HSN classification excludes whatever said earlier under four digit head, being more specific and "eight" digit code makes it exclusive. - The reliance placed by the departmental authorities, to fix higher rate of tax to "industrial margarine" with reference to HSN Code 1517.10, is without any basis, for the reason that the word "hydrogenated" does not appear anywhere under the code heading "1517" and hence the petitioners' product (made of hydrogenated vegetable oil) stands on a different footing. - The decision in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) passed by the Division Bench of this court refers only to HSN Code 1517 and that no reference is made to HSN Code 1516, which deals with animal or vegetable fats and oils and their fractions or wholly hydrogenated, interesterified, re-esterified or elaidinised, whether or not refined but not further prepared. - Hydrogenated oil is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial margarine" will attract only a lesser rate of tax, being an edible oil (exhibits P6 in W. P. (C). No. 3850 of 2014.) - The competent authority of Delhi has clarified that "industrial margarine" made of vegetable oil will attract only a lesser rate of tax. - This court has granted absolute stay of recovery proceedings, while directing the appellate authority to finalise the matter in accordance with law. - Exhibits PI (a) clarification dated December 23, 2013 withdrawing exhibits PI clarification dated October 9, 2012 (both in W. P. (C). 3850 of 2014) is beyond the power of the competent authority (having no power to review) and further, it is without giving any opportunity of hearing, as the petitioners were never made parties to the said proceedings ; thus in violation of the principles of natural justice. Defence of the respondents: 7. Mr. George Mecheril, the learned Special Government Pleader (Taxes) summarised the following points on behalf of the State/Department: - The law declared by the apex court in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC) is under the KGST Act and the notification thereunder, and not under KVAT Act or any notification t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' contention that their product (industrial/bakery margarine) has to be grouped under HSN Code "1516.20.91" is absolutely wrong and unfounded, as discernible from the other entries grouped therein, whereas the specific entry given under HSN 1517.10 deal with "margarine" other than "liquid margarine". - The petitioners do not have any consistent case with regard to the stand taken earlier and the present stand as discernible from paragraph 3 of W. P. (C) No. 3850 of 2014. Manufacture of "hydrogenated vegetable oil" is by adding raw material of til oil/sesame oil-which falls under HSN Code 1515.10, to the refined groundnut oil in the fixed proportion of 20: 80 and as such, it is a mixture of til oil and groundnut oil, giving birth to the product margarine falling under the HSN Code 1517.10. - The commodity margarine is not mentioned anywhere in the Second or Third Schedule, but stands included under entry 64(8) of the relevant notification, which is having the HSN Code of 1517.10. - The distinction sought to be made between "table margarine" and "industrial/bakery margarine", with reference to its "use", is not correct, in view of the ruling rendered by a Full Bench of this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... W. P. (C) No. 3850 of 2014.). Recording the turn of events as above, the OTAP, itself has been closed by the Division Bench of this court, leaving open all the contentions, as per the judgment dated February 19, 2014. Further, since the challenge raised by the parties concerned, against exhibit PI clarification, does no more survive, for having it withdrawn as per exhibit Pl(a) proceedings dated December 23, 2013, they cannot have any legally redressable grievance against exhibit PI (a) order, whereby exhibit PI clarification order was withdrawn. As such, the challenge raised against exhibit Pl/Pl(a) in W. P. (C) No. 3850 of 2014 and such other writ petitions is not liable to be entertained by this court, since the cause of action no more subsists/survives. 9. To understand the scope of the judgment rendered by the apex court in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC), a brief reference to the factual position is necessary. Margarine was taken to be one of the items falling under entry 90 of the First Schedule to the KGST Act, which was put together with oils, edible or inedible, including refined or hydrogenated oils, with a tax liability at eight per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the short question considered was, whether sale of margarine was to be taxed at eight per cent. or four per cent., under the provisions of the KGST Act/notification under the said Act. The honourable Supreme Court observed that, the expression used in the Government Notification issued by way of clarification, using the words "such as groundnut oil, gingelly oil and vanaspati" was only illustrative and not exhaustive. It was noted (after hearing both the sides), that the main issue for adjudication in the appeal was whether "margarine" can be treated as an "edible oil" and thus would fall under entry 17A of the Second Schedule to the KGST Act, to have concessional rate of tax. After observing that "margarine" was a generic term and it was used as a substitute for butter, the Bench noted that, "bakery margarine" manufactured by the appellant was only from vegetable oil. Taking note of the contents of margarine, it was held that, it contained all edible things and as such, "margarine" was also an edible oil, though not used for normal cooking as other oils like "coconut oil", "sunflower oil", "soyabean oil", "sesame oil", etc. It has been observed by the Bench that, as margarine is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed at four per cent. as it is edible oil. For the aforementioned reasons, we are of the view that the conclusion arrived at by the Tribunal to the effect that margarine is an edible oil is correct and therefore the appellant is entitled to the benefit of reduced rate of four per cent." 12. Coming to the decision of the Division Bench of this court in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker), the issue considered was entirely different from the issue which was considered by the Bench earlier in State of Kerala v. Aluva Sugar Agency [2007] 8 VST 726 (Ker), (which in turn was considered by the apex court reversing the decision, as per the decision in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC)). Admittedly, the issue in SSD Oil Mills Company Ltd. v. State of Kerala [2011] 37 VST 594 (Ker) was as to the rate of tax of "margarine", with reference to entry 64(8) (HSN Code 1517.10), whether it was taxable at the rate of 12.5 per cent., under the Notification SRO 82/ 2006 issued by the Government under section 6(l)(d) of the KVAT Act, or was it to be considered as an item falling under entry 38(19)(d) of the Third Schedule of the KVAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RO No. 82/06, which has the same HSN Code taxable at 12.5 per cent. 8. Counsel for the petitioner has raised a contention that margarine referred to in entry 64(8) of SRO No. 82/06 is only margarine made with one of the milk products as an ingredient. of course, entry 64 of SRO 82/06 covers generally milk products and table margarine is made with skimmed milk as one of the ingredients. Therefore, according to him, only certain forms of margarine, which are milk products only are covered by specific entry for margarine under entry 64(8) of SRO 82/06. However, the question to be considered is whether the Legislature, while framing Third Schedule intended margarine to be covered by entry 38 of the Third Schedule of the Act under the head 'edible oil', no matter margarine in certain forms are made from edible oils through hydrogenation. In this context, we have already referred to the relevant entry of the Customs Tariff Act where margarine is specifically covered under HSN code 1517 and 1517.10. It is pertinent to note that Customs Tariff Act draws distinction only between margarine of vegetable and animal origin and its physical form, that is, solid form and liquid form. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -esterified, re-esterified or elaidinised, whether or not refined, but not further prepared. The entries given therein, with appropriate sub-classification, is subject to a qualification that it is not further prepared except to the extent as specified therein, i.e., partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined. 17. The process of "emulsification" is not at all mentioned with regard to the entries under the Head 1516. "Emulsification" means the process by which, the commodity is changed into an emulsion, which is relatively a stable suspension of one liquid, minutely dispersed in another, in which it is not soluble. This clearly means, it becomes a "mixture" of two or more different entities, which do not maintain the exclusive characteristics of a particular item, but have joined together to give rise to the new product. It is for this reason, that such product like "margarine" has been separately enlisted under the Head 1517, showing it as an edible mixture or preparation of animal or vegetable fats or oils or of fractions of different fats or oils of the concerned chapter, other than edible fats or oils or their fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted in the regulations and appendices and shall, conform to the specified standards. From the above, it is clear that, in the cases of both "table margarine" and "industrial margarine", it shall be free from animal body fats and the permissible level of skimmed milk powder in the case of "table margarine" is only to an extent of 2.5 per cent. Now, the question is, whether by adding skimmed milk power to an extent of 2.5 per cent., the nature of the product will get changed, to have a lesser rate of tax, based on the "use" and categorisation as "table margarine" and "industrial/bakery margarine", respectively ; which can only be answered in the negative ; in view of the law declared by the apex court in Aluva Sugar Agency v. State of Kerala [2011] 45 VST 1 (SC) (reversing the decision of the Division Bench of this court in State of Kerala v. Aluva Sugar Agency [2007] 8 VST 726 (Ker)) and also by the Full Bench of this court in Kevi Hardware v. State of Kerala [2003] 11 KTR 562 (Ker) holding that "user test" is not the proper course. 19. It is equally important to note, that the present distinction sought to be made by the petitioners claiming the benefit of lesser rate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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