IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN SATURDAY, THE 20TH AUGUST 2011 / 29TH SRAVANA 1933 OT.Rev.No. 5 of 2011() ------------------- TA (VAT) NO.124/2009 OF KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ERNAKULAM ............ REVISION PETITIONER/RESPONDENT/REVENUE : ------------------------------------------------------------------------ STATE OF KERALA, REPRESENTED BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY GOVT. PLEADER SRI. MUHAMMED RAFEEK RESPONDENT / APPELLANT/ASSESSEE : ---------------------------------------------------------- SRI. M.J.JOSEPH, JOHNSON'S CHOCOLATE HOUSE, VAZHAKKALA NORTH, KOCHI-21. BY ADVS. SRI.V.V.ASOKAN SRI.R.JAIKRISHNA THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 20/08/2011, ALONG WITH OTRV NO. 6 OF 2011 & CONNECTED CASES, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: Mn ...2/- OT.Rev.No. 5 of 2011() APPENDIX PETITIONER'S ANNEXURE'S ANNEXURE - A : COPY OF THE ASSESSING ORDER DATED 31.10.2007 FOR THE YEAR 2005-06. ANNEXURE - B : COPY OF THE COMMON APPELLATE ORDER DATED 10.9.2008. ANNEXURE - C : COPY OF THE ORDER OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL DATED 31.5.2010. RESPONDENT'S ANNEXURE'S - NIL //TRUE COPY// P.S. TO JUDGE Mn C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... O.T. Rev. Nos.5,6,8,9,11,12 & 14 of 2011 .................................................................... Dated this the 20th day of August, 2011. JUDGMENT Ramachandran Nair, J. The question raised in the seven connected cases filed by the State against the very same assessee is whether the VAT Appellate Tribunal was justified in holding that the products manufactured and sold by the respondent attract tax only at 4% under Entry 7 of the Third Schedule to the KVAT Act as against 12.5% assessed under Entries 19 and 103 of SRO No.82/2006 issued under Section 6(1)(d) of the KVAT Act. We have heard Government Pleader for the petitioner and Adv. Sri.Mayankutty Mather appearing for the respondent-assessee. 2. Respondent is a manufacturer and seller of the products by name “Fat paste cream and choco paste”. The dispute raised is only with regard to rate of tax applicable to the product under the KVAT Act. In order to identify the relevant entry under which tax is to be levied, we have to identify the product with reference to the ingredients OTRV 5/2011 & conn. 2 used in the manufacture and the nature of use of the products. Accordingly we extract hereunder the product description and purpose: “Fat Past Cream” is a sweet preparation made with Sugar (55%), Vanaspathi (25%), Vegetable Oil (10%), Skimmed Milk Powder (8%) and Malto Dextrin (2%). “Choco Paste”- This is also a sweet preparation made of Sugar(58%), Vanaspathi (18%), Vegetable Oil (16%) and Cocoa Powder (8%). We are told that the products are used mainly for making toffees, ice- creams etc. Probably it can be used for making cream biscuits and according to counsel for the respondent, it can even be used as a dressing on bread for making toast. 3. The question to be considered is only classification of the above items for the purpose of levy of tax. The assessee's contention is that both the products are “confectioneries” falling under Entry 7 of Third Schedule to the KVAT Act, which is as follows: “Bakery products, sweets, confectionery and other food products other than those sold under brand name registered under The Trade Marks Act 1999.” 4. The case of the Assessing Officer is that is that the items fall either under Entry 19 or under residuary Entry 103 of SRO 82/2006 issued under Section 6(1)(d) of the KVAT Act. Entry 19 reads as OTRV 5/2011 & conn. 3 follows: “Chocolates and other food preparations containing cocoa other than those specified in this List or in any of the Schedules. 1. Chocolate and chocolate Products : 1806.90.10 2. Sugar confectionery containing cocoa : 1806.90.20 3. Spreads containing cocoa : 1806.90.30 4. Preparations containing cocoa for : 1806.90.40 making beverages 5. Other : 806.90.90” After hearing both sides, we are of the view that Entry 7 broadly covers all kinds of sweets, confectionery, food products and other bakery products other than those sold under brand name registered under the Trademarks Act. The department's case is that both the items sold by the respondent are used as ingredients in the manufacture of ice-cream, toffees etc. and since the items are not final products, they do not come under Entry 7. Even though logically the argument is correct because Entry 7 generally covers products for direct use and not raw materials used in the manufacture of products referred to therein, it is the specific OTRV 5/2011 & conn. 4 case of the respondent that the products are capable of direct use depending on consumer requirement, no matter the items are mainly used in the manufacture of ice-cream, toffees etc. What we notice is that the distinction of class of products under Entry 7 above is between branded items and unbranded items. The Entry covers all unbranded items falling under the category of bakery products, sweets, confectioneries and other food products. The department has no case that respondent is a registered brand name holder and so much so, the exception clause does not apply. Therefore, if the items fall under any of the categories referred to in Entry 7, respondent can be assessed on the sale of products only at 4%. So far as Fat Paste Cream is concerned, we feel the item falls under Entry 7 because it is essentially a sweet and in any case a food product. The fact that the product can be used as an ingredient in the manufacture of ice-cream or other confectionery like toffee does not mean that it is not a final product in itself. The nature of use varies with the consumer and so much so, the fact that it is not a final product in itself does not mean that the product falls outside Entry 7 of the Third Schedule. We, therefore, hold that OTRV 5/2011 & conn. 5 the Tribunal rightly qualified Fat Paste Cream as item falling under Entry 7 of the Third Schedule. 5. So far as Choco Paste is concerned, we are unable to accept the contention of the respondent that found acceptance with the Tribunal because in our view, food preparations with cocoa as an ingredient squarely falls under Entry 19 of Notification SRO 82/2006. Government Pleader rightly contended that the Tribunal's finding that cocoa powder is a waste material is factually incorrect. In fact, cocoa powder is one of the products made from cocoa beans and admittedly 8% of the respondent's product is cocoa powder. Chocolates and other food preparations with cocoa as an ingredient are specifically covered by Entry 19 of the Third Schedule. So much so, we feel Entry 19 of SRO 82/2006 is an exception to Entry 7 of Third Schedule to the Act. There is no challenge against Entry 19 of Notification SRO 82/2006 and so much so, if the item falls under Entry 19, it attracts tax at 12.5% as against 4% claimed by the respondent. We notice that Entry 19(3) of the above Notification specifically covers spreads containing cocoa and it is the case of the respondent that choco paste can be used as a OTRV 5/2011 & conn. 6 spread even on bread for making toast. Further, choco paste is mainly supplied to chocolate manufacturers who use it as an ingredient in the manufacture of chocolates. There is nothing to indicate that items covered by Entry 19 of Notification 82/2006 should contain cocoa as a major ingredient. So much so, we are unable to uphold the finding of the Tribunal that use of 8% of cocoa powder in the making of Choco paste does not make it a cocoa product. When the Legislature draws a distinction between sweets, confectioneries without cocoa as an ingredient and sweets, confectioneries and other food products with cocoa as an ingredient, there is no scope for the court ignoring such distinction. We do not find any justification for the conclusion of the Tribunal that cocoa powder is a waste from cocoa because in our view, cocoa powder is one of the valuable cocoa products manufactured from cocoa beans, no matter processing of cocoa beans may yield different cocoa products. Further, in absolute terms, 8% use of cocoa in the product makes it a cocoa product and admittedly respondent itself named the product “Choco paste” i.e. after cocoa giving the impression that it is the predominant ingredient. Even though major ingredient by OTRV 5/2011 & conn. 7 weight in confectionery is sugar, nobody calls it after sugar or calls it a sugar product. The product identification is in fact with reference to the components used, may be cocoa, orange flavour, lemon flavour etc. We are, therefore, of the view that cocoa paste is an item falling under Entry 19 of Notification SRO 82/2006 taxable at 12.5%. 6. In view of our findings above, there is no need to consider whether the items fall under the residuary Entry 103 of SRO 82/2006. We accordingly allow the revisions in part by modifying the orders of the Tribunal and that of the first appellate authority as above. C.N.RAMACHANDRAN NAIR Acting Chief Justice P.S.GOPINATHAN Judge pms