Aluva Sugar Agency v. State of Kerala
Yashbant Das, S. Geetha, R. Satish for the Respondent. F
The Jud~ment of the Court was delivered by
ANIL R. DAVE, J. 1. Leave granted.
2. Being aggrieved by the judgement and order dated G
22nd September, 2006, delivered in ~.T.R. NO. 569 OF 2004
by the High Court of Kerala at Ernakulam, the appellant has
filed this appeal.
3. The short question which arises for consideration in this
210 SUPREME COURT REPORTS [2011) 11 S.C.R.
A 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
8 and animal fat, which is used for making bakery products, and
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
C 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
D 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
E 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 Kerala
Sales Tax Appellate Tribunal. The Tribunal set aside the order·
of the Appellate Assistant Commissioner in so far as it related
F 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 prepareQ
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 tor
butter".
ALUVA SUGAR AGENCY v. STATE OF KERALA 211
[ANIL R. DAVE, J.]
The Tribunal further held that by virtue of Circular No. A
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 8
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 C
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 D
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 17 A of the Second Schedule of the Government
notification S.R.O. No. 1725/93". E
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 F
of tax on BISBRI brand of bakery margarine sold by the
appellant by treating it as an edible oil under Entry17 A 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 G
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
I
vitamin A and vitamin D and also contains permitted
emulsifiers aOO stabilizers. Even though counsel for the
Re$pondent 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 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.
H 8. The learned counsel for the appellant submitted that as
ALUVA SUGAR AGENCY v. STATE OF KERALA 213
[ANIL R. DAVE, J.]
margarine is an edible vegetable oil, it squarely falls in Entry A
17 A 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 B
ofthe 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 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 c
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,
0
· 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 E
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 17 A 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 F
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, G
including refined or hydrogenated oils and margarine. It means
that 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
A 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
B 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
C 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
D 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
·~dible oil' which is essentially a cooking medium in common
parlance.
12. We have heard the learned counsel and also perused
the records.
13. The main issue for adjudication in this appeal is
F whether margarine can be treated as edible oil and thus, fall
under Entry 17 A 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
G 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
H margarine manufactured by the appellant is concerned, it is
ALUVA SUGAR AGENCY v. STATE OF KERALA 215
[ANIL R. DAVE, J.]
made only from vegetable oils as stated by the appellant and A
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 contain&
almost 80% fat and remaining constituents of margarine are
edible things which are added thereto by the manufactures of C
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 can not be disputed that it is an
edible oil. D
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:
SI. No. Description of goods
90. Oils, edible or inedible
including refined or
hydrogerated
Point of lew Rate of tax
· (percentage)
At the point of first 8
sale in the State by
a dealer who is liable
oils and margarine not to tax under Section 5.
elsewhere mentioned in
this Schedule or in
the second schedule.
216 SUPREME COURT REPORTS [2011) 11 S.C.R.
A Second Schedule:
Description of
goods
Edible oil
Existing rate
of tax
(percentage)
8
Reduced rate
of tax
(percentage)
4
17. According to the above Entry 90 in the First Schedule,
oils, whether P.dible or inedible, including refined or
C 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 17 A of the
Second Schedule read with Notification SRO No. 429/95
dated 31.2.1995. Thus, instead of 8%, edible oil is taxed at
D 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
E 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 dated
31.3.1995, the rate of tax edible oil is reduced to
ALUVA SUGAR AGENCY v. STATE OF KERALA 217
[ANIL R. DAVE, J.]
4% with effect from 1.4.1995. A
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 8
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 C
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" ha's been explained by virtue of the
circular dated 19.12.1996. The afore-stated circular makes it D
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 E
o_ils, ·1t means that the definition of the term "edible oil" in the
circular is not exhaustive but is illustrative. This circular does
~of say that only' edible oils referred to in the said circular
would be taxed ~4%.
19. In the afore.stated circumstances, one has to consider F
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 G
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 H
218 SUPREME COURT REPORTS [2011) 11 S.C.R.
A 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
B 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,
C 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 as ground nut oil, gingely oil, refined oil and vanaspathi
oil. The aforestated circular clarified that hydrogenated edible
D 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
E 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.
F The appeal, is allowed accordingly with no order as to costs.
D.G. Appeal allowed.