1 STA1.10.sxw KJ IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SALES TAX APPEAL NO.1 OF 2010 IN VAT APPEAL NO.16 OF 2007 The Commissioner of Sales Tax, ) Maharashtra State, 8th Floor, Vikrikar Bhavan ) Sardar Balwant Singh Dhondhi Marg, ) Mazgaon, Mumbai-400 010 )..Appellant Vs. M/s.Cadila Healthcare Limited ) `A’ Shiv Sagar Estate, Anie Besant Road, ) Worli, Mumbai-400 025 )..Respondents ---- Mr. V. A. Sonpal for the appellant. Mr. C.B.Thakar for the respondents. ---- CORAM : J. P .DEVADHAR & MRS.MRIDULA BHATKAR,JJ DATE OF RESERVING THE JUDGMENT : 4.2.2011 DATE OF PRONOUNCING THE JUDGMENT : 4.3.2011 JUDGMENT ( PER : MRS.MRIDULA BHATKAR,J) 1 This Appeal is preferred by the appellant against the order dated 2.8.2008 passed by the Second Bench of the Maharashtra 2 STA1.10.sxw Sales Tax Tribunal at Mumbai, (MSTT for short) by which it was held that Nutralite Table Margarine is classifiable under entry C-102 of Maharashtra Value Added Taxes Act of 2002 and therefore, it is taxable at the rate of 4%. 2 In the present appeal, the following question is required to be answered :- “Whether the product Nutralite Table Margarine manufactured by the respondent-assessee is a vegetable oil covered under Entry C-100 or C-102 or not ? 3 Respondents are assessees engaged in the business of pharmaceutical and re-selling of pharmaceutical products for medical usage and also used by the public in general. The respondent- assessee manufactures and sales Table Margarine under the brand name of Nutralite Table Margarine. The respondent-assessee under Section 56(1)(e) of the Maharashtra Value Added Taxes Act 2002 applied to the Commissioner of Sales Tax for determination of the tax rate applicable to their products. 3 STA1.10.sxw The respondent assessee submitted Determination of Disputed Question (DDQ) Application seeking that Nutralite Table Margarine is a margarine-vanaspati and it is to be covered by Schedule C-100. However, the Commissioner of Sales Tax while deciding DDQ Application No.11/2006/Adm-2/40/B-1 by order dated 22.10.2007 held that Nutralite Table Margarine would be classified under Schedule E-1 and hence, would attract tax at the rate of 12.5%. Assessee thereafter challenged the said order before the Maharashtra Sales Tax Tribunal, Mumbai and the Tribunal while setting aside the said order held that it falls under Entry No.C-102 and hence it would attract tax at the rate of 4%. Hence, this Appeal. 4 Learned Counsel Mr. Sonpal appearing for the appellants submitted that Nutralite is not prepared by hydrogenation but it is a separate product made by emulsification of water, salt and vegetable oil. He submitted that Entry No.100 of the schedule under Maharashtra Value Added Tax Act of 2002 is of vanaspati (hydrogenated vegetable oil) entry is of 102-vegetable oil 4 STA1.10.sxw including gingili , castor and bran oil. Nutralite Table Margarine is a separate entity, different from the vegetable oil. It is a separate product emerges out of process of emulsification. Learned Counsel has submitted that palm oil is a raw material used for making Nutralite Table Margarine. Nutralite is 80% of vegetable oil. He submitted that the Tribunal has erred in holding Nutralite Table Margarine as vegetable oil and taxable at the rate of 4% only. Learned Counsel has submitted that Nutralite Margarine is not used for baking but used as a spread on the eatables. While deciding whether commodity falls under the category of 100 or 102 or Schedule-E, one has to consider predominant use and ancillary use of the product i.e Margarine. He argued that if one goes to the shop and places order for vegetable oil, nobody will give Nutralite Table Margarine for vegetable oil. Vegetable oil is not directly consumable or edible. Learned Counsel in order to buttress his submissions, relied on common parlance test and reversible test. He elaborated that if Nutralite Table Margarine is gained after process of emulsification on the palm oil, it cannot be reverted back to palm oil. 5 STA1.10.sxw 5 Per contra, learned Counsel appearing for the respondent- assessee submitted that Nutralite Table Margarine is covered by Schedule C-100. Vanaspati is a hydrogenated vegetable oil which is taxable @ 4%. Margarine is obtained by the process of hydrogenation and emulsification, yet it does not lose its character of a vegetable oil. Nutralite Table Margarine is made salty to add taste and to make it usable. Learned Counsel has submitted that Nutralite Table Margarine is also a margarine which can be used for baking and cooking. Further it is specially processed to reduce the percentage of bad cholesterol and preferred by health conscious people. It is a vegetable oil, having more nutritious value. In support of his submissions, learned Counsel Mr. Thakar relied on number of rulings. 6 Learned Counsel Mr.Thakar on the point of product maintaining the same identity after the hydrogenation of the oil or the process on other products, relied on Tungabhadra Industries Ltd., Kurnool Vs.Commercial Tax Officer, Kurnool reported in Sales Tax Cases Vol-11, page-828 and Sri Chittranjan Saha Vs. State of 6 STA1.10.sxw Tripura & Ors reported in (Sales Tax Cases) Vol-79 (1990) page-51 For the test of reversibility, he relied on Punjab Aromatics Vs. State of Kerala reported in 14 VST 519 (SC) and Dakini Health Foods Pvt. Ltd., Vs. State of Maharashtra in Appeal No.6 of 2001 decided on 5.3.2005. 7 He argued that a test of predominant component (palm oil is a majority factor in margarine) be applied and for which he relied on Shreeji Traders Vs. State of Gujarat reported in 1992 Sales Tax Cases Vol-86 STC 27 (Gujarat). He submitted that the product is a Margarine though the manufacturer calls it Nutralite Table Margarine. It’s true character is not lost so the liability @ 12.5% cannot be determined and order passed by MSTT is legal. He relied on C.C.Mahajan & Co. Vs. The State of Bombay reported in (1958) 134 Sales Tax Cases Vol-IX. He submitted that if the margarine is classified under entry C-102 since many years then this view cannot be disturbed. He relied on Merind Ltd., Vs. State of Maharashtra reported in (2004) Vol-136 Sales Tax Cases page-462 and Mayuri Yeast India Pvt. Ltd., Vs. State of U.P 7 STA1.10.sxw reported in (2008) 14 VST 259 (SC). 8 To decide classification of the Nutralite Table Margarine, it is necessary to answer first whether Nutralite Table Margarine is a different commodity than margarine or not. Margarine is a semi solid substance resembling butter in consistency and appearance, 80% edible vegetable oil and 20% water. While Nutralite consists of 80% palm oil, 20% fatty acid, salt water & skimmed milk. Vanaspati (hydrogenated vegetable oil) is covered under entry C-100. Vanaspati is a refined edible vegetable oil subjected to process of hydrogenation. Any other product of edible oil if not obtained by hydrogenation cannot be covered by entry C-100. Nutralite Table Margarine is not obtained by hydrogenation but it emerges out of emulsification. 9 Entry C-102 covers vegetable edible oil. Nutralite Table Margarine is made out of palm oil which is a vegetable oil, that means Nutralite itself is not a vegetable oil. Table Margarine is a vegetable oil based product. Therefore, a reversible test can be 8 STA1.10.sxw successfully applied. It is argued that Table Margarine if heated becomes oil and again gets converted in solid stage after chilling. Argument was advanced on the basis of test of reversibility and on the basis of cases in Punjab aromatics Vs. State of Kerala reported in 14 VST 519 (SC) it is held that :- The “test of irreversibility” is an important criterion to ascertain as to when a given process amounts to manufacture. In the present case that test is not satisfied. In the present case, the Tribunal has examined the process and has come to the conclusion that by adding impurities to the sandalwood oil the product could become red oil once again. In the circumstances, it cannot be said that red oil and sandalwood oil are two separate and distinct products as held by the High Court overruling the judgment of the Tribunal.” 10 In Dakini Health Foods Pvt. Ltd., Vs. State of Maharashtra in Appeal No.6 of 2001 decided on 5.3.2005 peanut butter and seasame butter was the product in question and the paste of 9 STA1.10.sxw peanut and seasame are used to spread on bread and also used in hotels. It was held that utility, character composition of the product processed and the product emerged after the processing remains the same. No material change has taken place in the product as nothing was abstracted and nothing was added. 11 In State of Maharashtra Vs. Ahura Enterprises reported in STA 9 of 2001 dated 22.8.2003 of the Division Bench of Bombay High Court. It was held that preparing a paste from fresh ginger and garlic by grinding them together and adding salt and preservatives and packing it in a air-tight pouches and make it edible article does not change the essential characteristic. It was held that when the Court is concerned with edible articles, some of the criteria found by the Apex Court are whether the entry article is a genus of which the test article is a species ; whether the essential characteristics of the entry article are still to be found in the new article ; whether there has been addition of external agents thereby making it different ; and whether there has been a process of transformation of such a nature and extent as to have 10 STA1.10.sxw resulted in the production of a new article of such a nature and extent as to have resulted in the production of a new article as commonly understood in the market where it is dealt with. 12 In Shreeji Traders Vs. State of Gujarat reported in 1992 Sales Tax Cases Vol-86 STC 27 (Gujarat) in which the Division Bench has applied the test of predominant and held that blended yarn consisting of 80% to 85% cotton yarn and 15% to 20% of viscose, the sale of such yarn by the applicant assessee was regarded as sale of cotton yarn because it was accepted that cotton yarn has not lost its identity and characteristic due to imposing of 15% to 20% viscose yarn and the test of predominant component was applied to fix the entry in the Schedule of the commodity. 13 We have considered all the rulings. The tests are guiding principles which enable the authority to draw a logical inference leading to conclusion in respect of disputed question of fact and law. It is never expected that the product should pass all the tests or all the guiding principles should be made applicable to it, rather 11 STA1.10.sxw the most important and paramount test of fixing the classification and the entry of the commodity under the VAT is whether the product in issue is a distinct marketable commodity or not. A commodity should be distinguishable from its mother product in its character, ingredients, nature, form, look, use, pack etc. and secondly, it is to be recognized as an independent separate commodity in the market. The term marketable connotes two aspects i.e firstly the product should be sellable in the market and secondly it should establish its own identity as a commodity in the eyes of the consumer. Thus though one or two guiding principles may be applicable to a product but if the product refuses to merge into its original product and establishes its own identity in the market then it is treated as a distinct marketable commodity. Due to emulsification, a semi solid product emerges out of a palm oil and though a test of reversibility and predominant component is applicable to it, other 20% ingredients i.e water, fatty acid, milk powder and salt, undoubtedly transform the product as a distinct marketable commodity as it severes itself from its family of vegetable oil. 12 STA1.10.sxw 14 In Sri Chittranjan Saha Vs. State of Tripura & Ors reported in (Sales Tax Cases) Vol-79 (1990) page-51. In the said case DDQ before the Court was whether pea-gravels falls within the category of goods described as metals, stone chips, any other products or sub-products arising out of bricks or stones. In the said judgment, the Division Bench explained different principles which are used as touchstone, common parlance rule, trade or commercial parlance rule, common sense rule of interpretation and the user test and it was held that application of the principles will depend on the facts and circumstances of each case. No test or tests can be said to be applicable to all cases. It was also held that if two views are possible regarding classification of certain goods, the benefit must go to the tax payer. If a tax payer seeks advantage, which was not intended by the legislature but to which he was entitled on a construction of the statute he must be given that advantage. 15 Usability of a product cannot be a sole factor to decide its classification :- 13 STA1.10.sxw Margarine is used for baking, cooking and nutralite is used for cooking and as a spread. It was argued that vegetable oil and margarine is also directly consumed by some people with chatni (spices) and spread on khakara and therefore, vegetable oil nutralite should fall in the category of margarine. In Mysore Agro Services Vs. State of Karnataka reported in [1993] 090 STC 0401, while deciding the question whether lime is an item fallen under chemicals vide entry no.79 of the Second Schedule or whether it is a pesticide falling under entry 117 of the second schedule, the Division Bench of the Karnataka High Court held as follows :- “An article may be subjected to a tax. If tax has to be levied depending upon the purpose for which it is purchased, the Revenue may have to examine individual cases before deciding as to how the particular goods should be treated for the levy of tax. Same article may be subjected to different rates of tax under the Act depending upon the purpose for which the goods were purchased by different classes of consumers. That cannot be the legislative intention at all. The intention of the Legislature seems to levy the same, 14 STA1.10.sxw particular rate of tax, in respect of sales transactions pertaining to a particular goods as enumerated in the Schedules to the Act.” 16 Respondent-manufacturer of Nutralite claimed that their product is nothing but a Margarine which is used for spread and therefore, they labelled it as Nutralite Table Margarine. For the purpose of classification in the schedule of MVAT, it is immaterial how the product is advertised, under what name and title the commodity is marketed by the manufacturer. Not the label but the contents, ingredients in the product and its nature and form are required to be considered whether it is a distinct marketable commodity or not. 17 In C. C. Mahajan and Co. Vs. The State of Bombay reported in (1958) 134 Sales Tax Cases Vol-IX, the articles before the Division Bench were toilet articles and soaps. It was held that “What a manufacturer calls an article does not determine its true character or his liability to tax under the Sales Tax Act ; and it is 15 STA1.10.sxw only the character of the article that attracts the tax and not the name by which it is known in the market. Similar view is taken in Commissioner of Sales Tax, Maharashtra State, Bombay Vs. La Bela products reported in 1985 Sales Tax Cases Vol-59, page-221, when the auto sticking bindies were sold under the name of beauty spots as toilet articles and they fall within the entry in respect of kumkum viz. Entry 32 of Schedule-A of Bombay Sales Tax Act, 1959. 18 Learned Counsel for the Revenue/appellant draw our attention to the affidavit dated 27.1.2011 filed by the Joint Commissioner of Sales Tax, in which it was stated that Amul lite which is manufactured by Amul and marketed by Gujarat Co- operative Milk Marketing Federation Ltd., is taxed @ 12.5% and under Entry E1 of MVAT and Nutralite is also manufactured by Amul. It is a similar product of Amul lite by the respondents. For better understanding it is beneficial to reproduce a comparative table of ingredients Nutralite and Amul lite. 16 STA1.10.sxw -------------------------------------------------------------------------------------------- Product Ingredients -------------------------------------------------------------------------------------------- Nutralite Edible Vegetable Oils, Water Common Salt, Skimmed Milk Powder, Emulsifiers and Stabilizers, (E-471, E-322), class II Preservatives (E-202, E-200), Starch, Sequestering Agent (E-385), Antioxidants (E-319), Vitamin A not less than 30 IU/g Vitamin D 2 IU/g Vitamin E 0.03 mg/g -------------------------------------------------------------------- Contains Natural Colours (E-160a) and added Flavour (Nature Identical Flavouring Substances) -------------------------------------------------------------------------------------------- Amul Lite Refined Vegetable Oils, Milk Fat, Common Salt, Skimmed Milk Powder, Emulsifiers (E-322), Stabilizer (E-471), Class II Preservative (E-202), Acidity Regulator (E-330), antioxidants (E-319), vitamin Not less than 30 IU/g and Vitamin D not less than 2 IU/g. -------------------------------------------------------------------- Contains natural Colours (E-160b) and Natural & Nature Identical Flavouring substances. 19 Amul Delicious is also a product of Amul marketed by Gujarat Co-operative Milk Marketing Federation Ltd., which is also 17 STA1.10.sxw spread and it falls under entry E-1 and it is held liable to tax @ 12.5%. It was submitted by the learned Counsel that the business audit/assessment of Amul Delicious is not yet complete in respect of the said dealer after 1.4.2005 i.e the date when MVAT came into force and it was submitted that the appropriate tax will be recovered after assessment of Gujarat Co-operative Milk Marketing Federation Ltd., in due course. Learned Counsel Mr.Thaker has relied on two Judgments on the point that a different view would not be introduced which may disturb the settled existing position, which may lead confusion and chaos i.e Merind Ltd., Vs. State of Maharashtra reported in (2004) Vol-136 Sales Tax Cases, page-462 and Mayuri Yeast India Pvt. Ltd., Vs. State of U.P reported in (2008) 14 VST 259 (SC) It was also argued that when two views are possible, one which favours the assessee should be adopted. However, in the present case, no such settled view was taken in respect of Nutralite. 20 In the present case palm oil is subjected to the process of emulsification and the resultant product that emerges is Nutralite 18 STA1.10.sxw Table Margarine. Admittedly, table margarine is considered to be a distinct marketable commodity under the Central Excise Act. The fact that the said product is exempted from payment of central excise duty would not mean that the nutralite table margarine is not manufactured by the appellant. Moreover, unlike palm oil, the nutralite table margarine is used as a bread spread which clearly shows that a distinct product is manufactured. Vegetable oil falling under heading C-100 when subjected to the process of hydrogenation, the resultant product is classified under heading C-102 as hydrogenated vegetable oil. Hydrogenated vegetable oil when subjected to the process of emulsification, margarine is obtained. The fact that the appellant instead of using hydrogenated vegetable oil has used palm oil as the basic ingredient in manufacturing nutralite table margarine, it cannot be said that the product manufactured by the appellant is a vegetable oil covered under entry C-100 or hydrogenated vegetable oil covered under heading C-102. 19 STA1.10.sxw 21 Accordingly, we hold that the Nutralite table margarine manufactured by the appellant is classified under the residuary entry under heading E-1 and not under heading C-100 as held by the MSTT. 22 The question raised in the appeal is answered accordingly with no order as to costs. (MRS.MRIDULA BHATKAR,J) (J.P.DEVADHAR,J) 20 STA1.10.sxw 21 STA1.10.sxw