State Taxation Tribunal - Tamil Nadu
Nalvar Provision Stores vs State Of Tamil Nadu on 22 December, 1999
Equivalent citations: [2001]123STC25(TRIBUNAL)
JUDGMENT
L. Palamalai, Administrative Member.
1. While the tax revision case in T.C. (R) No. 167 of 1999 is against the order of the Sales Tax Appellate Tribunal (Main Bench), Madras dated July 9, 1991 in upholding the levy of 10 per cent tax on the first sale of milk powder, the revision in T.C. (R). No. 2767 of 1997 filed by the Revenue is against the deletion of penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called "the Act") in the abovesaid order of the Tribunal.
2. The facts leading to the present revision cases are as follows :
The assessing authority found that apart from misclassification of multi-point goods as exempted goods, the assessee also claimed exemption on the turnover of milk powder purchased from Bangalore (Nandhi brand and Indana Brand). Hence, adopting the book figures, the assessing authority brought to assessment the following mis-classified turnovers :
(a) Milk powder falling under Rs. 33,695 taxable at 10 per cent.
item 103(viii) of the First
Schedule to the Act.
(b) Mis-classified multi-point Rs. 2,796 taxable at 5 per cent
goods
Further, by a separate order, a penalty of Rs. 5,790 was levied under Section 12(5)(iii) of the Act for not reporting the correct taxable turnover and paying tax thereon.
3. The petitioner preferred appeals against the orders levying tax and penalty and the first appellate authority by a common order, held that the decisions in State of Tamil Nadu v. Indodan Milk Products [1980] 45 STC 498 (Mad.) and Indodan Milk Products Ltd. v. Commissioner of Sales Tax, U.P [1974] 33 STC 381 (A11.)[FB] relied on related to condensed milk and that according to the substituted entry by Act 39 of 1983 from July 1, 1983, milk food including milk powder is taxable as per entry 103 of the First Schedule and therefore, levy of tax at 10 per cent is in order. As regards Section 12(5)(iii) penalty, the quantum was reduced to Rs. 1,930 being 50 per cent of tax due.
4. In the second appeal, the Appellate Tribunal also upheld the levy of tax by following the ratio of the decision in Milk Food Limited v. Commercial Tax Officer, Bhowanipur Charge [1991] 81 STC 67 (WBTT) wherein it was held that "milk" and "milk powder" are not synonymous and hence, milk powder is not an item exempted from tax. As regards penalty, the Appellate Tribunal observed that the turnover of milk powder is included in accounts and there was no mala fide intention in not disclosing the same as taxable turnover and therefore, no penalty is warranted. Accordingly, the penalty sustained by the Appellate Tribunal was deleted.
5. Mr. V. Srikanth, the learned counsel for the assessee, contended that according to Notification No. II(1)/CTRE/69/81 dated January 3, 1981, fresh milk and recombined milk are exempt from tax. As held in State of Tamil Nadu v. Indodan Milk Products [1980] 45 STC 498 (Mad.), condensed milk is also milk. As milk powder is nothing but condensed milk or dehydrated milk in powder form, the exemption notification will cover milk powder also. In Commissioner of Sales Tax v. Agarwal & Co. [1983] 52 STC 117, the Bombay High Court held that "milk would ordinarily include milk in all its forms including evaporated or dehydrated milk or milk powder". Further Government in Notification No. II(1)/CTRE/47(c)/86 dated March 17, 1986 reduced the rate of tax from 10 per cent to 4 per cent "on the sale of milk food including baby milk food". As milk powder is included under entry 103 of the First Schedule under the heading "Milk food", in any event, the turnover is liable to tax at 4 per cent only, as the assessment relates to the year 1987-88. For the reasons stated by the Appellate Tribunal, the deletion of penalty for bona fide reason is in order. Further, the penalty order is dated December 2, 1988 whereas the assessment order is dated December 29, 1998. Thus, levy of penalty earlier to assessment is not in order.
6. Mr. R. Mahadevan, the learned Government Advocate, contended that levy of tax at 10 per cent on first sale of milk powder under entry 103 of the First Schedule, upheld by the Appellate Tribunal by relying on the decision reported in Milk Food Limited v. Commercial Tax Officer, Bhowanipur Charge [1991] 81 STC 67 (WBTT) is in order. When book turnover is the basis of levy of penalty, the deletion of 50 per cent of tax due sustained by the Appellate Assistant Commissioner is not in order.
7. We have considered the contentions carefully and perused the records. Entry 103 of the First Schedule to the Act with effect from July 1, 1983 reads as follows :
"S. No. Description of the goods Point of levy Rate of tax (per cent) 103
(i) Biscuits ;
At the point of first sale in the State
(ii) Toffees ; (iii) Chocolates ;
(iv) Confectionery ;
(v) Butter ;
(vi) Ghee ;
(vii) Cheese ;
(viii) Milk foods including milk powder ;
(ix) Condensed milk ; and
(x) Foods including preparations of vegetables, fruits, milk, cereals, flour, starch, birds eggs, meat and meat offals, animal blood, fish, crustaceans and raolluses, which are sold under any brand name registered under the Trade and Merchandise Marks Act, 1958 (Central Act 43 of 1958).
10"
The exemption notification in No. II(1)/CTRE/69/81 dated January 3, 1981 reads as follows :
"In exercise of the powers conferred by Sub-section (1) of Section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu hereby exempts all sales of paddy (rice in husk), rice (husked paddy), cholam, cumbu, ragi, thinai, varagu, samai and kudiraivali, rice products (for example rice flour and rice bran), wheat, fresh milk, recombined milk and milk drink with or without any addition thereto for being sold as a beverage from the tax payable under the said Act :
Provided that this exemption shall not apply to the sales of rice products which are not fit for human or animal consumption.
2. The exemption hereby granted shall be deemed to have come into force on the 7th September, 1976."
8. The reduction in rate of tax in notification in No. II(1)CTRE/ 47(c)/86 dated March 17, 1986 reads as follows :
"In exercise of the powers conferred by Sub-section (1) of Section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu hereby makes a reduction in the rate of tax from ten per cent to four per cent in respect of the tax payable by any dealer under the said Act, on the sale of milk food including baby milk foods."
9. Apparently from July 1, 1983, milk foods including milk powder and condensed milk have been specifically brought to levy of single point tax vide entry 103(viii) and 103(ix) of the First Schedule to the Act respectively. As rightly pointed out by the Appellate Assistant Commissioner, in State of Tamil Nadu v. Indodan Milk Products reported in [1980] 45 STC 498 (Mad.), condensed milk was held to be not different from milk while considering the relevant exemption notification which reads as follows :
"In exercise of the powers conferred by Section 17 of the Madras General Sales Tax Act, 1959 (Madras Act 1 of 1959), the Governor of Madras hereby exempts, with effect on and from the 1st April, 1966, all sales of paddy (rice in husk), rice (husked paddy), cholam, cumbu, ragi, thinai, varagu, samai and kudiraivali, rice products (for example rice flour and rice bran) and milk, from the tax payable under the said Act."
10. Similarly, in Commissioner of Sales Tax v. Agarwal & Co, reported in [1983] 52 STC 117, the Bombay High Court considered entry 36 of Schedule A to the Bombay Sales Tax Act, 1959 at the relevant time, which was as follows :
"Milk, whole or separated or reconstituted."
11. Only in that context, it was held that "skimmed milk powder" would be covered by the relevant entry. However, in the present case before us, the State Legislature has clearly indicated that milk powder and condensed milk are taxable at single point under entry 103 of the First Schedule to the Act at 10 per cent with effect from July 1, 1983. Therefore, the decisions relied on by the learned counsel for the assessee, are not relevant in the context of specific entry 103 of the First Schedule to the Act. As regards exemption, it is seen that only' "fresh milk, recombined milk and milk drink with or without any addition thereto for being sold as a beverage" is exempt from tax. Having regard to the expression of "milk" used as a beverage in the notification in the context of immediately preceding items, namely, cereals such as paddy, rice, wheat, it is clear that what was meant or intended was fresh milk or recombined milk either with or without the addition of flavour or sugar but used as a beverage only. Thus, milk powder is clearly excluded from the Notification No. II(1)/CTRE/69/81 dated January 3, 1981.)
12. Similarly, the reduction in rate of tax in Notification No. II(1)/CTRE/47(c)/86 dated March 17, 1986 from 10 per cent to 4 per cent is "on the sale of milk food including baby milk foods only". While entry 103(viii) of the First Schedule to the Act specifies the goods as "milk foods including milk powder", the reduction in tax notification does not specify "milk powder", but confines to "milk food including baby milk foods", only. In common parlance, milk powder and baby milk foods are commercially different products. Hence, obviously even rate reduction/exemption cannot be applied to "milk powder" sales.
13. In this connection, it is relevant to refer to the following observations of the West Bengal Taxation Tribunal in Milk Food Limited v. Commercial Tax Officer, Bhowanipur Charge reported in [1991] 81 STC 67 at pages 77-78 :
"We have noted already what are the basic constituents of milk. To repeat, they are water, fat and non-fatty solids, which consists mainly of proteins casein, albumin and globulin, lactose and lactic and citric acids. In the chapter relating to Digestion in Encyclopaedia Britannica, it is observed that protein digestion begins in the stomach where food encounters pepsin and hydrochloric acid. Pepsin has a unique capacity to digest native protein, that is, protein that has not been altered by the action of other reagents or by heat. Dehydration of the watery content of milk is obviously done by means of heating whether by spraying or rolling methods. Therefore, the nature of protein as obtained in powdered milk is different and deficient from the native protein found in natural milk. The nutritional value is thereby partly affected. Similarly, albumin in milk is denaturised by the drying process employed to transform it into powder form. In such a situation, it is difficult to accept the contention that simply by adding water to powdered milk one gets milk with all its essential qualities and constituents intact. They are undoubtedly transformed and that is why it is treated as a milk product and not as milk simpliciter.
In fine, therefore, milk powder is a milk product. Some of the essential characteristics of milk and its constituents are, if not lost, at least diminished considerably. They are also different in appearance. In common parlance, one does not take milk and milk powder as synonymous. One does not go to a stationery shop to buy a litre of milk. Similarly, one does not go to the milkman for buying a packet of powdered milk. It is common knowledge that in market places in rural areas milk in its natural form is even now available."
14. It is also relevant to refer to interpretation of exemption notification as considered by the Supreme Court in the case of Healthways Dairy Products Co. v. Union of India reported in AIR 1976 SC 2221 and referred to in Commissioner of Sales Tax v. Agarwal & Co. [1983] 52 STC 117 (Bom) at page 119, which reads as follows :
"The Supreme Court in that case was concerned with the interpretation of various entries in the Central Excises and Salt Act, 1944, and a notification issued thereunder, which entries are very different from the present entry in the Bombay Sales Tax Act, 1959. In view of the specific entries in that Act and the notification, the Supreme Court held that the entry relating to condensed milk did not cover condensed skimmed milk. In Healthways Dairy Products Co.'s case AIR 1976 SC 2221, the Supreme Court was considering item 1B of the First Schedule to the Central Excises and Salt Act, 1944, whereunder 10 per cent ad valorem duty was levied on 'prepared or preserved foods put up in unit containers and ordinarily intended for sale including preparations of,.........milk.................'. By an exemption notification, certain items were exempted from this levy. From this exemption, however, certain specified items were excluded. Among these items so excluded, the relevant items which the Supreme Court considered were items 12 and 13. Item 12 was as follows :
'12. Milk powder but excluding such powder specially prepared for feeding of infants.' Item 13 was as follows :
'13. Condensed milk, whether sweetened or not.' Thus, under the exemption notification preparations of milk leviable to excise duty became exempt from the levy of duty. But, from that exemption, certain milk preparations such as those mentioned in items 12 and 13 were excluded. On the basis of these exclusions, the excise authority levied excise duty on condensed skimmed milk. The Supreme Court was required to consider whether condensed skimmed milk was excluded from exemption by virtue of entry 13. In view of the provisions of the Central Excise Rules and the Hand Book on Self Removal Procedure under the Central Excise Rules and certain instructions in the Hand Book on Self Removal Procedure, which were considered in detail by the Supreme Court in its judgment, the Supreme Court came to the conclusion that in view of the clear differentiation made between whole milk and skimmed milk in various annexures referred to therein, a distinction should be made between condensed milk and skimmed condensed milk. It held that skimmed condensed milk was not covered by item 13 'condensed milk, whether sweetened or not' and hence was not excluded from exemption. In the course of its judgment, the Supreme Court observed that in common parlance, milk means full cream milk as milched from cattle."
15. Regarding exemption notification, it is relevant to refer to the following observations of the Supreme Court in Grasim Industries Ltd. v. State of Madhya Pradesh reported in JT 1999 (9) SC 118 :
"It is settled position of law that exemption notification, particularly in a fiscal matters has to be strictly construed and the person claiming its benefit is obliged to satisfy the court that his claim was covered by the exemption notification. The notification has to be read in its entirety and not in parts. This Court in Union of India v. Wood Papers Ltd. (1990) 4 SCC 256 ; JT 1991 (1) SC 151 held :
"Entitlement of exemption depends on construction of the expression 'any factory commencing production' used in the table extracted above. Literally, exemption is freedom from liability, tax or duty. Fiscally, it may assume varying shapes, specially, in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective, etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification or inequitable burden or progressive approach of fiscal provisions intended to augment State revenue."
16. Thus, following the ratio of the decision of the Supreme Court cited above and for the reasons explained already, we hold that levy of tax on first sale of milk powder under entry 103(viii) of the First Schedule to the Act at 10 per cent is quite in order.
17. As regards penalty under Section 12(5)(iii) of the Act, as rightly held by the Appellate Tribunal, book turnover is the basis of assessment. As the book turnover was not disclosed as taxable turnover even after being pointed out in the pre-assessment notice, and no revised return was filed and tax paid before final assessment so as to escape from penalty, as contemplated in the decision of the Madras High Court reported in State of Tamil Nadu v. Mahalakshmi Textile Mills Ltd. [1996] 100 STC 269, we find that the deletion of penalty by the Appellate Tribunal is not in order.
18. It is argued that the penalty order is dated December 2, 1988, whereas the assessment order is dated December 29, 1998 and therefore, levying penalty before imposing tax is not in order. It is seen that in pursuance of objection received on November 16, 1988 for the pre-assessment notice, the assessment order levying tax was issued on December 29, 1988. Similarly, separate proceedings was taken for levy of penalty under Section 12(5)(iii) of the Act, by issuing a notice on November 25, 1988. Though the objection letter received on December 3, 1988 was discussed in this order, the order is dated December 2, 1988. Considering the issue of separate notice and order, as contemplated in Section 12(5) of the Act, we find that the incorrect mention of date of order will not vitiate the proceedings.
19. In such circumstances, we set aside the order of the Appellate Tribunal in regard to deletion of penalty and restore the order of the Appellate Assistant Commissioner wherein the quantum of penalty was fixed as Rs. 1,930.
20. In fine, the tax revision case filed by the assessee in T.C. (R) No. 167 of 1999 is dismissed and the tax revision case filed by the Revenue in T.C.(R) No. 2767 of 1997 is allowed as indicated supra.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 22nd day of December, 1999.