Karnataka High Court
Vishista Solvent Oils Pvt. Ltd. vs Deputy Commissioner Of Commercial ... on 2 August, 1999
Equivalent citations: [2001]121STC492(KAR)
ORDER V.K. Singhal, J.
1. Both these writ petitions are disposed of by a common order since the controversy involved is one and the same.
2. Assessment orders have been challenged on the ground that the solvent extracted oil sold to vanaspathi manufacturing units or to refining units has been wrongly treated as non-edible oil. A circular was also issued by the Commissioner, in which, the oil manufactured from oil cake was treated as edible oil (non-refined). It is submitted that, the manufacturer is covered by the Essential Commodities Act, 1955 and the Pulses, Edible Oil Seeds and Edible Oils (Storage Control) Order, 1977, as amended from time to time governs the storage of solvent extracted oil. "Edible oils" is defined under Clause 2(g) in which, it is stated that, any oil used directly or after processing for human consumption and includes hydrogenated vegetable oil, is an edible oil. Under the Prevention of Food Adulteration Rules, 1955, the edible oil will include the non-refined sunflower oil extracted from oil cake. Non-refined edible oil has been used only to make a distinction that it could be consumed after refining. The opinion of the Director, Oil Technological Research Institute, Anantapur, has also been produced in the petition, which is to the following effect :
"(1) In India, the groundnut oil cake is solvent extracted to recover all the available oil present in the oil cake. Groundnut (seeds) are not subjected to solvent extraction directly, though, it is technically feasible. In advanced countries like U.K., U.S.A., and West Germany and Canada, high oil content seeds like groundnut, sunflower, soyabean, rapeseed, and mustard, cotton seed, etc., are directly solvent extracted from recovery of oils.
To make matters clear, I would like to state that the groundnut oil cake is nothing but cooked, crushed and partially de-oiled groundnut seed. Therefore, the oil obtained either from the groundnut seed or groundnut oil cake remains nothing but groundnut oil and both are very much groundnut oils.
Basically, the chemical and physical characteristics of both the oils are one and the same, except, they may vary in the contents of soluble impurities, colour and flavour.
(2) The unrefined solvent extracted groundnut oil cannot be termed as 'non-edible' as pointed out in your letter. On the other hand, it is perfectly edible oil, only after refining, and therefore, it should be known as potential edible oil."
3. On behalf of the respondents, it is stated that the edible oil which is produced by the petitioner is from oil cake from the process of solvent extraction, and is vegetable non-edible oil, and is not fit for human consumption. From April 1, 1993, there is a separate entry enumerated in Part E of the Second Schedule as edible oils other than the edible oils falling under serial No. 28 of the Fifth Schedule which included non-refined and refined oils and hydrogenated oils. The contention of the petitioner that the goods fall under entry 1 of Part E of the Second Schedule as edible oil other than edible oils falling under serial No. 28 of the Fifth Schedule as non-refined oil was not accepted as correct interpretation. Since oil meant for direct human consumption could be considered as edible oil and not the oil which is sold to vanaspathi manufacturing units or to refining units.
4. Reliance is placed on the judgment given in State of Uttar Pradesh v. Korea (India) Ltd. and in Chandausi Oil Mills, Chandausi, Moradabad v. Sales Tax Commissioner, U.P. [1961] 12 STC 310 (All.). The Allahabad High Court occasioned to consider the meaning of edible oil. It was held that solvent extracted oil cannot be considered as edible oil (non-refined under the Second Schedule to the KST Act). Circulars of the Commissioner dated July 20, 1991 and July 31, 1991 was also relied.
In Milkhi Ram Oil & Ball Mills v. State of Punjab [1992] 84 STC 206 (P&H), washed cotton-seed oil, was considered as edible oil. It was found that the cotton seed is to be further processed for refining.
5. I have considered over the matter.
6. Under the Karnataka Sales Tax Act, under entry 1, Part E of the Second Schedule, edible oil has been classified as non-refined, refined and hydrogenated oil and cooking oil. Non-refined and refined oil from April 1, 1995 has been treated at par and earlier for the period from April 1, 1988 to March 31, 1995, they were liable to tax at 4 per cent and with effect from April 1, 1995, they are taxable at 2 per cent. We are not concerned with Sl. No. 28 of the Fifth Schedule in respect of the product of village industry. Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967 regulates production of solvent extracted oil. The solvent extracted oil cannot be sold for the purpose of direct human consumption and could be sold after refining. The refining has to be in accordance with the standard of quality prescribed. The sale or movement of stock of solvent extracted oil, cannot be to any other person and the user has to use the oil for the intended purpose. There is another Vegetable Oil Products (Control) Order, 1947, under which, vegetable oil product has been defined that any vegetable oil subjected to a process of hydrogenation in any form, or an admixture thereof with any other substance for edible purpose. In the Vegetable Oil Products (Standards of Quality) Order, 1975, names of various vegetable oils have been given, from which hydrogenated oils can be produced, which includes solvent extracted oil as well. From the opinion of the Director, Oil Technological Research Institute, Anantapur, it is opined that the solvent extracted oil cannot be treated as non-edible oil, though, it becomes edible, after refining. In Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool , it was observed that ;
"When raw groundnut oil is converted into refined oil, there is no doubt processing, but this consists merely in removing from raw groundnut oil that constituent part of the raw oil which is not really oil. The elements removed in the refining process consist of free fatty acids, phosphotides and unsaponifiable matter. After the removal of this non-oleic matter therefore the oil continues to be groundnut oil and nothing more. The matter removed from the raw groundnut oil not being oil cannot be used, after separation, as oil or for any purpose for which oil could be used. In other words, the processing consists in the non-oily content of the raw oil being separated and removed, rendering the oily content of the oil 100 per cent. For this reason refined oil continues to be groundnut oil within the meaning of Rules 5(1)(k) and 18(2) notwithstanding that such oil does not possess the characteristic, colour, or taste, odour, etc., of the raw groundnut oil.
6.(a). Groundnut, gingelly, coconut and mustard oils are used for human consumption since they are free from phosphates, waxes and other impurities and are used for human consumption and which are known as traditional oils. Sunflower, soyabean, cotton seed, rice bran, palm and safflower oils are not fit for human consumption as they contain impurities and toxic substances like phospholipids, proteinous matters, carbohydrates, resins,, colouring matters, fatty alcohols and high melting waxes and free fatty acids. These impurities are removed by the process of degumming, neutralization, bleaching and deodorization. In degumming oils is heated at a temperature of 60-65°c by the use of high pressure steam. 0.1 per cent of food grade phosphoric acid is mixed to the heated crude oil to precipitate the phosphatides or gums. After precipitation the oil is pumped into the heat exchanger.
In neutralization, the temperature of degummed oil is increased to 70-75°c by the use of high pressure steam and the degummed oil is pumped into the mixer through the oil flow meter. Pre-calculated caustic soda lye is added to the crude oil through the flow meter, oil emulsion and caustic soda are subsequently passed through to the centrifuge which is a highly sophisticated machinery that revolves at 15,000 rpm facilitating the separation of oil and soap slurry by centrifugal force. Free fatty acids are converted into soap stock which is a by-product. Soap stock is separately collected and is sold as raw material in the manufacture of acid oil. Crude oil so converted passed through a series of plate heat exchangers and the temperature is cooled to 20°cand fed to the crystallizer where the temperature is further reduced to 5°c by the technology known as winterization. In the process of reduction in temperature, wax is sliced. Neutral oil is allowed to settle in order to allow the precipitated wax to mature which then forms into mature crystals. Wax which has come out is used as a raw material in cosmetics, pharmaceuticals and polish industries. The temperature of dewaxed oil is then reduced to 80-90°c by using high pressure steam and a proportionate quantity of boiling water is infused into the oil. Oil emulsion and water is passed through water washing centrifuge separators.
In bleaching, neutral oil is increased to 100°c by the use of high pressure steam moisture is eliminated. Activated bleaching earth and activated carbon are added. The product is again churned under vacuum. Neutral oil is bleached by the method of adsorption and absorption. The temperature of oil is reduced to 75°c to avoid oxidation and oil is filtered through pressure leaf filters and filtered oil then collected in storage tanks. Spent earth and carbon are then dried out by steam and discharged.
Bleached oil is then transferred to the deodoriser which is maintained under high vacuum throughout the operation. High vacuum in the deodoriser is produced by ejector booster system. The product is then heated up to 190°c and live steam is sparged through the oil. Volatile matters known as aldehides and ketones which are responsible for odour and residual free fatty acids are vapourised at this temperature and distilled under high vacuum. The distillate is then collected in the fatty matter catch all. The temperature is further reduced to 80°c and the oil is pumped into the vacuum cooler. The oil is now refined. The temperature is further reduced to 40°c and filtered through a polish filter to give a shine to the oil. The oil so refined is fit for human consumption.
6.(b) "Groundnut oil" gets rancid in hot and humid season due to oxidative degradation of unsaturated fat present in it and is normally used for soap making, but the basic character of the oil remain that of groundnut oil.
In State of Maharashtra v. Shiv Datt & Sons immersing the battery in electrolyte and charging with electric current was not considered the process of manufacture.
In State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. mixing of different grades of manganese ore and selling it by giving different name was not considered to be manufacturing process.
In Tata Exports Ltd. v. Union of India (1985) 22 ELT 732 (MP), pigment slurry prepared, by mixing pigment powder with water consisting of chemical wetting agents was held, does not amount to manufacture of a new and different commodity.
In Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons [1968] 21 STC 17 (SC) cleaning and arranging of bristles according to their sizes and colours and tying them in bundles was not considered as process of manufacture.
In Commissioner of Sales Tax, Lucknow v. D.S. Bist tea grown by agriculturist undergoing processes were held continued to be agricultural produce.
In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers , processing of pineapple fruit into pineapple slices for the purpose of being sold in sealed cans, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions from the pineapples slicing and packaging it, was held that it does not become a different commodity.
7. In the case of solvent extracted oil also, impurities are removed, but the basic character of oil remains. Edible oil is a genus which has both the species, viz., refined and non-refined beside the hydrogenated oil. The Legislature has not contemplated any difference while specifying the edible oil in Part E in the Second Schedule between refined and non-refined and same rate of tax continues from April 1, 1988 for both the species. Thus, it can be considered that in popular sense the edible oil would include refined oil as well as non-refined oil. The Control Order 1977 also covers within the sweep of edible oil all those oils which are used directly for human consumption or which could be used after processing. The Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967 has regulated the production and sale of solvent extracted oil and thus, it is only after the process through which, the solvent extracted oil has to go, it could be sold for human consumption, i.e., after refining. It could not have been the intention of the Legislature, that refined edible oil if subjected rate of tax, and the petitioner has to pay higher rate of tax on the non-refined oil and then he is deprived of lesser rate of tax. The Karnataka Sales Tax Act has not defined edible oil and even if the definition, in common parlance, is taken into consideration, then, it is the oil produced from a particular seed which is considered as edible oil. While extracting oil from the oil seed, different process of extractions are employed. There may be even a situation where the oil seed is crushed and no oil is taken at the stage any by a solvent extraction process, the entire oil is extracted. In another process, after crushing, certain oil is obtained and the residue remained in the oil cake is extracted by solvent extraction process. Even different machinery used for expellers may have the potentiality to extract different percentage of oil. The oil extracted from the expeller, though could be used directly for human consumptions, but contains impurities. Similarly, the oil extract from the oil cake also contains impurities, more particularly of hexane which is the solvent and the oil so obtained is known as solvent extracted oil. The Control Order prohibits sale of solvent extracted oil for direct human consumption. Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967 defines the solvent extracted oil as vegetable oil in any form obtained by the use of solvent. In the public interest, the Control Order prohibits the sale of such solvent extracted oil directly for human consumption unless it is refined. Even if the oil which is obtained from crushing of oil-seed, the Legislature may restrict to sell it unless it is refined. Hence some percentage of impurity always remains even in the oil which is obtained by the process other than the solvent extract process. The basic character of the oil which is obtained from crushing/expeller from the seed as well as the oil obtained from the oil cake remains the same, except, to the extent of impurity of hexane. It is for this reason that there is a prohibition for direct sale of such oil. Refining has been considered as not changing the basic character of the oil and as such, the solvent extracted oil cannot be considered as not falling within the proper category of edible oil.
Notification dated March 30, 1992 published on March 31, 1992 reduced the rate of tax on edible oils (non-refined) at 3 per cent. The entry of which is at Sl. No. 1, Part E of the Second Schedule. The word non-refined edible oil applies to all types of non-refined oils and the word edible oil could be considered in respect of those edible oils which becomes edible oil after refining. There may be certain edible oils which are non-refined and still they are edible, that however will not be excluded.
In B.P. Oil Mills Ltd. v. Sales Tax Tribunal definition of "manufacture" in the U.P. Sales Tax Act, 1948 was considered which envisages processing as well. It was observed that :
".......firstly, because it considered the definition of "manufacture" (which, of course, is identical with its definition under the Act) in the context of 'resale' of goods as defined in that Act and secondly, because of the nature and extent of the process which the crude oil undergoes to radically change itself to marketable refined oil."
The crude oil on which the tax was paid was accordingly held liable to pay tax again on sale of oil after refining. Under the Karnataka Sales Tax Act, there is no definition of "manufacture" and therefore the judgment which was given in the case of B.P. Oil Mills Ltd. v. Sales Tax Tribunal based on extended meaning of definition of "manufacture" cannot be made applicable to the provisions of the Karnataka Sales Tax Act.
Writ petitions are allowed. The respondents are directed to pass fresh orders keeping in view the observations made above.