M/s. Parisons Foods Pvt. Ltd. Vs. Joint Commissioner Of Commercial Taxes (Kerala High Court)
The appeal arises from a Clarification Order issued under Section 94 of the Kerala Value Added Tax Act, 2003 (‘KVAT Act’ for short). The appellant/dealer, inter alia, is engaged in the manufacture of ‘bakery shortening’. The clarification sought for was the tax rate applicable to ‘bakery shortening’, which according to the appellant falls under Entry 38 of the Third Schedule of the KVAT Act exigible to tax @ 5%. The clarification sought was in the context of the Department having the opinion that it would not fall under Entry 38, for reason of the product not being covered under the specific Harmonized System of Nomenclature (HSN) Code shown against Entry 38(18) (d): ‘Others including vanaspati’.
2. The Department maintains that the product not being an animal or vegetable fat or oil, or a hydrogenated vegetable oil; under which later classification, ‘vanaspati’ falls, has to be taxed under the residual entry in S.R.O. 82 of 2006. The applicant, before the Authority for Clarification contended that ‘bakery shortening’ falls under HSN Code 1516, specifically under sub-heading 1516.20.91, being ‘vanaspati’ a hydrogenated vegetable oil, which is exigible to tax @ 5% under the Third Schedule. The Authority for Clarification found that ‘bakery shortening’ is exigible to tax @ 12.5/13.5/14.5% (for various periods) under the residual entry of S.R.O No. 82/2006.
3. The learned Counsel for the appellant argued in tune with the contention taken by the assessee before the Clarification Authority. Reference is made to Entry 38(18)(d) to contend that, if at all, it is not vanaspati, it would fall under the ‘other’ category, as mentioned in the Entry, again, exigible to tax only @ 5%. The Clarification Order is challenged on the ground that it has relied on the judgment of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), which had ignored the decision of a co-ordinate Bench of the same Tribunal, taking a contrary stand with respect to the clarification of ‘bakery shortening’. It is also argued that M/s Shree Gopal Vanaspati Ltd. v. C.C.(ICD), New Delhi – 2014 (4) ECS (224) (Tri-Del.), the decision relied on by the Tribunal, has relied on the dictionary definition, when there was a statutory definition available under the Food Safety and Standards Act, 2006 (‘FSS Act’ for short). It is also submitted that the explanatory notes to the HSN numbers, as extracted in M/s Shree Gopal Vanaspathy Ltd. is not available in any text, despite fervent search having been carried out. M/s.Adani Wilmar Limited v. Commissioner of Customs, Kandla [Appeal No.C/1115 of 2006] the earlier decision of the CE STAT, is more to the point, holding that ‘bakery shortening’ would fall under HSN Code 1516 and not 1517, is the submission.
4. The learned Counsel for the appellant took us through the definition of ‘vanaspati’ under the FSS Act, to contend that ‘bakery shortening’ is ‘vanaspati’. Encyclopaedic Law Lexicon (Volume 2) also defines ‘bakery shortening’ as ‘vanaspati’, meant for use as a shortening or leavening agent in the manufacture of bakery products. The said definition has been imported from the Vegetable Oil Products (Regulation) Order, 1998. ‘Bakery shortening’ having not been specifically included in any of the entries under S.R.O No. 82/2006 and the essential nature of the product being that of ‘vanaspati’, there is no reason why taxation should be on a classification made under the residual entry of S.R.O. No. 82/2006. Garware Nylons Limited – 1996 (87) ELT 12 (SC), which was relied on in M/s. Adani Wilmar Limited is put across to buttress the contention. Reliance is also placed on the “General Rules For The Interpretation Of This Schedule” under “The First Schedule – Import Tariff” as available under the Customs Tariff Act, 1975, (‘Customs Act’ for short). Pointed reference is made to Clause 3(b); wherein with respect to mixtures consisting of different materials or made up of different components, classification has to be made on the basis of the essential character of the material or component of the goods. The argument raised is that ‘bakery shortening’ is made up of ‘vanaspati’ and retains its essential character though it has increased leavening and shortening characteristics, making it more suitable for use in the manufacture of bakery products.
5. M.P. Agencies v. State of Kerala – 2015 (7) SCC 102 is relied on, to contend that when there is inconsistency as to the classification of a commodity, with and without HSN number, the commodity without HSN number should be interpreted by including the same in that entry which has been given HSN number. In the present case, under the Third Schedule, Entry 38(18)(d) dealing with ‘vanaspati’, shows as against the entry, the specific HSN number of 1516.20.91 and there is no scope for inclusion of the product having the essential characteristics of ‘vanaspati’ in the residual entry under S.R.O. No. 82/2006. It is also argued that when two interpretations are possible, the one favouring the assessee should be adopted.
6. The learned Government Pleader would, however, specifically refer to the Rules of Interpretation under the Customs Act, to contend that Section 3(b) would be applicable only when Section 3(a) is not attracted. Section 3(a) speaks of the heading which provides the specific description which has to be preferred, to headings providing a more general description. Attention is drawn to the HSN headings 1516 and 1517 under the Customs Act to contend that what is included in heading 1516 is only hydrogenated, inter-esterified, re-esterified or elaidinised vegetable fats and oils which are not subjected to further preparation. ‘Vanaspati’, being an hydrogenated vegetable oil, would fall under heading 1516. However, ‘bakery shortening’ is a product derived by a preparation of mixture of hydrogenated vegetable oils, as is admittedly conceded by the applicant before the Clarification Authority, as seen from the manufacturing process detailed in paragraph 4 of the Order. The heading at HSN code 1517 speaks of mixtures or preparations of animal or vegetable fats or oils other than edible fats or oils or their fractions of heading Heading 1516 excludes hydrogenated animal or vegetable fats and oils which are subjected to a process of preparation. When there is a mixture or preparation of animal or vegetable fats and oils, then it falls under heading 1517 and not under heading 1516, is the departmental defence.
7. Reference is also made to the Rules of Interpretation of Schedules, as available in the KVAT Act. Pointed reference is made to Guideline No. III, which speaks of eight digit HSN numbers to be given the meaning of that commodity which bears that HSN number itself. Entry 38(18)(d) under the Third Schedule speaks of ‘others including vanaspati’ with the specific HSN code of 1516.20.91. Entry 38(18) refers to partly or wholly hydrogenated vegetable oil and the term ‘others’ refers only to such partly or wholly hydrogenated vegetable oils, which includes vanaspati. ‘Bakery shortenings’ being not vanaspati, but, being a product obtained by subjecting vanaspati to a process, takes it out of the general heading under 1516 and puts it under heading 1517, which refers to the mixtures or preparations of animal or vegetable fats. Reliance is placed on the decision in Reckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes – 2015 (7) SCC 126 to argue that when the taxation statute is aligned with the HSN codes, then, necessarily the interpretation has to be based on the HSN code, as available in the Customs Act.
8. The Entries under the KVAT Act, HSN and the respective relevant Rules of Interpretation are as follows:
(i) Entry 38 of the Third Schedule of the KVAT Act ‘edible oils’ includes different oils from item nos. (1) to (17) and item no.(18) is as follows:
“(18) Other partly or wholly hydrogenated vegetable oils:
