Kerala VAT: Bakery shortening and vanaspati are not similar

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:

(ii) HSN Codes 1516 and 1517 of the Customs Tariff Act, 1975 are extracted here under:

“1516 Animal or vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised, whether or not refined, but not further prepared

1516 10 00 – Animal fats and oils and their fractions

1516 20 – Vegetable fats and oils and their fractions:

— Cotton Seed Oil:

1516 20 11 —- Edible grade

1516 20 19 —- Other

— Groundnut oil:

1516 20 21 —- Edible grade

1516 20 29 —- Other

— Hydrogenated castor oil (opal-wax):

1516 20 31 —- Edible grade

1516 20 39 —- Other

— Other:

1516 20 91 —- Edible grade

1516 20 99 —- Other

xxx xxx xxx

1517 Margarine; edible mixture or preparations of animal or vegetable fats or oils or of fractions of different fats or oils of this chapter, other than edible fats or oils or their fractions of heading 1516

1517 10 – Margarine, excluding liquid

margarine:

1517 10 10 — Of animal origin

— Of vegetable origin:

1517 10 21 —- Edible grade

1517 10 22 —- Linoxyn

1517 10 29 —- Other

1517 90 – Other:

1517 90 10 — Sal fat (processed or refined)

1517 90 20 [* * * *]

1517 90 30 — Imitation lard of animal

origin

1517 90 40 — Imitation lard of vegetable

origin

1517 90 90 — Other”

(iii) Rules of Interpretation of Schedules under the KVAT Act:

While interpreting the commodities in the Schedules, the following guidelines may be followed:

i. The Commodities which are given four digit HSN Number shall include all those commodities coming under that heading of the HSN.

ii. The commodities which are given six digit HSN Number shall include all those commodities coming under that sub-heading of the HSN.

iii. The commodities which are given eight digit HSN Number shall mean that commodity which bears that HSN Number.

iv. As an exception to the above rules, there are certain entries in the Schedules, which bear the eight digit number but the four digit heading numbers of such commodities are given for some other commodities mentioned elsewhere. In such cases, the four digit heading shall include only those commodities under that heading excluding that commodity for which the eight digit numbers are given. Similar cases are available in the case of six digit numbers also. In such cases the above principle shall apply mutatis mutandis.

v. Where the term ‘other’ is used in sub-entries or in sub-sub-entries, it should be construed by using the doctrine of ejusdem generis. (When specific words are followed by general words, the general words should be interpreted as having the meaning identical to the meaning attributed to the specific words).

(iv) Rule 3 of Interpretation of Customs Tariff:

3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

9. From the decisions cited at the Bar the law discernible is thus :

(i). M/s. Adani Wilmar Ltd was concerned with the import of ‘bakery shortening’ and the exemption claimed classifying the goods under Chapter Heading 1516.20.91. The Department re-classified the goods under Chapter Heading 1517 and denied the benefit of exemption. The Department, as in the present case, contended that ‘bakery shortening’ undergoes a further preparation for the purpose of texturation and hence cannot be classified under Heading 1516 and falls under Heading 1517. The Tribunal, on a reading of the HSN notes, found that the products under heading 1516 are wholly and partly hydrogenated oils which are used as constituents in the preparation of edible fats of Chapter heading 1517. ‘Bakery shortening’, according to the Tribunal, merited classification under Heading 1516 since a classification under Chapter heading 1517 would require evidence as to a further process like emulsification, churning, texturation etc: being employed to change the basic character of the goods. The Tribunal also notices that no samples were taken nor any test conducted to ascertain the chemical nature or character of the goods imported, especially when, on a re-classification, it was the duty of the Department to produce evidence to substantiate such re-classification. The decision in Garware Nylons Ltd was quoted and following the same, the re-classification made by the Department was vacated.

(ii). M/s. Shree Gopal Vanaspati Ltd, though noticed M/s. Adani Wilmar Ltd, took quite a contrary stance. The Tribunal in that case relied on the definition in the Encyclopedia Britannica for ‘bakery shortening’ and the explanatory notes under the Tariff Headings. Though the reasoning, based on the explanatory notes, cannot be faulted, we are unable to place our hands on such explanatory notes, despite our verifying various text books. In such circumstance, we are unable to garner any support from the said decision.

(iii). M.P. Agencies was concerned with the classification of two products, one a liquid fabric whitener and the other a liquid fabric stiffener. The assessee claimed that the respective products were essentially Acid Violet Paste (AVP) and Polymerized Vinyl Acetate (PVA), covered under Third Schedule ‘Industrial Inputs & Packing Materials’, the Entry being specifically related to the HSN Codes as available under the Customs Tarriff Act, 1975. Reckitt Benckiser was noticed wherein it was held that the Rules of Interpretation of the KVAT Act itself makes it mandatory for any tariff item, against which is indicated a HSN Code, to be interpreted on the basis of the HSN Code assigned and also the judgments applicable to the Customs Tariff Act. CCE Vs. Wood Craft Products 1995 (3) SCC 454 was also noticed, wherein the Statement of Objects and Reasons of the Central Excise Tariff Act, 1985 was referred, to hold that Harmonized System of Nomenclature (HSN) is an internationally accepted nomenclature formulated to ‘reduce disputes on account of tariff classification’. In resolving a dispute relating tariff classification, HSN was found to be the foremost, best and the safest guide. The ISI Glossary of Terms in that context was found to be for a different purpose and when there is any conflict, the meaning of the item as available from the HSN was to be preferred. The subject goods were found to be diluted AVP & PVA as the test reports indicated that the chemical composition remained unaltered by the dilution. The description of goods being as identical to the HSN classification, the user test was irrelevant, as held in CCE Vs. Mannampalakkal Rubber Latex Works 2015 (7) SCC 124. The Court categorically held that there was hence no scope to consign the classification to the residual entry.

10. The appellant had specifically referred to the definitions under the FSS Act to contend that ‘vanaspati’ and ‘bakery shortening’ are one and the same product. Hydrogenated vegetable oils are included under Regulation 2.2.6 of the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 (‘FSS Regulations’ for short). ‘Vanaspati’, according to the FSS Regulations, means any refined edible vegetable oil, subjected to a process of hydrogenation in any form or chemical or enzymatic inter-esterification. Clause 2 under Regulation 2.2.6 refers to ‘bakery shortening’ which means ‘vanaspati’ meant for use as a shortening or  leavening agent in the manufacture of bakery products. When there was a definition available in a statute, though not the taxation one, it was not proper for the Clarification Authority to have relied on the dictionary definition, was the specific argument raised. The definition in the Vegetable Oil Products Regulation Order, 1998, to the similar effect provides a guideline as to how the Central Government recognized the identity of the products. Neither the user test nor the dictionary definition is relevant and common parlance cannot be a sufficient aid in so far as the HSN classification is concerned. The Department too relies on the HSN codes to assert that the product is not included in HSN 1516.

11. The learned Counsel for the appellant had specifically objected to the reliance on the dictionary definition, when there is definition available in a Statute, relying on Ponds India Limited v. Commissioner of Trade Tax – (2008) 15 VST 256 (SC). We do not think that the aforesaid decision or the dictum laid down has any application to the present case. The Hon’ble Supreme Court had in paragraph 50 held that “Where an express statutory definition of a word exists, a Wiki definition cannot be preferred” (sic). In relying on Wikipedia as a source of authority there was a split of precedence, which was noticed. The criticism of frequent updation without any regulation termed as opportunistic editing, was the main objection raised against relying on Wikipedia, which was inherently an unstable source. The Tribunal has not relied on any definition in Wikipedia. As far as the definition in a dictionary, the Hon’ble Supreme Court itself has accepted it, when laying down in paragraph 43 that “Different tests are laid down for interpretation of an entry in taxing statue namely dictionary meaning, technical meaning, users point of view, popular meaning etc” (sic). It cannot normally be used for the purpose of interpreting a taxing statute or classification of a product viz-a-viz an entry in statute. But, a dictionary meaning can always be relied on as an aid of interpretation – Whether that is required is the discretion of the Court looking at the language employed in the Statute.

12. The Hon’ble Supreme Court held that a dictionary meaning would not be relevant when there is a definition in the Statute itself. In Ponds India Limited the question was as to taxation of petroleum jelly, whether it be a drug or cosmetic within the meaning of the provisions of the U.P. Trade Tax Act. The word ‘drug’ or ‘cosmetic’ had to be understood under the provisions of the Drugs and Cosmetics Act, 1940 and the statutory definition therein was specifically referred to by the Hon’ble Supreme Court. We cannot understand the dictum as laying down that the definition from a totally unconnected statute should be taken for the purpose of understanding the nature and character of the goods, which has not been specifically defined in the taxing statute. In the instant case, there is no definition of ‘bakery shortening’ either in the KVAT Act or in the Customs Tariff Act. The definition relied on by the appellant is under the FSS Regulations and the Vegetable Oil Order.

13. The FSS Regulations and the Vegetable Oil Order define ‘bakery shortening’ as vanaspati. Under the FSS Regulations, regulation 2.2 speaks of ‘fats, oils and fat emulsions’. Regulation 2.2.6 speaks of hydrogenated vegetable oils, wherein both ‘vanaspati’ and ‘bakery shortening’ have been defined, but, separately. Clause (1) of Regulation 2.2.6 defines ‘vanaspati’ as any refined edible vegetable oil prepared from one or more of the vegetable oils specified under sub-clauses (a) to (v). The standards are also specifically provided under sub-clauses (i) to (vii). ‘Bakery shortening’ is defined under clause (2) of Regulation 2.2.6, as follows:

“2. Bakery shortening means vanaspati meant for use as a shortening or leavening agent in the manufacture of bakery products, that is, for promoting the development of the desired cellular structure in the bakery product with an accompanying increase in its tenderness and volume; this will also confirm to the standards prescribed in regulation 2.2.6(1) excepts that-

(a) Trans fatty acids, not more than ten per cent by weight:

[Provided that the maximum limit of trans fatty acids shall be not more than 5% by weight, on and from the 27^th of August, 2016;]

(b) if aerated, only nitrogen, air or any other inert gas shall be used for the purpose and the quantity of such gas incorporated in the product shall not exceed 12 per cent by volume thereof.

(c) it may contain added mono-glycerides and di-glycerides as emulsifying agents.

Test for argemone oil shall be negative.”

14. This would indicate that for the purpose of FSS Regulations, ‘bakery shortening’ means vanaspati and the standards prescribed would be that specified under clause (1) and the additional standards, as prescribed by sub clauses (a) to (c) of clause 2. This itself clearly show that the products are different and the use also is distinct insofar as the essential characteristics being different, though only slightly.  

15. The definition of ‘bakery shortening’ under the Vegetable Oil Order is also similar to that available under the FSS Regulations. The Order was one brought out to regulate the production of vegetable oil products, ensuring certain standards of quality and also to prohibit sale in containers made of second hand tin sheets. Vanaspati and bakery shortening are separately defined under clause 2(n) and 2(b) of the Vegetable Oil Order. Clause 2A also mentions them separately and clause 6 of the Order provides different schedules prescribing the standards of quality. The definition only indicates that for the purposes of regulation intended by the Vegetable Oil Order, the products are treated as similar. This does not necessarily bring out the identity of the products. We do not find any assistance from the definitions in the FSS Regulations or the Vegetable Oil Order. We are also of the opinion that we need not look at the dictionary meaning since, as has been held in Ponds India Limited, reference to the dictionary meaning, technical meaning, users’ point of view and popular meaning etc has to be resorted to only if there is an ambiguity in the definition as per the taxing statute.

16. Before looking at the entries available under the taxing statute, we have to keep in mind the principle of taxation, that even commodities which are in common parlance or on aspects of utility similar, can be classified differently and made exigible to different rates of tax; the elbow room for which is available to the legislature. Consideration has to be made of the Entry under the KVAT Act, on the basis of the ‘Rules of Interpretation of Schedules’ under the KVAT Act. Rule (iii) makes it clear that commodities which are given four digit HSN number shall include all those commodities coming under that HSN heading and six digit HSN number shall include all those commodities coming under that sub-heading and commodities coming under eight digit HSN number shall mean that commodity which bears that HSN number. Here, ‘others including vanaspati’ comes under the eight digit HSN number, which can only include that commodity and nothing other than that. It is also to be noticed that the entry does not show specific words followed by general words and it is quite the opposite. Entry 38 refers specifically to edible oils and sub entry (18) speaks of other partly or wholly hydrogenated vegetable oils. Under sub clause (c) of sub heading (18) cottonseed Oil, groundnut Oil and castor oil are included. Clause (d) includes ‘others’ which makes it clear that any hydrogenated vegetable oil would fall under the said definition. The word ‘other’ is followed with the words ‘including Vanaspati’. Hence the entry brings within the ambit of hydrogenated vegetable oils, ‘vanaspati’ also. The general word is followed by the specific word and hence the definition is exhaustive.

17. Rule (v) of the ‘Rules of Interpretation of Schedules’ under the KVAT Act, applies in so far as the doctrine of ejusdem generis commends the general words to take the colour of the specific words. The word ‘others’ under Entry 38(18)(d) has to be understood as including all partly or wholly hydrogenated vegetable oils. But the words ‘including vanaspati’ cannot be taken as including any preparation of vanaspati. The inclusion of vanaspati, being by way of a specific word following the general word ‘others’ cannot be understood as enlarging the scope of the entry, but is one restricting the inclusion to ‘vanaspati’ alone which is a hydrogenated vegetable oil. Though the inclusion of vanaspati does not restrict the more general commodities included in the entry; there cannot be a further expansion or enlargement inferred. In so construing the Entry this Court draws support from the following passage in ‘Bennion on Statutory Interpretation- Fifth Edition’ which refers to other authoritative texts also:

“Section 384. Ejusdem generis principle: general words followed by narrower genus- describing terms

The ejusdem generis principle is presumed not to apply where apparently general words are followed by narrower words suggesting a genus more limited than the initial general words, if taken by themselves, would indicate. The question is however, as always, one of the legislator’s intention.

COMMENT ON CODE S 384

Where apparently wide words are followed by terms indicating a narrower genus, this may suggest an intention to curtail the width of the initial words. Nevertheless the courts have been reluctant to treat this as an instance of the ejusdem generis principle. Craies goes so far as to state that ‘There cannot be an inverse application of the rule’.³ He cites as authority a dictum of Cohen LJ:

‘I have never heard before of an inverse application of the ejusdem generis rule and I think it would be very dangerous here to attempt to cut down by the application of any such principle the wide words which precede … ‘4

Maxwell agrees with Craies. The ejusdem generis principle, he says, ‘applies only to general words following words which are less general’.⁵ He cites as authority a statement by Lord Cave LC: ‘I know of no authority for applying that rule to … a case where, to begin with, the whole clause is governed by the initial general words.’⁶

3 Craies on Satute Law (7^th edn, 1971) Sweet & Maxwell, p 182 n 64 (omitted from 8^th edn).

4 Re Wellsted’s Will Trusts [1949] Ch 296 at 318.

5 Maxwell on the Interpretation of Statutes (12^th edn, 1969) Sweet & Maxwell, p 298.

6 Ambatielos v Anton Jurgens Margarine Works [1923] AC 175 at 183. See also, to the like effect, Canadian National Rlys v Canadian Steamship Lines Ltd [1945] AC 204 at 211; Re Wellsted’s Will Trusts [1949] Ch 296 at 305.”

18. A HSN code being shown against the entry, we have to look at the Chapter Heading to understand whether the subject commodity comes under that heading. The HSN code 1516.20.91 shown against the entry is also an eight digit one. Whether ‘bakery shortening’ falls under Entry 38(18)(d) as ‘vanaspati’, has to be looked at on the basis of the definition available in 1516, which is extracted above. As we saw, Wood Craft Products held that HSN is the internationally accepted nomenclature formulated to ‘reduce disputes on account of tariff classification’. In resolving a dispute relating tariff classification, HSN was found to be the foremost, best and the safest guide. Reckitt Benckiser (India) Ltd. also held that when entries in a taxation statute are aligned with the HSN codes, then, necessarily the interpretation has to be based on the HSN code, as available in the Customs Act. When the entry in the KVAT Act refers to the eight digit HSN Code the classification has to be decided on the basis of the HSN Chapter heading and the enumerated commodities. If the commodity falls within that, definitely it has to be included under the Entry, against which the HSN code is given.

19. HSN 1516 speaks of partly or wholly hydrogenated, inter-esterified, re-esterified or elaidinised animal or vegetable fats and oils, whether or not refined, but not further prepared. Under the chapter heading, vegetable fats and oils are given six digit HSN number as 1516.20. Eight digit number 1516.20.91, speaks of edible grade vegetable fats and oils and vanaspati being an edible hydrogenated vegetable oil, definitely falls under that eight digit HSN code. However, when any hydrogenated animal or vegetable fats and oils are further prepared, it goes out of the Chapter heading 1516, even if it retains the quality and characteristics of a hydrogenated vegetable oil. The aspect of preparation excludes the commodity from the chapter heading and merely because it contains vanaspati, bakery shortening cannot be included under chapter heading 1516.

20. In this context the manufacturing process of ‘bakery shortening’ as detailed by the petitioner himself and extracted in Annexure 6 Order is relevant, which is as follows:

“The first step in the making of bakery shortening is blending of various hydrogenated vegetable oils (vanaspati) and liquid refined vegetable oils to some proportions in a stainless steel blending vessel. All fractions of oil are properly melted and additives like Sesame Oil to the extent that it should give a B.T. Test of Minimum value of 2 units and Vitamin A & D is added to it (this additives is statutory requirement to avoid admixing the vanaspati in ghee). The contents are kept under agitation for 45 mins to get a homogeneous mass. Then the vanaspati is passed through the equipments called Votators and Crystalisers which churn the product from 45 Deg. Centigrade to 20-25 Deg. Centigrade. The chilled vanaspati from this equipment is called Bakery Shortening. Bakery shortening may be packed in 15 Kg packs and kept for tempering in air conditioned room for 1 day.”

21. The procedure hence speaks of blending of various hydrogenated vegetable oils and liquid refined vegetable oils with additives added on to satisfy the FSS Regulations, which definitely indicates a preparation of vegetable oils or vanaspati. This activity of preparation takes it out of HSN heading 1516. HSN heading 1517 speaks of edible mixture of or preparations of animal or vegetable fats or oils or fractions of different fats or oils other then edible fats of oils or their fractions of heading 1516. ‘Bakery shortening’ being a preparation of vanaspati, is taken out of the HSN heading 1516, but being an edible mixture or preparation of vegetable oils would fall under HSN heading 1517; to which there is no corresponding entry under the KVAT Act. It is also of considerable import that the HSN Code shown against the Entry is an eight digit code, having a restrictive content of the commodity mentioned, as per the Rules of Interpretation of Schedules under the KVAT Act.

22. In this context we can also make useful reference to the booklet produced by the learned Senior Government Pleader, prepared by the Institute of Shortening and Edible Oils, 1750 New York Avenue, NW, Suite 120, Washington, DC 20006, a copy of which is handed over across the Bar and also to the learned Counsel appearing for the petitioner. We have also given time, to the petitioner to go through the booklet and proffer arguments. The booklet is marked as Court Exhibit-C1 in the proceedings. HSN Code being a universally accepted nomenclature, the definition of ‘shortening’ in the booklet assumes significance. We extract the procedure for preparation of shortenings, as seen from the booklet at page 27.

“Shortenings are fats used in the preparation of many foods. In the past, lard and other animal fats were the principal edible fats used in shortenings in this country, but during the last third of the nineteenth century they were replaced by cottonseed oil, a by-product of the cotton industry. Many types of vegetable oils including soybean, cottonseed, corn, sunflower, and palm can be used in shortening products. Oils used in the production of these products are generally partially hydrogenated and often two or more stocks are blended in order to deliver the required performance characteristics including storage stability, creamy consistency over a wide temperature range and the ability to incorporate and hold air. Lard and other animal fats and mixtures of animal and vegetable fats also are used in shortenings.”

The procedure extracted herein above is similar to that admitted by the petitioner.

23. We also see from the order in M/s. Adani Wilmar Limited that the adjudicating authority has found so:

“Therefore, it is clear that as per explanatory notes the goods bakery shortening will fall under 1517 only and not 1516 as it has undergone further preparation for the purpose of texuration. The classification of PFA Act is not relevant for the purpose of classification under Customs Tariff Act or Excise Tariff Act. Further, both vanaspati and bakery shortening may be considered similar under PFA Act based on their usage as food products, but under Customs Act each product can have different classification based on its nature. As explained earlier shortening have undergone further preparations for food purposes as texturation (modification of the texture or crystalline structure) and Chapter 1516 excludes such items.”

This is in consonance with the findings herein above and we can only say that M/s. Adani Wilmar Limited has been wrongly decided.

24. We are also inclined to accept the contention of the learned Senior Government Pleader that clause (b) of item 3 of the General Rules for the Interpretation of the Schedule under the First Schedule- Import Tariff would be applicable only if the commodity ‘cannot be classified by reference to (a)’, which is the specific words used in that sub-clause. Clause (a) provides for classification under the heading which gives a specific description which has to be preferred, to headings providing a more general description. HSN heading 1516 provides for inter alia hydrogenated vegetable oils which are not prepared and HSN heading 1517 provides for edible mixture or preparations inter alia of vegetable oils other than edible oils and their fractions under HSN heading 1516. ‘Bakery shortening’ being a preparation of hydrogenated vegetable oils, it cannot be included under HSN heading 1516 nor under the category 1516.20.91; the HSN code with which is aligned Entry 38(18)(d) of the Third Schedule of the KVAT Act. The products under HSN heading 1517 having not been included in any of the entries, come under the residual entry of S.R.O. No. 82/2006.

25. We also notice that the Tribunal has extracted the notification published in the Gazette of India Extraordinary, Public Notice No. 07 (RE-2008)/2004-09 dated 22.04.2008 of the Government of India, Ministry of Commerce and Industry, Department of Commerce, which, on a reference to the Indo- Sri Lanka Free Trade Agreement, details the items Vanaspati, Margarine and Bakery Shortening, having been included under the respective HSN Codes of 1516.20, 1517.10 and 1517.90.

26. We, for reasons stated beforehand, would not place any reliance on M/s Shree Gopal Vanaspati Ltd., but, however, concur with the finding therein that bakery shortening and vanaspati are not similar and falls respectively under HSN heading 1517 and 1516. We, hence, sustain the order of the Clarification Authority for the reasons stated herein above.

The Other Tax Appeal is dismissed. No Costs.