Aluva Sugar Agency vs State Of Kerala

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7731 OF 2011

(Arising out of S.L.P.(C) No.7969 of 2008)

Aluva Sugar Agency .....Appellant.

Versus

State of Kerala .....Respondent

J U D G M E N T

ANIL R. DAVE, J.

1. Leave granted.

2. Being aggrieved by the judgement and order dated 22nd September,

2006, delivered in S.T.R. NO. 569 OF 2004 by the High Court of Kerala at

Ernakulam, the appellant has filed this appeal.

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3. The short question which arises for consideration in this appeal is

whether sale of margarine is to be taxed at 8% or 4% under the provisions of

Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the Act").

4. The Sales Tax Officer held that margarine is a lubricant and animal

fat, which is used for making bakery products, is neither edible nor inedible

oil. According to him, edible oil is defined in circular no.2439/96/TD dated

19.2.96, where it is stated that edible oil includes refined or hydrogenated

oil such as ground nut oil, refined oil and vanaspathi and, therefore, he held

that margarine is not edible. As margarine is not consumed directly,

according to him, it is inedible oil. Entry 90 in the First Schedule

specifically uses the phrase "and margarine" which establishes the fact that

the same is neither edible nor inedible oil. Hence, margarine would come

only under Entry 90 and, therefore, would be taxable at the rate of 8% and

not at the concessional rate of 4%. Hence, the sale of margarine would be

subjected to tax at 8%.

5. The appellant preferred an appeal before the Appellate Assistant

Commissioner, Commercial Taxes, Ernakulam. The appeal was dismissed

and the order of the Sales Tax Officer was upheld. Aggrieved by the above

order, the appellant preferred an appeal against the said order before the

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Kerala Sales Tax Appellate Tribunal. The Tribunal set aside the order of the

Appellate Assistant Commissioner in so far as it related to the rate of tax on

margarine. According to the Tribunal:

"..........margarine could be considered as "edible oil".

According to New Webster's Dictionary, margarine is "a

substitute for butter consisting of a mixture of prepared edible

fats extracted from vegetable oils, and treated with lactic acid

bacilli". According to Chambers Twentieth Century Dictionary,

margarine is "any imitation butter". According to Concise

Oxford Dictionary, margarine is "butter substitute made from

edible oils and animal fats with milk". Thus, margarine is

considered as a substitute for butter".

The Tribunal further held that by virtue of Circular No.

2439/83/96/TD dated 19.2.1996, the Government had clarified

the doubt as to whether hydrogenated edible oil like vanaspathi

oil would come within the ambit of edible oil. In the words of

the Tribunal "The Government clarified that the expression

edible oil would include hydrogenated oil such as groundnut

oil, gingely oil, refined oil and vanaspathi. But this does not

mean that margarine cannot be considered as edible oil. Further

it is to be noted that the expression used in the above

Government notification is "such as" and hence, it is not an

exhaustive list. It is only illustrative. In any case, it is pertinent

to note that margarine has been classified in Entry 90 (as

extracted in para 2 above) which relates to oils. Hence, the

intention of the legislature is to treat margarine as oil. Thus, the

authorities below cannot take the stand that margarine is not oil.

Considering all the above facts, we are of the view that

margarine could be considered as edible oil. Since margarine is

edible oil, the appellant is entitled to the benefit of the reduced

rate of tax of 4 % as provided in Entry 17A of the Second

Schedule of the Government notification S.R.O. No. 1725/93".

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6. Against the order of the Tribunal, the respondent - State

Government filed a revision petition in the High Court of Kerala at

Ernakulam. The question raised in the revision petition was whether the

Tribunal was justified in granting concessional rate of tax on BISBRI brand

of bakery margarine sold by the appellant by treating it as an edible oil under

Entry17A of the Second Schedule as per notification SRO 1728/1993 for

the assessment year 1997-98. The High Court in the impugned judgement

held that BISBRI brand bakery margarine sold by the appellant cannot be

used for all purposes for which edible oils are used. The High Court

observed:

"........The product description of Respondent's product

in the leaflet further shows that the item is enriched with

vitamin A and vitamin D and also contains permitted

emulsifiers and stabilizers. Even though counsel for the

Respondent referred to the leaflet of Dalda produced in

court and contended that vitamin addition is there in

other hydrogenated oils also, we do not think Dalda sold

by hydrogenated oil is similar to bakery margarine sold

by the Respondent. From the product description and the

limited use of the item in the bakery and confectionary

industry, it is clear that the Respondent's product namely,

bakery margarine is a product made for a specific

purpose i.e. for use in bakery and confectionary industry

and the manufacturer has specifically prohibited use of

the item for any other purpose. Edible oil, on the other

hand, whether in hydrogenated form or not, is used for all

cooking purposes. Even though hydrogenated oil or

refined oil also can be used in the bakery or

confectionary industry, the reverse is not true. In other

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words, margarine exclusively make to use in bakeries or

confectionary industry cannot be treated as edible oil as

the same cannot be used for all purposes for which edible

oil is used. In fact, the Tribunal has allowed respondent's

claim on the ground that the circular clarifying the

notification uses the word "such as" and so much so, the

list is not exhaustive. However, we find from the circular

that the use of words "such as" after including

hydrogenated oil is followed by specific items namely

ground nut oil, gingili oil and vanaspathi. This only

means that those items also are covered by notification.

However, margarine referred above is not similar to those

items is what we found. Therefore, we are of the view

that bakery margarine is not edible oil covered by the

notification and clarified in the circular and therefore, the

decision of the Tribunal holding otherwise is liable to be

reversed".

7. Being aggrieved by the said judgment, this appeal has been filed by

the appellant-assessee.

8. The learned counsel for the appellant submitted that as margarine is

an edible vegetable oil, it squarely falls in Entry 17A of the Second Schedule

of the Act and, therefore, it becomes eligible for concessional rate of tax at

4%. To substantiate this claim, he submitted that there are two types of

margarine, namely, table and bakery margarine. The product dealt with by

the appellant is bakery margarine. Photocopies of the labels affixed on the

container of margarine manufactured by a few companies have been placed

on record. The first one is the label of BISBRI bakery margarine. It is stated

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in the label that the said margarine is made from vegetable oils only and that

it is enriched with vitamins A and D and is made from any or all of the

following permitted ingredients:

"refined and/or hydrogenated sunflower, soyabean,

cottonseed, palmoline, palm and sesame oils, salt,

permitted emulsifier and stabilizers".

9. Similarly, details of some other brands were given so as to

substantiate his case that margarine is an edible oil, which is being used in

eatables. He further submitted that the margarine used by the appellant does

not become inedible oil just because it is meant for preparing bakery

products. The question is not the use to which the oil is put but whether the

oil is edible. The learned counsel for the appellant also argued that the

intention of Entry 17A of the Second Schedule was to confer a concessional

rate of tax at 4% for edible oils. Margarine, being hydrogenated oil and also

edible, qualifies for the concession.

10. On the other hand, the learned counsel for the respondent contended

that the notification SRO 1728/93 granted exemption only to edible oils,

whereas Entry 90 of the First Schedule to the Act includes oils, edible or

inedible, including refined or hydrogenated oils and margarine. It means that

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the concession is not granted to margarine as it is included in Entry 90 of the

First Schedule. It was argued that as the intention of the legislature is clear,

the appellant cannot claim the benefit of reduced rate by submitting that its

product also comes within the ambit of edible oils. He further submitted that

the BISBRI brand margarine sold by the appellant cannot be used for all

purposes for which edible oils, including hydrogenated oils and vanaspathi,

are used. It was his case that margarine was used for a limited purpose i.e.

only for preparing certain eatables and not for all purposes and, therefore, it

cannot be said to be edible oil.

11. The learned counsel relied upon a judgment delivered in the case of

Commissioner of Trade Tax, UP v. Associated Distributors, 2008(7) SCC 409.

There the dispute was whether bubble gum was a mithai and could be taxed

at 6.25% or whether bubble gum was an unclassified item to be taxed at

10%. This Court held that although bubble gum contained 60% of sucrose,

still the same was not a mithai. Relying on the decision of the Apex Court in

the aforestated case, the counsel contended that although margarine may be

an edible product and used in bakeries, it cannot fall within the classification

of `edible oil' which is essentially a cooking medium in common parlance.

12. We have heard the learned counsel and also perused the records.

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13. The main issue for adjudication in this appeal is whether margarine

can be treated as edible oil and thus, fall under Entry 17A of the Second

Schedule of the said Act.

14. Margarine is a generic term and it is used as a substitute for butter. It

is used in preparation of food articles and specially used for preparing

bakery products. For the purpose of manufacturing margarine, refined

and/or hydrogenated oils of sun-flower, soyabean, cotton seed, palmoline,

palm and sesame oils are used. Moreover, vegetable oils, salt, permitted

emulsifiers and stabilizers are also used for manufacturing margarine. So

far as the margarine manufactured by the appellant is concerned, it is made

only from vegetable oils as stated by the appellant and as borne out from the

record. The margarine manufactured by the appellant is exclusively used

as raw-material by bakeries and those who manufacture confectionaries.

15. Looking to the contents of margarine, it is clear that it contains

all edible things. Margarine is used exclusively as a raw-material for

preparing bakery products and is also used in confectionary industry. Like

butter, margarine also contains almost 80% fat and remaining constituents

of margarine are edible things which are added thereto by the manufactures

of margarine. Vegetable and hydrogenated oils are used in manufacturing

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margarine and as it is used for making eatables, margarine is also edible

though it is not used for normal cooking as other oils like coconut,

sunflower, soyabean, sesame oils are used but it can not be disputed that it is

an edible oil.

16. So far as imposition of tax under the Act is concerned, there are two

relevant entries, which are as under:

"First Schedule of KGST Act:

Sl. No. Description of goods Point of levy Rate of tax

(percentage)

90. Oils, edible or inedible At the point of first 8

including refined or hydrogerated sale in the State by

oils and margarine not elsewhere a dealer who is liable

mentioned in this Schedule or in to tax under Section 5.

the second schedule.

Second Schedule:

Sl.No. Description of goods Existing rate of tax Reduced rate of tax

(percentage) (percentage)

17A Edible oil 8 4 10

17. According to the above Entry 90 in the First Schedule, oils,

whether edible or inedible, including refined or hydrogenated oils and

margarine, not elsewhere mentioned is to be taxed at 8%. It is pertinent to

note that concessional rate of 4% is levied on all edible oils as per Entry

17A of the Second Schedule read with Notification SRO No. 429/95 dated

31.2.1995. Thus, instead of 8%, edible oil is taxed at the rate of 4%. The

question is whether the appellant is entitled to the aforestated benefit for the

margarine manufactured by it. Margarine is definitely an edible oil as it is

used for preparing bakery products but it is not used for normal cooking. As

margarine is not used for normal cooking but is still used for preparing

bakery products, a doubt prevailed whether margarine can be considered as

edible oil. In the circumstances, Circular No. 2439/TD dated 19.2.1996 was

issued by the Government, which reads as under:

"CIRCUAR

Sub:- Reduced rate of tax on Edible Oil - Clarification -

regarding.

1. As per the Entry 90 in the 1st Schedule to the

Kerala General Sales Tax Act, Oils, - edible or

inedible, including refined or hydrogenated oil and

margarine not elsewhere mentioned in the

Schedule are taxable @ 8% at the point of 1st sale

in the State. As per the notification SRO 429/95

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dated 31.3.1995, the rate of tax edible oil is

reduced to 4% with effect from 1.4.1995.

2. Now certain doubts have been raised as to whether

hydrogenated edible oil like vanaspathy will come

within the concessional rate. Government, having

examined the matter, are pleased to clarify that the

term "Edible Oil" mentioned in the notification

SRO 429/95 dated 31.3.1995 included refined or

hydrogenated oil such as ground nut oil, gingely

oil, refined oil and vanaspathi."

18. By virtue of the abovereferred circular, it has been clarified that the

term "edible oil" mentioned in the Notification SRO 429/95 dated 31.3.1995

includes refined or hydrogenated oil such as groundnut oil, gingely oil,

refined oil and vanaspathi. Thus, the term "edible oil" has been explained

by virtue of the circular dated 19.12.1996. The afore-stated circular makes it

clear that edible oil like refined or hydrogenated oil such as groundnut oil,

gingely oil, refined and vanaspathi oils are to be taxed @ 4% and not at

@8%. The definition of "edible oil" given in the aforestated circular is not

dealing exhaustively with all edible oils. It merely illustrates some of the

oils which are edible oils. It means that the definition of the term "edible oil"

in the circular is not exhaustive but is illustrative. This circular does not

say that only edible oils referred to in the said circular would be taxed

@4%.

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19. In the aforestated circumstances, one has to consider whether

margarine can be considered as an edible oil. We clearly understand that

edible oil is that oil which can be used for human consumption. It is not

necessary that all edible things should be consumed in the form in which

they are available. There are number of ingredients used in cooking for

preparation of food articles which we do not consume in the same form but

they are used in preparation of food articles which are consumed.

20. So as to simplify the conclusion, we may say that normally anything

which is used for preparation of a food article is edible because ultimately

it is being consumed by human beings. Though one may not consume

margarine directly or may not use for normal cooking, the fact is that

margarine is used for preparing bakery items which are consumed by

human beings and, therefore, margarine is also edible. Having around 80%

fat, and being in the nature of oil, in our opinion, it should be considered as

edible oil.

21. Upon perusal of the Circular dated 19th February, 1996, explaining the

term "edible oil", we find that intention of the government was to give relief

in tax to edible oils. So as to clarify the doubt, it has been specifically stated

in the said circular that edible oils would also include hydrogenated oils such

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as ground nut oil, gingely oil, refined oil and vanaspathi oil. The aforestated

circular clarified that hydrogenated edible oil like vanaspathi oil should be

treated as edible oil. In our opinion, the Tribunal was right when it came

to the conclusion that margarine should be taxed @ 4% as it is edible oil.

22. For the aforestated 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 benefit of reduced rate of

4%.

23. We, therefore, allow the appeal by quashing the impugned order

dated 22.9.2006 passed by the High Court. The appeal, is allowed

accordingly with no order as to costs.

..................................................J.

(Dr. MUKUNDAKAM SHARMA)

.................................................J.

(ANIL R. DAVE)

New Delhi

September 7, 2011.