IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR WEDNESDAY, THE 30TH JANUARY 2008 / 10TH MAGHA 1929 MFA.No. 588 of 2003() --------------------- C3.62774/2001/CT of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT: ASSESSEE ------------------- R.F.ENTERPRISES, ERAMALLOOR 688 537 ALAPPUZHA DISTRICT, REPRESENTED BY ITS PARTNER F.M.FAROOK. BY ADV. SRI.V.P.SUKUMAR SRI.V.DEVANANDA NARASIMHAM RESPONDENTS: REVENUE -------------------- THE STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER SRI.K.P.PRADEEP THIS MISC. FIRST APPEAL HAVING BEEN FINALLY HEARD ON 30/01/2008, THE COURT ON 30/01/2008 DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & T.R.RAMACHANDRAN NAIR, JJ. .................................................................... M.F.A. No.588 of 2003 .................................................................... Dated this the 30th day of January, 2008. JUDGMENT C.N.Ramachandran Nair, J. This is an appeal filed under Section 40 of the KGST Act, 1963 (hereinafter called "the Act") challenging Annexure VII order of the Commissioner of Commercial Taxes issued under Section 59A of the KGST Act. The appellant was engaged in packing and marketing of "kattimoru" (thick butter milk) and "sambharam". The product labels produced as Annexures V and VI show that one item is thick butter milk which is given the name "kattimoru" in Malayalam and the other "sambharam", the ingredients of which under the label are butter milk, ginger, green chillies and curry leaves. Though the appellant classified the products under "curd and butter milk" coming under entry 49 of the First Schedule to the KGST Act taxable at 4% and returns were filed accordingly, the Assessing Officer issued notice proposing to assess the products as "milk products" under entry 92 taxable at 12%. This prompted the appellant to file an application for clarification under Section 59A of the KGST Act which was answered 2 by the Commissioner of Commercial Taxes vide Annexure VII. The Commissioner disapproved the classification by the appellant as well as by the Assessing Officer and held that items do not come under any of the specific entries in the Schedule and therefore, he clarified that the items fall under the residuary items covered by entry 177 of the First Schedule to the KGST Act taxable at 8%. It is against this order that the appellant has filed this appeal. 2. In order to appreciate the contentions raised, we have to refer to the relevant entries of the statute and for easy reference, we extract hereunder entries 49 and 92 of the First Schedule to the KGST Act. -------------------------------------------------------------------------------------------- Sl.No. Description of Goods Point of levy Rate of tax -------------------------------------------------------------------------------------------- 49 Curd and buttermilk At the point of first sale 4% in the State by a dealer who is liable to tax under Section 5. 92 Milk products including .do. 12% milk powder, baby food, ghee, cheese and butter except curd, butter milk, Horlicks, Boost, Bournvita, Complan and similar items whether or not bottled, canned or packed. -------------------------------------------------------------------------------------------- The appellant's case is that both the products of the appellant fall under the 3 item "butter milk" covered by entry 49 stated above. It is common knowledge that butter milk is made from curd by removing fat and by adding water thereto. "Kattimoru" in malayalam means thick butter milk and "Sambharam" is extensively diluted butter milk. In other words, both are one and the same product and the variation is only in the water content. While kattimoru is concentrated butter milk, sambharam is diluted form of butter milk. The product description in Annexures V and VI produced by the petitioner show that the ingredients in kattimoru is thick butter milk and in the other, namely, sambharam, butter milk, ginger, green chillies and curry leaves. Addition of ginger, green chilly and curry leaves is only to give flavour to the product. However, sambharam remains as such even with the addition of these ingredients. Moreover, the price shown for 200 ml of sambharam under the label is Rs.3 inclusive of all taxes. In the case of kattimoru, the price charged for 500 ml is only Rs.8. There is nothing to indicate that the product contains fat or any other ingredient. The product description and the price thereon clearly go to show that the products are only butter milk with different concentrations. We are, therefore, of the view that both the products are squarely covered by butter milk under entry 49 of the First Schedule to the Act taxable at 4%. The intention of the legislature is very clear from the different rate of tax provided for different products. While milk products such as milk powder, gee, cheese and 4 butter covered by entry 92 attract tax at 12%, value added soft drinks like fruit juices, Horlicks, Bournvita, Boost, Complan etc., attract tax under entry 144 at the rate of 20%. The basic scheme is to identify the class of customers for the goods and provide rate of tax depending on their capacity. While value added milk products and soft drinks are consumed by the more affluent class, the class of customers who buy butter milk are economically weak. Therefore, if higher rate of tax is demanded for butter milk, the same will defeat the intention of the legislature in fixing a lower rate to such products. We, therefore, find that the Commissioner clearly went wrong in clarifying that the appellant's products are not covered by entry 49. We declare that products of the appellant referred above are butter milk covered by entry 49 and the clarification of the Commissioner to the contrary is illegal and unsustainable. We, therefore, allow the appeal by quashing the impugned order. C.N.RAMACHANDRAN NAIR Judge T.R.RAMACHANDRAN NAIR Judge pms