Andhra HC (Pre-Telangana)
M/S.Sri Venkata Rama Oil Industries ... vs Commissioner Of Commercial Taxes, ... on 12 March, 2015
Bench: K.C. Bhanu, M. Seetharama M.Seetharama Murti
THE HONBLE SRI JUSTICE K.C. BHANU AND THE HON'BLE SRI JUSTICE M. SEETHARAMA M.SEETHARAMA MURTI
Special Appeal No.1 of 2004
12-03-2015
M/s.Sri Venkata Rama Oil Industries Limited, Hussainpuram, Samalkot, East
Godavari District.. Appellant
Commissioner of Commercial Taxes, Andhra Pradesh, Hyderabad.... Respondent
Counsel for the appellant: Sri S.Krishna Murthy
Counsel for Respondent No.1 : None appeared
Counsel for Respondent No.2 : Special Standing Counsel for
Commercial Taxes
<Gist :
>Head Note:
? Cases referred:
1. 1989(4) E.L.T. 287 (SC)
2. 1960 (Vol.XI) STC page 827
3. 1988 (Vol.7) APSTJ page 4
4. 1994 (Vol.95) STC page 181
THE HONBLE SRI JUSTICE K.C. BHANU
AND
THE HONBLE SRI JUSTICE M.SEETHARAMA MURTI
Spl.A.No.1 of 2004
JUDGMENT:(per Honble Sri Justice M. Seetharama Murti) This special appeal by the appellant/dealer is directed against the orders dated 23.09.2003 of the Commissioner of Commercial Taxes in CCTs.Ref.No.LV(3)/2409/2002-II.
2. We have heard the submissions of the learned counsel for the appellant and the learned Special Standing Counsel for Commercial Taxes. We have perused the material record.
3. The facts, which are necessary for consideration, in brief, are as follows: - The appellant/dealer is an assessee on the rolls of Commercial Tax Officer, Peddapuram (the CTO, for brevity). They were finally assessed for the year 1998-99 under the CST Act by the said assessing authority and their turnovers are as under: Gross turnover:
Rs.17,67,76,050/- ; Exempted Turnover: Rs.13,58,41,010/- and Net Turnover: Rs.4,09,35,040/-. A tax of Rs.2,23,875/- was levied. The Assistant Commissioner (CT) (Intelligence), Kakinada (the AC (CT) for brevity) vide proceedings dated 24.06.1999 in CF.No.75/98-99 had initially assessed the dealers provisionally for the said year under the CST Act and levied tax @ 10% on the sales of rice bran fatty acid and rice bran acid oil (RB fatty acid and RB acid oil for brevity) treating them as general goods falling under the VII schedule of the APGST Act. Aggrieved of the orders of the A C (CT) (Intelligence), the appellant had preferred an appeal before the Appellate Deputy Commissioner (CT) (the ADC (CT) for brevity) in E.94/1999-2000 inter alia contending that the said goods are to be treated as falling under entry 24(c) of the first schedule of the APGST Act but not as general goods and that therefore, tax has to be levied at the rate of 1% as applicable to the goods under the said entry. The ADC (CT) while allowing the said appeal had held that rice bran acid oil and rice bran fatty acid though not specifically mentioned in entry 24(c) of first schedule of the APGST Act are to be held as falling under the said entry 24(c) and are, therefore, liable to tax at 2% under the APGST Act. Having held so, he had directed the assessing authority (CTO) to take up the final assessment of the dealers and pass fresh orders. Pursuant to the said orders of the said ADC, the CTO, Peddapuram had passed final assessment orders through the reference vide GINO.10087/98-99 dated 30.03.2001 levying tax at 1% on the sales of RB fatty acid and RB acid oil. The Commissioner/respondent herein having examined the orders of the ADC (CT), Kakinada had found that the said orders are not correct and are prejudicial to the interests of the revenue of the State and had, therefore, entertained a suo motu revision by exercising the revisional jurisdiction vested in him under Section 9(2) of the CST Act read with Section 20(1) of the APGST Act and had proposed to set aside the orders of the ADC (CT), Kakinada and also the consequential final orders of the CTO, Peddapuram. Accordingly, the Commissioner had issued a show cause notice. Finally, on merits, the Commissioner had held that RB fatty acid and RB Acid oil are different and distinct from rice bran oil/refined oil and had, therefore, set aside the orders of the ADC (CT) and the consequential orders of the CTO to the extent of the relevant disputed turnovers. Thus, the Commissioner by the orders impugned had revised the rate of tax from 1% to 4% on the interstate sales turnovers of the following goods.
Turnover Rate of tax
1.
Sales of R.B.Fatty Acid (covered by C forms) Rs.1,46,47,870/-
4%
2. Sales of R.B. Acid Oil (covered by C Forms) Rs.13,52,720/-
4% Aggrieved of the said orders of the respondent, the dealer had preferred this appeal.
3. (a) The learned counsel for the appellant would contend as follows: - The ADC (CT) had made personal inspection of the business premises of the appellant and had observed the method of production of refined rice bran oil and other intermediary byproducts in the manufacturing unit. In fact, he had observed that there are no separate units to produce different commodities and that rice bran oil was being produced by a continuous process in a single unit. He had also noted that only the raw unrefined rice bran crude oil becomes refined after the process and that the intermediary byproducts are not separately produced by making use of separate manufacturing units and that the unit is manufacturing refined oil as a finished product and in the process of refining, the unit is removing the intermediary products viz., RB fatty acid and RB acid oil as concomitant products. Thus, the ADC had rightly concluded that the said RB acid oil and RB fatty acid continue to be Rice Bran Oil. The ADC, before passing the orders, had bestowed his attention to the process of refining by making a personal inspection and had, in detail, examined the processes involved in obtaining Rice Bran Oil, RB fatty acid and RB acid oil. Hence, the finding of the ADC that RB acid oil and RB fatty acid are intermediate products and are not being separately produced in separate manufacturing units and that they are generated in a single unit in a continuous process of manufacturing and that they cannot be treated as different commodities from Rice Bran Oil is a well considered finding. The Commissioner had found fault with such unassailable finding without properly appreciating the facts and without assigning any valid reasons. The ADC had quoted extensively from the various decisions in support of his findings and, therefore, the findings of the ADC are sustainable and are unassailable both under facts and in law. By Act No.30 of 2001 entry 24-F was inserted with effect from 01.11.2000. The said entry reads as under:
24-F Sledge Oil, Acid Oil & Fatty Acid At the point of first sale in the State 8 paise 01.11.2000 It is, therefore, clear that RB fatty acid and RB acid oil are considered as distinct and different commodities for the purpose of levy and collection of tax under the APGST Act only with effect from 01.11.2000 and not before. The subject assessment year relates to the period prior to the said amendment. The Commissioner, Commercial Taxes in his impugned orders had erroneously relied upon the decisions which are inapplicable to the facts of the case of the appellant.
3. (b) In support of his contentions, the learned counsel for the appellant had placed reliance on the following decisions.
1. Collector of C.Ex v. Jayant Oil Mills Pvt. Ltd.,
2. Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool
3. The State of A.P. v. M/s.Coromandel Agro Products and Oils Ltd.,
4. State of Andhra Pradesh v. Modern Proteins Ltd., (and another appeal)
4. On the other hand, the learned Special Standing Counsel would contend as follows: - Rice Bran Oil is altogether different from RB fatty acid and RB acid oil. They differ not only in character and nature but also in common parlance understanding. They are also different in economical perspective. The relevant entries in the statute need no interpretation and they have to be assigned the plain meaning they convey on a plain reading. All the three commodities are understood as different commodities by the customers and traders. As soon as a separate commercial commodity comes into existence during the process of manufacture by one unit or several units, such commodity, if it is a different commodity, is a taxable entity or commodity for the purpose of sales tax. Even in common commercial parlance, the said three commodities are distinct and different. Admittedly Rice Bran Oil is fit for human consumption whereas RB fatty acid and RB acid oil are not fit for human consumption and they are used in manufacture of soaps and cattle feed. Therefore, the order impugned is sustainable and does not call for any interference. There is no merit in the special appeal.
5. We have given earnest consideration to the facts and the submissions. We have carefully gone through the relevant provisions and the entries in the schedule of the statute.
6. Now the point for determination is:
Whether RB Acid Oil and RB Fatty Acid can be considered as distinct and different from Rice Bran Oil?
7. POINT:
The facts are not in dispute.
7. (a) Since the first contention of the appellant/dealer is based upon the amendment introducing entry 24-F with effect from 01.11.2000 by Act No.30 of 2001, it is necessary to refer to the relevant entries hereunder. Entry 24-A reads as under:
24-A Vegetable Oils, (non-
refined) including groundnut oil, gingelly oil, safflower oil, sunflower oil, soya been oil, mustard oil, kusum oil, tobacco seed oil, castor oil, washed cotton seed oil other than rice bran oil and coconut oil.
At the point of first sale in the State 2 4 16.08.1995 01.01.2000 By Act No.30 of 2001 entry 24-F was inserted with effect from 01.11.2000. The said entry reads as under:
24-F Sledge Oil, Acid Oil & Fatty Acid At the point of first sale in the State 8 paise 01.11.2000 Entry 24-C of Schedule I of APGST Act reads as under:
24-C Rice bran oil (1206) At the point of first sale in the State 2 16.08.1995 24-B reads as under:
24-B Vegetable oil(refined)(1205) At the point of first sale in the State 2 16.08.1995 By Act 19 of 2000 item 24-B was substituted and the words obtained from non refined oil mentioned in 24-A other than rice bran oil were omitted and the rate of tax was increased to 4 paise with effect from 01.01.2000. However, TOT was exempted by G.O.Ms.No.911. Rev. dated 31.12.1999 with effect from 01.01.2000.
Reverting to the facts of the present case, 1998-99 is the year of assessment in the case on hand. There is no entry in the said schedule dealing separately with acid oil and fatty acid by that year. Since entry 24-F was introduced by GOMs.No.751 Rev. dated 23.10.2000 with effect from 01.11.2000 it is contended on behalf of the appellant/dealer that it is clear that RB fatty acid and RB acid oil are considered as distinct and different commodities for the purpose of levy and collection of tax under the APGST Act only with effect from 01.11.2000 and not before and that since the subject assessment year relates to the period prior to the said amendment, the ADCs Order is unassailable. The said contention based on the amendment to the entries of Schedule I cannot be countenanced. Amendment to entries may be made by the legislature in its wisdom for various reasons. An amendment may be made and a commodity like one of the many vegetable oils may be specially brought under a separate entry by such amendment if the legislature intends to subject that commodity to a different rate of tax than the other commodities falling under the same category like vegetable oils. Similarly, an amendment to the schedule may also be brought in to explain the existing position rather than altering the existing position. An amendment may also be made to explain an ambiguity and avoid any confusion. Therefore, the contention of the appellant/dealer that entry 24-F dealing with acid oil and fatty acid was introduced by way of an amendment of schedule I is not going to advance the case of the appellant.
7. (b) The Notification IV issued by the State of A.P. under the CST Act, 1956 and which is relevant reads as follows:
In exercise of the powers conferred by sub-section (5) of Section
8 of the Central Sales Tax Act, 1956 (Act 74 of 1956), the Governor of Andhra Pradesh hereby directs that the tax payable under sub-section (1) of Section 8 of the said Act by a dealer having his place of business in the State of Andhra Pradesh shall in respect of the sales in the course of inter-State trade or commerce, of rice bran oil be at the reduced rate of one paise in the rupee.
This notification shall be deemed to have come into force with effect from 01.04.1997 and shall be in force upto 31st March, 1999 only.
7. (c) It is necessary to now advert to the cited decisions. In the decision in Collector of C. Ex. v. Jayant Oil Mills Pvt. Ltd., (1st cited) the facts are as follows: - The respondent therein manufactured hydrogenated rice bran oil which was sold to industrial consumers. The said hydrogenated rice bran oil is used as raw material in the manufacture of soap. The respondent had classified the same under Tariff Item 12 for approval and claimed exemption under a Notification. However the Assistant Collector, Central Excise held that the hydrogenated rice bran oil was classifiable under Tariff Item 68 of the Central Excise Tariff because hydrogenated rice bran oil is solid at the ordinary temperature and therefore, should be considered as fat and not as oil. When the said order was challenged, the Appellate Collector had taken a view that even after the super hardening or hydrogenation, the vegetable oil did not cease to be oil even when it became solid. However, considering that the order of the Appellate Collector was not proper, legal and correct, the Central Government, Ministry of Finance, Department of Revenue had issued a show cause notice requiring to show as to why the order of the Appellate Collector should not be set aside and that of the Assistant Collector be restored. The matter came up before CEGAT. The CEGAT in its impugned order noted that the appeal was concluded by the judgment of the five member Bench of the Tribunal in the case of M/s.Tata Oil Mills Co. Ltd.,[1986 (24) ELT 290] and held that the order dated 30.11.1981 of the Appellate Collector was correct and dismissed the appeal of the appellant. Therefore, the appellant i.e., the Collector of Central Excise under Section 35L of the Central Excises and Salt Act, 1944 had preferred an appeal from the orders of the Customs, Excise and Gold (Control) Appellate Tribunal. In the above stated factual background, the Supreme Court held as follows:
We are of the opinion that the Tribunal particularly emphasized that the hardened technical oil is the same thing as the oil from which it is made. It is clearly akin to the oil in homologue, a product of scientific modification but unaltered in its essential character. Therefore, in our opinion, the Tribunal was right in the conclusion it arrived at.
The ratio in the decision is to the following effect. Edible rice bran oil falling under Tariff Item 12 CET would even after extra hardening or the process of hydrogenation will not fall under Tariff item 68 but will continue to fall under Item 12 for two reasons firstly the essential properties of the rice bran oil are not changed even after process of hydrogenation/hardening as there is hardly any distinction between vegetable oil in liquid form and hydrogenated oil which is hardened with a melting point higher than 41 degree centigrade, and secondly restore to the residuary entry 68 cannot be made when there is a specific entry in Tariff Item 12 for the goods in question. The subject goods admittedly produced for industrial purposes and not for human consumption. Hence, the ratio in the said decision is not applicable to the facts of the present case.
In Tungabhadra Industries Ltd., (2nd cited) the question was as to whether hydrogenated oil was not groundnut oil. One of the questions also considered was whether if beyond the process of refinement of the oil, the oil is hardened, again by the use of chemical processes it is rendered any the less groundnut oil. The Supreme Court held as follows:
No-doubt several oils are normally viscous fluids, but they do harden and assume semi-solid condition on the lowering of the temperature. Though groundnut oil is, at normal temperature, a viscous liquid, it assumes a semi-solid condition if kept for a long enough time in a refrigerator. It is therefore not correct to say that a liquid state is an essential characteristic of a vegetable oil and that if the oil is not liquid, it ceases to be oil. Mowrah oil and Dhup oil are instances where vegetable oils assume a semi-solid state even at normal temperatures. Neither these, nor coconut oil which hardens naturally on even a slight fall in temperature, could be denied the name of oils because of their not being liquid. Other fats like ghee are instances where the physical state does not determine the identity of the commodity.
Therefore, it is clear from the facts of the reported case that both the commodities namely hydrogenated oil and the groundnut oil serve the same purpose as cooking medium and are having identical food value and therefore, it was held hydrogenated oil still continues to be groundnut oil notwithstanding the processing. Hence, this decision is not helpful to the appellant.
In The State of A.P. v. M/s.Coromandel Agro products and oils Ltd.,( 3 cited) the question that arose for consideration was whether Sledge Oil and Cotton seed acid oil are vegetable oils falling under entry 128 of the First schedule to attract lower rate of tax u/s.8(2-A) of the C.S.T.Act.? The Tribunal held that the said oils are liable to tax under entry 128 at reduced rate. The department contended that such oils are general goods and are liable to tax at higher rates under the CST Act.
This Court while dealing with entry 128 held that the said entry relates to vegetable oils and that the various oils mentioned therein are only illustrative and that the entry specifically says vegetable oils including those mentioned therein and that in the circumstances there is no warrant for placing the construction that the said entry relates only to those vegetable oils which are edible. Further, having regard to the wide language used, it was held that it is not possible to restrict it only to edible vegetable oils. This Court had also noted that groundnut oil which is also edible oil is shown as a separate entry no.24 and therefore, negatived the contention that entry 128 relates to edible oils.
In State of Andhra Pradesh v. Modern Proteins Ltd (4th cited) the question that fell for consideration was whether groundnut protein flour is a deoiled cake within entry 29 of Schedule I of the Act? The Supreme Court considered the facts like process of manufacture and the resultant produce and held as follows:
It is true that the analyst report in this appeal does indicate that both deoiled cake and groundnut protein flour contain common properties but the use and purpose being different and distinct, they cannot be considered to be the same commodity. The groundnut protein flour is an edible protein food for human consumption and is a different commercially marketable entity and thereby is distinct from deoiled cake for animal feed though obtained in the course of same process at different stages. Both emerge into different and distinct commodities commercially known in common parlance for distinct and different use. Thereby groundnut protein flour did not remain part of the genus, i.e., deoiled cake, but became a new and different entity known in the commercial parlance. Accordingly, it is exigible to CST at the relevant time at 4 per cent. The appeals, therefore, are allowed.
In the latest decision in Aluva Sugar Agency v. State of Kerala the short question which arose for consideration was Whether sale of margarine is to be taxed at 8% or 4% under the provisions of Kerala General Sales Tax Act, 1963? Under the said question the main issue that was considered was whether margarine can be treated as edible oil and thus falls under entry 17A of the said Act. The Supreme Court held as follows:
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. 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 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 cannot be disputed that it is an edible oil.
The Supreme Court further held as follows:
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.
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.
7. (d) We have gone through the cited decisions carefully. From a careful reading of the decisions and a conspectus of the legal position, it emerges that the following tests have to be applied in a case of this nature. Firstly, it is to be examined as to whether the commodities RB Fatty Acid and RB Acid Oil which emerged in the unit of the dealer, which is manufacturing Rice Bran Oil, are different commodities and entities known differently in commercial parlance and whether such emerged commodities are distinct from Rice Bran Oil. Secondly, whether such distinct and different commodities are capable of being put to the same use? Thirdly, whether such distinct and different commodities differ not only in character and economic perspective but also in common and commercial parlance understanding? On the application of the tests and on consideration of the facts and circumstances of the case, we are of the considered view that RB Fatty Acid and RB Acid Oil are distinct and different from Rice Bran Oil. Admittedly Rice Bran Oil is an edible oil whereas the other two commodities viz., RB Fatty Acid and RB Acid Oil are useful for manufacturing of soaps and are not edible.
How an article or commodity is understood in the trade i.e., by the dealer or customer is also one of the important considerations. Functional utility and predominant usage have also to be taken into account while determining the class of commodity. The law is well settled that in the law dealing with sales tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, it is necessary to examine whether the goods ceased to be the goods of one taxable description and had become commercially different commodity of different category and description during the course of manufacture. When un-refined raw rice bran oil is subjected to a process of refining, two distinct and different commodities namely RB Fatty Acid and RB Acid Oil had also emerged. Therefore, the manufacturing process had altered the identity of one commercial commodity and new commercial commodities had emerged. The law of sales tax is also concerned with goods of various descriptions. It cannot be disputed that the two commodities namely RB Fatty Acid and RB Acid Oil, which are of commercially different category and description, had emerged during the process of manufacture of Rice Bran Oil. The principle which is fairly well settled is that the words or expressions under the statute must be construed in the sense in which they are understood in the trade, by the dealer and the consumer because it is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the Statute was enacted. Therefore, the test is how the product is identified by the class or section of people dealing with or using the product. That is the test which is attracted whenever the Statute does not contain any definition. It is generally, by its functional character that a product is so identified. Therefore, coming to the commodities in the case on hand, Rice Bran Oil which is fit for human consumption can only be a different and distinct commodity from the other two commodities viz., RB Fatty Acid and RB Acid Oil as the former is fit for human consumption while the latter two commodities are only used in the process of manufacture of soaps/cattle feed. It is pertinent to note that RB fatty acid and RB acid oil and Rice Bran oil are considered as distinct and different commodities for the purpose of levy and collection of excise duty.
7. (e) Therefore, we do not find any merit in the contention of the learned counsel for the appellant/dealer that RB Acid Oil and RB Fatty Acid could not be considered as distinct and different from Rice Bran Oil. As a sequel we find that the order of the respondent, which is impugned, is in accordance with the law and does not brook interference. The point is accordingly answered against the appellant/dealer.
8. In the result, the Special Appeal is dismissed. There shall be no order as to costs.
Miscellaneous petitions pending, if any, in this appeal shall stand closed.
_______________ K.C. BHANU, J ________________________ M. SEETHARAMA MURTI, J 12.03.2015