State of Odisha Vs Hindustan Coca-Cola (Orissa High Court)
Orissa High Court held that sale of packaged drinking water in the brand name KINLEY WATER falls within the expression “water but not aerated or mineral water sold in bottles or sealed containers” hence classified under entry no. 39 of Schedule of Goods declared Exempted from levy of sales tax
Facts- The opposite party-Hindustan Coca- Cola Beverages Pvt. Ltd. claimed exemption in respect of sale of “packaged drinking water” which was sold in the brand name “KINLEY WATER” treating the same as embraced within the meaning of entries in Serial No.39 of Schedule of Goods declared Exempted from levy of sales tax.
In the assessment for the Year 2004-05 u/s. 12(4) of the Odisha Sales Tax Act, 1947 the Assessing Authority rejected such a claim of exemption. Aggrieved by such disallowance of exemption as claimed, the dealer-company approached the First Appellate Authority under Section 23(2) of the OST Act.
Dissatisfied with disallowance of claim for exemption in respect of sale of KINLEY water, the opposite party-company carried the matter to the learned Odisha Sales Tax Tribunal in Second Appeal under Section 23(3) of the OST Act. The same was allowed.
The State of Odisha-Commissioner of Sales Tax, therefore, preferred revision invoking provision for further proceeding under Section 24 raising question of law on the ground that the learned Odisha Sales Tax Tribunal erroneously decided the issue.
Conclusion- This Court is left with no option but to affirm the finding of fact by the learned Odisha Sales Tax Tribunal that “KINLEY WATER fulfils the criteria of packaged drinking water to be classified under Entry 39 of List-A of Rate Chart under the OST Act as the label itself shows and packaged in bottling plant to provide hygienic and safe drinking water to the customers”.
Held that sale of packaged drinking water in the brand name KINLEY WATER falls within the expression “water but not aerated or mineral water sold in bottles or sealed containers” vide Entry No.39 of Tax-free List.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. Challenge is laid to the common Order dated 18.02.2017 passed by the Odisha Sales Tax Tribunal in Second Appeal bearing Nos. 1449 of 2003-04, 675 of 2004-05, 735 of 2005-06 and 677 of 2006-07 directed against the Orders dated 07.07.2003, 16.03.2004, 07.05.2005 and 16.05.2006 passed by the Assistant Commissioner of Sales Tax, Puri Range, Bhubaneswar in First Appeal bearing Nos. AA-280/BH-I of 2002-03, AA-225/BH-I of 2003-04, AA-336/BH-I of 2004-05 and AA-202/BH-I of 200506 in connection with Assessments framed under Section 12(4) by the Taxing Authority, Bhubaneswar-I Circle, Bhubaneswar vide Orders dated 30.11.2002, 17.10.2003, 13.12.2004 and 20.01.2006 for the Assessment Years 2001-2002, 2002-03, 200304 and 2004-05 respectively by way of sales tax revision petitions under Section 24 of the Odisha Sales Tax Act, 1947.
1.1. Since common questions of law are involved in the present cases, they are taken up for analogous hearing and disposed of by this common Judgment.
1.2. In the afore-noted revision cases, the aggrieved, State of Odisha represented by the Commissioner of Sales Tax, Odisha, has posed following questions of law for adjudication by this Court:
A. Whether on the facts and in the circumstances of the case, “KINLEY WATER” sold by the opposite party-company falls within the scope of Entry No.4 of Taxable List?
B. Whether on the facts and in the circumstances of the case, the Odisha Sales Tax Tribunal was not justified in ignoring to take into account the material placed before it by the Revenue to show that the opposite party-dealer sold “KINLEY WATER”, i.e. “aerated water” which does not fall within the ambit of Entry 39 of Tax-free List and, thereby the conclusion arrived at by said Tribunal is perverse?
C. Whether on the facts and in the circumstances of the case, the learned Odisha Sales Tax Tribunal should not have granted relief to the opposite party-dealer in view of law laid down in Mafatlal Industries Ltd. Vrs. Union of India, (1998) 111 STC 467 (SC), inasmuch as the dealer had collected sales tax from its customers/consumers?
D. Whether on the facts and in the circumstances of the case, the finding of fact by the learned Odisha Sales Tax Tribunal is based on no evidence and/or erroneous appreciation of evidence and the conclusion arrived at by the Tribunal is untenable in the eye of law?”
1.3. On 07.02.2023, this Court heard the arguments advanced by Sri Susanta Kumar Pradhan, learned Additional Standing Counsel (Commercial Taxes) appearing for the petitioner-State of Odisha and Sri Monish Panda, learned Advocate for the opposite party-company and permitted both the parties to file written note of submission. Accordingly, written notes of submission have come to be filed by Sri Monish Panda and Sri Anup Narayan Mohanty, learned counsel for the opposite party-company on 13.02.2023 and Sri Sunil Mishra, learned Additional Standing Counsel (Commercial Taxes) on 16.02.2023.
1.4. Though the petitioner has raised as many as four questions of law in the petition for revision being STREV No.26 of 2017, by filing written note of submission, the Revenue has confined its arguments to question No.A extracted herein above. Though many other questions, besides question akin to question No.A above, are raised in other petitions [vide STREV No.23 of 2017], neither the same are argued nor are they agitated in the written note of submission. This Court deems that the questions of law as “not pressed” and, therefore, declines to answer said questions.
1.5. It is worth noticing that vide Order dated 28.03.2019 this Court was pleased to accept the following question to be addressed:
“On going through the record, it seems that one issue which is required to be determined by this Court is whether the tax, which has already been collected by the assessee, can it be allowed to be retained by it in view of his change of opinion from Entry Serial No.4 of List C of the Rate Chart under the OST Act to Entry at Serial No.39 of the List A of the Rate Chart under the OST Act?”
1.6. However, subsequently both the parties abandoned such question for adjudication, rather both the parties sought for a decision on the following issue which is stated vide Order dated 10.01.2023:
“2. The Court has been shown by Mr. Monish Panda, learned counsel for the Opposite Party copies of the relevant provisions of the Bureau of Indian Standards specifications regarding Packaged Drinking Water (Other than Packaged Natural Mineral Water) as well as a copy of the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 which contain a specific definition of ‘Mineral Water’. It is submitted by Mr. Panda, that the Opposite Party’s product is only packaged drinking water and not natural mineral water in terms of the above definitions and specifications.
3. Copies of the above documents have been handed over to learned counsel for the Department who needs some time to examine them and make submissions.”
1.7. On the basis of arguments advanced by the counsel for rival parties with reference to the written notes of submission filed by respective parties, this Court frames the following question of law for rendering decision in the sales tax revision petitions being STREV Nos. 23-26 of 2017:
“Whether on the facts and in the circumstances of the case, “KINLEY WATER” sold by the opposite party-Hindustan Coca-Cola Beverages Pvt. Ltd. falls within the scope of Entry No.4 of Taxable List so as to attract levy of sales tax @ 12%?”
Fact of the case:
2. Shorn off irrelevant detail of fact, suffice it for the purpose of present case to describe that the opposite party-Hindustan Coca-Cola Beverages Pvt. Ltd. claimed exemption in respect of sale of “packaged drinking water” which was sold in the brand name “KINLEY WATER” treating the same as embraced within the meaning of entries in Serial No.39 of Schedule of Goods declared Exempted from levy of sales tax (for short herein after referred to as “Tax-free List”).
2.1. Since common question of law has been raised, the finding and observation rendered in Appellate Order dated 16.05.2006 passed in AA-202/BH-I/2005-06 by the Assistant Commissioner of Sales Tax (Appeal), Puri Range, Bhubaneswar in connection with Assessment framed under Section 12(4) of the OST Act the Year 2004-05 vide Order dated 20.01.2006 of the Taxing Authority, Bhubaneswar-I Circle, Bhubaneswar is taken as the lead case for discussions for convenience.
2.2. In the assessment for the Year 2004-05 under Section 12(4) of the Odisha Sales Tax Act, 1947 (for brevity, “OST Act”), the Assessing Authority rejected such claim of exemption by holding as follows:
“*** Further the dealer has claimed deductions of Rs.48,82,97,648.82 and Rs.67,49,490.23 towards sale of tax exempted aerated water manufactured in its unit and resale of packaged drinking water respectively. *** From the wrapper itself it is evident that the ingredients of the products are treated water, minerals (sodium chloride, magnesium sulphate). So the water sold by the dealer is nothing but the water mixed with the dissolved common salt and magnesium salt to come under the nomenclature of mineral water. In common parlance too the water sold by the dealer is treated as mineral water. Besides it is evident from the official record that during the year 2002-03 the dealer has collected OST @ 12% on the instant product by treating the same as mineral water. ***”
2.3. Aggrieved by such disallowance of exemption as claimed, the dealer-company approached the First Appellate Authority under Section 23(2) of the OST Act. With regard to aforesaid claim, the Appellate Authority has stated thus:
“*** On examination of the accounts produced the Assessing Officer did not accept the claim of the appellant towards tax-free sale of packaged drinking water in the brand name of KINLEY for Rs.67,49,490.23, claim of Rs.14,83,74,260/- towards wear and tear charges and claim of sale of exempted goods for Rs.48,82,97,648.82 under IPR, 1996 (New Unit). As to the first aspect it is seen that the ingredients for manufacture of packaged drinking water are treated water, minerals (sodium chloride, magnesium sulphate). The wrapper used on the bottles also disclosed the same ingredients as treated water, minerals (sodium chloride, magnesium sulphate). As the definition of mineral water it reads as water naturally or artificially impregnated with dissolved salts. So the water sold by the appellant in bottles are mixed with the dissolved common salt and magnesium salt and hence it is nothing but mineral water. Hence the contention of the appellant that their products are packaged drinking water but not mineral water is not acceptable and the Assessing Officer has rightly held that the KINLEY WATER is mineral water exigible to tax @12%.”
2.4. Dissatisfied with disallowance of claim for exemption in respect of sale of KINLEY water, the opposite party-company carried the matter to the learned Odisha Sales Tax Tribunal in Second Appeal under Section 23(3) of the OST Act which was registered as S.A. No.677 of 2006-07.
2.5. The learned Odisha Sales Tax Tribunal insofar as the present context of KINLEY water is concerned observed as follows:
“10. Assessment year 2004-05
In course of assessment proceeding it is noticed that the dealer-company has claimed Rs.67,49,490.23 towards sale of tax free water in the brand name of KINLEY and the dealer-company has submitted that the product i.e. KINLEY is nothing but natural water and does not come under the purview of mineral water. But the learned STO did not accept the claim of appellant and treated the same as mineral water and added the amount to the taxable turnover.
***
27. Coming to the dispute relating to disallowance of the sale of packaged drinking water in the brand name of KINLEY from the exempted turnover and taxing the same @12%. In the present case the appellant during the assessment years 2001-2002, 2002-2003, 2003-2004 and 2004-2005 inadvertently paid tax on the sale of KINLEY water under a bona fide mistake of law. But the moment come to the knowledge of the appellant that Entry No.39 is there, in the rate chart under Orissa Sales Tax Laws, he filed revised return adhering to the provisions available under the Orissa Sales Tax Act. There is catena of decisions where delayed filing of revised returns have been accepted. Hence, this cannot be ground raised by the revenue for disallowance essential on our part to appreciate the details under the Entry No.39 of List-A and Entry No.4 of List ‘C’ of the rate chart under Orissa Sales Tax Laws:
Entry SI.No.39 of List-A:
‘Water but not aerated or mineral water sold in bottle or sealed containers’.
This entry clearly speaks that it includes water sold in bottles or sealed containers but not aerated or mineral water. That means it is say that the drinking water which is not aerated or mineralised with specific minerals as the specific gases used for aerating water, WATER under this Entry which is tax-free.
28. Entry in Sl.No.4 of List ‘C’
‘Aerated or mineral water sold in bottles or in sealed containers’.
It speaks that only the specially treated water either by addition of a specific gas or a specific mineral when sold in bottles or sealed containers comes under this entry and taxable @12% under the Orissa Sales Tax Act. It is clear from the contention of the dealer-company is that Para 3.2. of Indian Standard on packaged drinking water (other than Packaged Natural Mineral Water) specification and Para A-32 and A-33 of the prevention of Food Adulteration Rules, can be appreciated with regard to submission of the dealer and it will be suffice to say that on the basis of standard prescribed by the Bureau of Indian Standard and Prevention of Food Adulteration Act and Rules, KINLEY water in the packaged drinking water coming under exempted List under Orissa Sales Tax Act. The learned counsel for the dealer company referred to the decision of Rajasthan High Court in the matter of Assistant Commercial Tax Officer Vrs. Nalavya Agencies. In view of this, KINLEY water is not aerated water because it is neither carbonated adding carbon dioxide nor treated with any aerating gases creating effervesce as normally found in case of soft drinks sold in the market and also it is not mineral water because it is neither added with specific mineral like iron nor with ialium to make it enriched with mineral as normally found in case of common salt enriched with added minerals sold in the market. Moreover, KINLEY water fulfils the criteria of packaged drinking water to be classified under Entry-39 of List-A of Rate Chart under the OST Act as the label itself shows and packaged in the bottling plant to provide hygienic and safe drinking water to the customers. In view of settled law, we do not see any ineligibility in the ground pressed by dealer-company on the score of disallowance of sale of packaged drinking water in the brand name of ‘KINLEY’ from the exempted turnover and taxing the same @12%. Thus, grounds taken by the revenue for 2001-02, 2002-03, 2003-04 and 2004-05 merits no consideration.”
2.6. The State of Odisha-Commissioner of Sales Tax, therefore, preferred revision invoking provision for further proceeding under Section 24 raising question of law on the ground that the learned Odisha Sales Tax Tribunal erroneously decided the issue.
Argument(s) advanced by the learned Counsel for Hindustan Coca-Cola Beverages Pvt. Ltd.:
3. The manufacturing process adopted by the company for preparing “packaged drinking water” potable drinking water is used as base and it is put through the Double Reverse Osmosis process (RO) for treating and purifying water. The double RO process also eliminates pesticides at PPT levels (parts per trillion). During the osmosis process some of the mineral salts present in water also gets removed which impacts the taste profile of water. For improving taste, mineral salts are required to be added back to the filtered and purified water as per standardslaid down by then prevailing Prevention of Food Adulteration Act, 1954 (now, the Food Safety and Standards Act, 2006). The entire process was undertaken as per the standards prescribed by Bureau of Indian Standards during the period in question. The company is required to follow scrupulously the mandatorily prescribed standards as per Bureau of Indian Standards which are issued by the Ministry of Consumer Affairs. The Bureau of Indian Standards governing “packaged drinking water” during the material period is covered under “IS 14543:2004” which prescribed that “water derived from any source of potable water which is subjected to various treatments as decantation, filtration, demineralization, re-mineralisation, reverse osmosis, etc.”.
3.1. In terms of standards prescribed in the Bureau of Indian Standards of 1992 as revised in the year 1998, “packaged natural mineral water” is obtained directly from natural and drilled sources from underground water bearing strata for which all possible precautions is required to be taken within the protected perimeters to avoid any pollution of, or external influence on, the chemical and physical qualities. It is characterized by its content of certain mineral salts and their relative proportions and the presence of trace elements or other constituents. It is sourced from natural sources of water and is characterized by content of certain mineral salts in them. Further, such water is collected under condition which guarantees the original microbiological purity and chemical composition of essential components. It is not subjected to treatment other than those permitted by this standard.
3.2. Stating the process thus, it is argued by Sri Monish Panda, learned counsel for the company that the item sold in the market is “packaged drinking water” and it is required to maintain “the original microbiological purity and chemical composition of essential components” in conformity with mandatory requirement. It is, thus, urged that had the item so marketed is treated as “mineral water” across India rather than “packaged drinking water”, the company would have violated the standards prescribed by the Bureau of Indian Standards and under the Prevention of Food Adulteration Act, which activity visits penal consequences under said statute.
3.3. Analysing further, Sri Panda submitted that three different kinds of water, namely aerated water, mineral water and water are contemplated in Entry 39 of Tax-free List and Entry 4 of Taxable List and the words “in bottles or in sealed containers” used therein obviously means “packaged form”. In absence of definition of the terms, in view of principles laid down in Akbar Badruddin Jiwani Vrs. Commissioner (Customs), 1990 (47) ELT 161 (SC) [paragraphs 53 and 55]; and CCE, Kanpur Vrs. Krishna Carbon Paper Co., 1988 (37) ELT 480 (SC) [paragraph 11], they are to be understood in common sense or commercial parlance; in contrast with scientific or technological meaning attributed to it. Added to such interpretation with regard to classification of commodity, drawing distinction between the prices of “mineral water” and “packaged drinking water”, the learned counsel submitted that the price of former is much higher than the latter one.
3.4. In such view of the matter, Sri Monish Panda submitted that “packaged drinking water” sold by the company under brand name KINLEY WATER does fall within the ambit of Entry 39 of the Tax-free List and not Entry 4 of the Taxable List.
Argument(s) advanced by the Additional Standing Counsel:
4. Sri Susanta Kumar Pradhan, learned Additional Standing Counsel (Commercial Taxes) attempted to justify the stance of the Revenue by referring to the information available on the web-portal of the company which mentions that “every drop of KINLEY goes through a rigorous and intensive 10-step purification process with various stages of filtration, disinfection and mineralization” and demonstrates that “in the nutritional information of KINLEY water the ingredients of the said water are treated water, salt of sodium and magnesium”. Therefore, Sri Pradhan contended that the subject-commodity is nothing but mineral water and would be within the ken of Entry 4 of List of Goods subject to Levy of Sales Tax (in short, “Taxable List”) attracting levy of tax @ 12%.
4.1. Amplifying by way of written note of submission, it is stated by the learned Additional Standing Counsel that though the description of KINLEY WATER in the web-portal informs that “the process involves disinfection, sand filtration, activated carbon filtration, 10-micro polishing filtration, reverse osmosis, 5-micro polishing filtration, mineral dosing and ozone filtration” coupled with removal of “trace compounds like carbonates, bicarbonates, chlorides, sulphates, phosphates, nitrates, calcium, magnesium, sodium, potassium, iron and manganese from the water”, it is evident from nutritional information as already mentioned that KINLEY water is mineral water sold in bottles or sealed containers.
4.2. In the written note the Revenue has clarified as follows:
“In this context, it is pertinent to place before this Hon’ble Court the nutrition the label of KINLEY WATER in the following manner:
Energy : 0k Cal
Carbohydrate : 0g
Sugar : 0g
Protein : 0g
Fat : 0g
Sodium : 0.3.mg
Magnesium : 0.1.mg
The ingredients as shown in the label of KINLEY WATER are treated water, salt of Sodium and Magnesium. The contention of the petitioner (sic. Opposite party-company) taken in this regard is not justified.”
4.3. Referring to CCE Vrs. Krishna Carbon Paper Co., 1988 (37) ELT 480 (SC) and CCE Vrs. Connaught Plaza Restaurant Pvt. Ltd., (2012) 13 SCC 639 it is argued that the process as described by the opposite party-company clearly establishes that KINLEY brand packaged drinking water is understood in common parlance as mineral water which is within the scope of exclusion clause mentioned in Entry 39 of the Tax-free List and, therefore, falls within the sweep of Entry 4 of Taxable List.
Consideration of arguments of respective parties:
5. For better comprehension, the entries as it stood at the relevant point of time are placed hereunder:
TAX–FREE LIST
