By TIOL News Service

CHENNAI, JAN 17, 2015: THE issue before the Bench is - Whether reason given in the departmental clarification that "Women's Horlicks" is not made up of "milk" alone but with other ingredients, is a sufficient basis to tax the same under the residuary entry. NO is the answer.

Facts of the case

The assessees have been marketing the product Women's Horlicks by charging 4% tax to the whole sale dealers and these taxes were regularly remitted as per the monthly returns filed under the Act. It was contended that Women's Horlicks was launched by the petitioners during 2007-2008 and Milk was constituted at 58.8% by weight in caramel flavor and 56.4% by weight in chocolate flavour. In terms of value in the finished product, it constitutes 76.11% and 69.8% respectively. The rest were construed with malt and other ingredients. Further the goods were registered as "milk product" as defined under the Milk and Milk Products ' Order 1992 and under Section 2(g) of the Control Order, Milk Product and Women's Horlicks was registered under the clause 5 of the Control Order and Certificate to that effect had been issued by the Government of India vide Certificate dated 13.08.2005. It was further contended by the assessee that the Division Bench of HC held that Horlicks is a milk product in the case of H.M.M. Limited Vs. Deputy Commercial Tax Officer reported in 79 STC 421 (Madras), which judgment was confirmed by SC in SLP Nos.15973-74/91 dated 23.08.1993. The Division Bench in the said decision held that goods to be "milk food" or "milk product" because milk predominated by weight and value. It had also referred to the fact that the goods were all along classified as "milk product" under Serial No.24 of the First schedule Tamilnadu GST Act, 1959 and accordingly the Government had also clarified by a Memorandum No.129579-ST/SPL/62-2 dated 09.02.1962. Though this legal contention had been raised and reliance had been placed on the decision of Division Bench of HC and the same had been confirmed by the SC, the main ground of challenge to the impugned proceedings was on the ground that it was a non-speaking order and it was arbitrary and violative of Article 14 of the Constitution of India. It was submitted that the impugned order communicates only the conclusion and no reason was given or found and it was contrary to the decision of the Division Bench in the case of H.M.M. Limited as stated supra. The 2nd respondent failed to take note of the fact that if milk predominated by weight and value, the goods will remain "milk" or "milk product", the 2nd respondent cannot state that goods were taxable at 12.5% under the residuary entry when there was specific entry which prevails over a residuary entry. It was further submitted that when the goods were prima facie classifiable as "milk product" and "milk food preparation", resort to the residuary entry was ex facie illegal and without jurisdiction. The assessees were compelled to approach HC challenging the clarification, since the clarification having been issued by the Commissioner would bind the AO through out the state and cause irreparable hardship to the petitioners as well as its distributors.

Held that,

++ it is clear that the only reason given in the impugned clarification is that "Women's Horlicks" is not made up of "milk" alone but with other ingredients, therefore, it is taxable under the residuary entry. In the personal hearing, the petitioner has placed for consideration before the authority as regards the constituent of the product. The petitioners' case is that "milk" is constituted at 58.8% by weight in caramel flavour and 56.4% by weight chocolate flavoured "Women's Horlicks" and in terms of the value in the finished product, it constitutes 76.11% and 69.8% respectively. Further the petitioners would state that "Women's Horlicks" is registered under Clause 5 of the Milk and Milk Products' Order, 92 and certificate has been issued by the Government of India dated 13.08.2005 under Section 2(g) of the said Control Order. The Milk product means cream, malai, curd, yogurt, skimmed milk, butter, deshi butter, ghee or butter, oil and includes any other substances containing on a dry weight basis not less than fifty percent of milk solids (excluding added sugar), or any other substance declared by the Central Government notification as a milk product". Therefore, it is their case that "Women's Horlicks" is classifiable as a "milk product". In the petitioner's own case, which was filed by the erst while company, which has now been amalgamated with the present petitioner, the question arose whether "Horlicks" is "milk food" and the Division Bench of this Court in H.M.M. Limited, where it was held that the Revenue has been treating Horlicks all along as a milk food falling under entry 24. Even after Tamilnadu Act 39 of 1983 came into force from 1st July, 1983, Horlicks was being treated as falling under entry 103(viii), which was the replacement of entry 24. it is only when the Notification G.O.P.No.253 dated 17th March, 1986 was promulgated reducing the tax from 10 per cent to 4 percent in respect of milk foods that the department has changed its approach purely with a view to prevent the products like Horlicks from getting the benefit of reduced rate of tax. We may also refer to a series of letters from the side of the Revenue indicating that products like Horlicks are only milk foods;

++ though, the petitioners have placed details before the 2nd respondent, it has without adverting to any of the facts has passed a non-speaking order (clarification) solely on the ground that the product contains other ingredients. The 2nd respondent did not take into consideration the facts placed as the impugned clarification does not speak for itself. The grounds which are to be taken into consideration while classifying a product is by applying the relevant tests which are to be taken note of, which have been laid down in several decisions of the SC and these tests have been categorized as "essential tests" and it would be worthwhile to refer to the decision in the case of Commissioner of C.Ex., Bhubaneswar-I vs. Champdany Industries Limited 2009-TIOL-104-SC-CX wherein the question arose whether the carpets manufactured by the assessee are classifiable as "Jute products". The SC pointed out that since the goods admittedly classified under Chapter 57 ibid and consisting of more than two or more textile materials and hence, to be classified based on textile material which predominates by weight over other single textile material and jute being predominant by weight in impugned goods and classifiable as jute carpets and nothing else. In the said decision, SC while considering the question as to when the residuary entry could be applied ignoring a specific entry, pointed out that after referring to the decision of M/s Bharat Forge and Press Industries (P) Ltd., vs. Collector of Central Excise, Baroda, Gujarat (1990) 1 SCC 532 that the residuary entry should be applied only when the goods cannot be brought under the various specific entries in the tariff, and the same was followed by the Division Bench of this Court in Canon India Limited Vs. State of Tamilnadu reported in 2013-2014 (19) TNCTJ Page 251, wherein it was held that Department has to establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items then and then only they can resort to a residuary item. That apart the SC in the case of Kemrock Industries & Exports Limited Vs.Commissioner of C.Ex., Vadodara 2007-TIOL-52-SC-CX explained the text of essentiality and pointed out that if the manufactured goods has the essential character, then one has to treat the item in question with regard to such essential character. When the goods is composite in nature, consisting on various mixtures the clarification should be on the basis of material or component which gives to the product their essential character. Though these decisions were rendered under other central laws, could be very well applied to the cases on hand as we are concerned with classification of the product in question. The 2nd respondent has not adverted to any of those issues, nor applied the proper tests, failed to ascertain the essential character of the product and merely stated that some other ingredients is also added, which is not "milk". The decision in the case of H.M.M. Limited, which has been confirmed by the SC has also not been dealt with by the 2nd respondent. Therefore, this Court is convinced that the impugned clarification is devoid of reasons and arbitrary and to be held to be bad in law. Accordingly, issue no.2 is held in favour of the petitioners;

++ it is pointed out by the counsel for the petitioner that with regard to the clarification regarding rate of tax, now the matter is being placed before the Authority called as Authority for Clarification and Advance Ruling constituted u/s 48A of the Tamilnadu Value Added Tax Act, 2006. In the light of the above, the Writ Petitions are allowed and the impugned clarification is quashed and the 2nd respondent is directed to place the matter before the Authority for Clarification and Advance Ruling and the petitioner is directed to file an application before the said Authority requesting for clarification with all supportive records and when such application is filed, the said Authority shall afford opportunity of personal hearing to the petitioner and decide the matter on merits and in accordance with law and pass a reasoned order taking note of the findings and observations in this order. During the pendency of the writ petition, by virtue of the interim order granted by this Court, no recoveries were effected, accordingly till a decision is taken by the Authority for Clarification and Advance Ruling, as directed above no recovery shall be initiated against the petitioners and shall abide by the orders to be passed by the Advance Ruling Authority. Consequently connected miscellaneous petitions are closed. No costs.

(See 2015-TIOL-126-HC-MAD-VAT)