Karnataka High Court
Oil Seeds, Oil Trade And Industry'S ... vs State Of Karnataka And Ors. on 17 March, 1998
Equivalent citations: [1998]111STC234(KAR)
ORDER V.P. Mohan Kumar, J.
1. Common question arises for consideration in all these petitions. The question posed for consideration is whether rice bran and de-oiled rice bran cake are one and the same or different products. As per entry 8(iii) of Part C of the Second Schedule, rice bran is taxed at 2 per cent with effect from April 1, 1997. Part O of Second Schedule, entry 1 deals with oil-cake. Part R of Second Schedule, entry 7 deals with rice bran oil. They are separately taxed. The position was that rice bran, which undergoes the process and from which rice bran oil is extracted, is sold thereafter for manufacture of fodder as de-oiled rice bran cake. The department hitherto was assessing the same as rice bran coming under Part C, entry 8(iii) of Second Schedule. While so, a clarification has been issued by the Commissioner of Commercial Taxes, the 2nd respondent herein, to the effect that it does not come within the classification of rice bran provided in the Schedule to the Karnataka Sales Tax Act, 1957 and as such, it should be taxed under the residuary clause, namely, Section 5(1). This has given rise to the controversy in these proceedings. The petitioners herein challenge the clarification issued by the Commissioner of Commercial Taxes invoking his power under Section 3A of the Karnataka Sales Tax Act.
2. I have heard Mr. Kishore Mallya and Mr. Nazeer, learned counsel for the petitioners, as also Ms. S. Sujatha, learned Government Pleader appearing on behalf of the respondents.
At the outset, we will keep in mind the rule of interpretation to be followed while interpreting fiscal statutes and what has been laid down in this behalf by the Supreme Court in many cases. Following the said construction of interpretation, their Lordships in Sri Lakshmi Coconut Industries v. State of Karnataka , stated as under :
"11. The principles which should be applied in the interpretation of entries in the sales tax laws laid down by the Supreme Court in the various decisions referred to earlier may be summarised as follows :
(1) A sales tax statute, being one levying tax on goods, any particular term used to specify an item of goods on which tax is levied, must, not being a term of science or art, be presumed to have been used in the ordinary sense and, therefore, it should be understood according to the meaning ascribed to it at common parlance. Therefore, while interpreting any item subjected to tax under the sales tax laws, resort should be had to their popular meaning or the meaning attached to them by those dealing in them, i.e., in the commercial sense and not to the scientific or technical meaning of such term.
(2) If the intention of the Legislature was to levy a single point tax on a particular item, an interpretation which would in effect result in the levy of multipoint tax on the same commodity should not be given.
(3) If two interpretations are reasonably possible, the one in favour of the assessee should be accepted.
Therefore, the decision on the crucial question arising for consideration in these cases, viz., as to whether the desiccated coconut has to be considered as coconut and nothing more or it should be treated as a separate commercial commodity and, consequently, liable to tax under the Central Act also, should be arrived at by applying the aforesaid principles."
Therefore, the foremost consideration when interpreting these entries would be to understand the meaning of the expression in the common parlance and if two interpretations are possible to adopt and interpret the same in a manner which, as far as possible, would be beneficial to the assessee.
3. The first question to be considered, therefore, would be to understand as to what is "de-oiled rice bran cake". Mr. Kishore Mallya, learned counsel for the petitioners, placed before me the result of the analysis report made by the Central Poultry Training Institute, Bangalore, with respect to rice bran and de-oiled rice bran. It is seen from the analysis report that rice bran contains a larger extent of crude oil and fat. After the distilling process is completed and oil therein is distilled, what remains is only traces of oil content, whereby it is reduced to a negligible extent. In that process, we notice that protein contents of the rice bran has increased from what it was before distilling of the oil. But one has to notice that all ingredients of rice bran remains the same. It contains moisture, ash, acid insoluble ash, crude fat, crude fibre, crude protein and carbohydrate. There is absolutely no change in these ingredients. The molecular structure of the rice bran cake does not alter. All that what it denotes is that there is a variation in the percentage of oil after the distilling of the oil. There is no transformation of other items. The manufacturing process used in this behalf is only to distill the oil and the rice bran remains the same minus large content of oil. The oil is still traceable in the contents to a negligible extent. There is no release of a new product with different chemical components. As there is no total transformation, it does not cease to possess the character of rice bran even after the distilling is over. Here, it is pertinent to note that it is still possible to restore the character of rice bran provided the de-oiled rice bran is soaked in the rice bran oil. By that, whatever that lost is regained. In the circumstances, it is not easily possible to say that there has been a change of character in the rice bran by virtue of the extraction of oil.
4. The contention of the learned counsel for the petitioners was that rice bran and de-oiled rice bran are practically one and the same and there is no change. According to them, all that is done is that, as far as possible, the oil content is separated. The character of the other ingredients of the rice bran remains the same and has not changed and as such it cannot be said that de-oiled rice bran is a different product from rice bran. It should also be covered by entry 8(iii) made mention of above.
5. On the contrary, the contention of Ms. Sujatha, learned Government Pleader appearing for the respondents, is that there is a total change in the components of the de-oiled rice bran. She submits that the fat contents of the oil in rice bran is lost and is reduced and there is difference in the oil contents. The commodity thus produced after the oil extraction process is different from the rice bran subjected to oil extraction. She further submits that by virtue of the provision in the statute itself, it can be seen that the statute contemplated 3 different entities. In the first place, it taxes rice bran as entry 8(iii). Secondly, it taxes the oil cake. Thirdly it taxes the rice bran oil. It necessarily contemplates a stage between rice bran and rice bran oil. That commodity is what is not covered by the Schedule and, therefore, it is a residuary. It is hence to be taxed as a residuary item under Section 5(1) of the Act. I do not think the contention of the learned Government Pleader can be accepted. The rice bran has certain properties. It is constituted of several ingredients. The ingredients remain the same even after extraction of oil. All that has taken place is that some of the quantum of oil ingredient has decreased whereas other ingredients have not decreased. No new product is brought out by this process. As stated by soaking the rice bran cake in rice bran oil, the oil content can be restored. Hence, there is no change in the commodity. The rice bran, as noticed by this Court, can be used for the same purpose for which the rice bran cake is also utilised, namely, cattle feed (as the primary use of rice bran is for manufacture of cattle and poultry feed). In order to extract oil, it is treated by a process and that whatever remains is still usable as the cattle feed. The oil forms part of rice bran ; it is unnecessary for the cattle feed and hence it is removed. One cannot say that by this removal, the de-oiled rice bran loses the character of rice bran. It is to be remembered that there is no total transformation and production of a different product by virtue of the extraction of oil. The de-oiled rice bran cake does not lose the character of rice bran as noticed from the scientific analysis report and the ingredients that are present in the rice bran are still present in the de-oiled rice bran cake. As such it has to be held that the de-oiled rice bran cake continues to remain the same even after oil is extracted from it. It is to be noted, as submitted by the learned counsel for the petitioner, that the oil which may not be a helpful ingredient for the manufacture of the cattle feed is removed, so as to make a rice bran useful for manufacturing cattle feed. It is certainly not a case of transforming to some other commodity.
6. Several decisions were cited in this behalf by the respondent side. I do not think it is necessary to advert to these decisions. But nevertheless, we may deal with [1974] 33 STC 343 (All.) [Omrao Industrial Corporation (Pvt.) Ltd. v. Sales Tax Officer] and [1975] 35 STC 514 (All.) (Bhagwan Oil and Potato Chips Factory v. State of Uttar Pradesh) which deal with the case which considered the case as to whether oil-cake is a cattle feed. In this behalf in [1974] 33 STC 343 (All.) [Omrao Industrial Corporation (Pvt.) Ltd. v. Sales Tax Officer] their Lordships have considered the question as to what are the characteristics of de-oiled rice bran ; after referring to the Survey of India's Export Potential of Oil-Cakes, Vol. IV, page 1, it was stated as hereunder :
"De-oiled rice bran : Rice bran is a bye-product of rice (paddy) and is the basic raw material for rice bran oil. During the process of rice-milling, the layer round the endosperm is removed together with a portion of the polishing. This separated layer is called 'rice bran'. The quantity of rice bran obtained is variable as it depends upon the degree of polishing. Bran constitutes roughly 6 to 10 per cent of paddy rice. Bran is normally used as cattle feed."
These details furnish the constituents of the rice bran.
Then after de-oiling process, it is noticed as hereunder :
"The de-oiled rice bran is mainly used as an ingredient for mixed feed for poultry and pigs in more advanced countries like the U.K., Japan and the U.S.A. in addition to being used as cattle feed."
This also indicates that the essential use of rice bran is for manufacturing cattle feed.
Therefore, there is no difference between the use of rice bran and de-oiled rice bran and that also indicates as to what is the classification to be adopted. In Bhagwan Oil and Potato Chips Factory v. State of Uttar Pradesh case [1975] 35 STC 514 (All.) referred to above, also proceed on the same line. It also indicates that de-oiled rice bran is not devoid of the character of rice bran after the process of de-oiling.
7. In contrast, the learned Government Pleader cited the decision of the Supreme Court, reported in [1988] 68 STC 324 (Mukesh Kumar Aggarwal & Co. v. State of Madhya Pradesh) to highlight her contention that the meaning of the expressions occurring in fiscal statute in particular, should be understood applying the common parlance theory. In the said case, their Lordships were considering the question as to the difference between the expressions timber and firewood. The relevant entry in the statute reads as follows :
" 32A : Timber
Entry 12 : Firewood and charcoal.
Entry 1 : All other goods not included in Schedule I or any
other part of the Schedule."
8. The question was as to whether eucalyptus firewood and Nilgiri fuelwood, etc., are timber within the meaning of Schedule II. After discussing the various issues, their Lordships took the view that in understanding the meaning of the expression, the description of the articles in common parlance should be applied. As there existed in the statute a specific entry as "timber" and "firewood", the rule of interpretation applied there cannot apply to the question herein. Likewise, the learned Government Pleader cited the decision of the Supreme Court reported in [1981] 48 STC 254 (Annapurna Biscuit Manufacturing Co. v. Commissioner of Sales Tax, U.P.). In particular, she relied on the following passage :
"It is a well-settled rule of construction that the words used in a law imposing a tax should be construed in the same way in which they are understood in ordinary parlance in the area in which the law is in force. If an expression is capable of a wider meaning as well as narrower meaning the question whether the wider or the narrower meaning should be given depends on the context and the background of the case. In Hinde v. Allmond (1918) LJKB 893 the question was whether tea was an 'article of food' within the meaning of an order designed to prohibit the hoarding of food, namely, Food Hoarding Order of 1917. The learned Judges held it was not, even though in some other decisions it had been held to be an 'article of food'. Shearman, J., one of the Judges, said that he rested his judgment on the 'common sense interpretation of the word "food" in the order, apart from its meaning in any other statute'. It is interesting to note that in a case before the Allahabad High Court in Annapurna Biscuit Manufacturing Co. v. State of U.P. [1975] 35 STC 127, the assessee had contended that biscuit was an article of confectionery and that contention was negatived. It is relevant to note, as we have mentioned earlier, that when the Hindi text of the notification was issued contemporaneously with the English version, the words pakaya hua bhojan were used as the equivalent of the words 'cooked food'.
It may be that biscuit is served at tea time and in its wider meaning 'cooked food' may include biscuit. But ordinarily biscuit is not understood as cooked food. If a person goes to a hotel or restaurant and asks for some cooked food of Words in Hindi are not printed here pakaya hua bhojan certainly he will not be served with biscuits in Uttar Pradesh. While it is not necessary to state in the present case as to what all items may be called as cooked food, we can definitely say that in the context and background of the notification biscuit cannot be treated as cooked food."
9. If this rule is applied, according to her, a customer needing rice bran will not be satisfied with de-oiled rice bran. For similar purpose, she relied on the decision of the Madras High Court in Mariamman Industries v. State of Tamil Nadu [1986] 61 STC 358 wherein their Lordships have considered the question in understanding the meaning of the expression on the basis of common parlance theory. One cannot quarrel with this proposition. It is true that the common parlance theory has to be applied in cases where there is difficulty in understanding the expression ; but when it is not so, there is no need to depend on the common parlance theory. We find that here there is absolutely ho difficulty in understanding the meaning of rice bran and de-oiled rice bran which still retains all ingredients of rice bran. It is not a totally different product. When the Schedule to the Karnataka Sales Tax Act has clearly indicated as to what are all the items to be included, it had classified by specific connotation of expression two distinctive commodities, namely, rice bran and rice bran oil. If so, all commodities possessing the characteristics of rice bran are to be classified thereunder. There cannot be a classification of an item, namely, "rice bran with lesser quantity of oil". If there is an intention to tax separately rice bran oil cake, nothing prevented the Legislature from doing so and it is not in the province of the Commissioner of Commercial Taxes to issue a clarification and bring in de-oiled rice bran cake also into the purview of residuary item by declaring the same to be a different and independent commodity. The same is covered by the. Second Schedule, Part C, entry 8(iii) and as such the clarification issued calls for interference.
10. In view of what is stated above, I am of the view that annexure A cannot be sustained. I, therefore, quash the same. I hold that de-oiled rice bran comes within the ambit of the Second Schedule, Part C, item 8(iii) of the Act. The writ petitions are disposed of as above.