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
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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.
