TREVC/79/2011 of M/s.Rich Graviss Products Pvt. Ltd., Vs The State of Andhra Pradesh on 30 December 2011

* THE HON’BLE SRI JUSTICE V.V.S. RAO

AND

*THE HON’BLE SRI JUSTICEB.N. RAO NALLA

+ TAX REVISION CASE No.79 OF 2011

%Date 30-12-2011B e t w e e n:

M/s. Rich Graviss Products Pvt. Ltd.,7-1-82, Sainagar Colony,Bairamalguda, Beside TVS Motors,L.B.Nagar, Hyderabad-500072.

Petitioner

And

$ The State of Andhra Pradesh,represented by the SR Before STAT,2[nd] Floor, Commercial Taxes Complex,Opp. Chenetha Bhavan, Nampally,Hyderabad-500 001

Respondent

! Counsel for the petitioner : Sri S.R.R. Viswanath ^ Counsel for Respondent : Sri K.V.Krishna Koundinya, Special Counsel for Commercial Taxes < GIST :

> HEAD NOTE :

? Cases referred : ---[1] AIR 1976 SC 8002 AIR 1977 SC 597

3 AIR 1990 SC 616(1)4 1991 (1) SCC 1255 1994 (1) SCC 4136AIR 2003 SC 2448

7 AIR 2006 SC 1561

8 7 APSTJ (1988) 2169 (2007) 6 SCC 365

THE HON’BLE SRI JUSTICE V.V.S. RAO

AND

THE HON’BLE SRI JUSTICE B.N. RAO NALLA

TAX REVISION CASE No.79 OF 2011

ORDER: (PerHon’ble Sri Justice B.N. Rao Nalla)

The Tax Revision Case, under Section 34((1) of the Andhra Pradesh Value Added Tax Act, 2005

(for short ‘the VAT Act’), is filed against the order dated 10-02-2011 in T.A. No.393 of 2010 passed by theSales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad (for short ‘the Tribunal’).

2. The petitioner – M/s. Rich Graviss Products Private Limited, is a registered dealer under theVAT Act. The case of the petitioner is that it is a manufacturer of ‘Rich’s Whip Topping’ (for short ‘theproduct’) from out of edible vegetable oils and fats. It is not a sweet meat. It is an industrial input sold tobakeries and confectionary industry. It cannot be consumed directly by anyone except using the same formanufacture of bakery products and in hotel industry. Therefore, its case is that the product is an industrial input and it falls under Entry 100(4) of Schedule - IV to the VAT Act, but it does not fall under residuary Schedule -V to the VAT Act, as such, it is liable to tax at the rate of 4% only. Accordingly, the petitionersought clarification on the following issue from Authority for Clarification and Advance Ruling (for short‘the Ruling Authority’) under Section 67 of the VAT Act:

Whether the product “Rich’s Whip Topping” is a raw material for bakery and allied industries fallsunder Entry 100 of Schedule IV to the APVAT Act, 2005 or any other entry of Schedule IV?”

3. The Ruling Authority after examining the issue, vide Advance Ruling No.A.R.Com/86/2008

dated 22.5.2009, held that the commodity Rich’s Whip Topping, which is an outcome of the process ofemulsification, pasteurization, homogenization, chilling and ageing of the combination of the solution ofsugar and hydrogenated vegetable oil, is not enumerated either in sub-item of Entry 100 of Schedule - IVor under any other Entry of Schedule - IV to the VAT Act, as such, it is liable to tax at the rate of 12.5%under residuary Entry of Schedule - V to the VAT Act. Aggrieved by the same, the petitioner filed reviewpetition before the Ruling Authority, which by order dated 30.7.2009 upheld its original ruling dated22.5.2009 holding that the product manufactures by the petitioner is entirely different from any of the itemsenumerated under Entry 100 of Schedule - IV to the VAT Act and it falls under the residuary Entry ofSchedule - V to the VAT Act, and as such, it is liable to tax at 12.5%. Assailing the same, the petitionercarried the matter in appeal in T.A. No.393 of 2010 before the Tribunal. By the impugned order, the Tribunal holding that the product in question is a combination of water, edible vegetable fat, sugaremulsifiers, soy protein concentrates, stabilizers, acidity regulators, salt and also natural and artificial flavouring substances and that it is not referred to in any one of the other

sub-clauses of Entry 100 of Schedule – IV to the VAT Act, dismissed the appeal confirming the orderdated 30.07.2009 of the Ruling Authority. Hence this revision by the petitioner.

4. Heard both sides and considered the written submissions filed by the counsel for the petitioner and also perused the material available on record.

5. Counsel for the petitioner would submit that the product (Rich’s Whip Topping) is an industrial input prepared from out of edible vegetable oils and fats and it is nota sweet meat. The counsel would further submit that the product cannot be consumed directly by anyoneexcept using the same for making bakery products and in hotel industry. The counsel would also submitthat the Ruling Authority and the Tribunal are ignorant of the amendment made to Entry 100 of Schedule –

IV to the VAT Act by Act No.28 of 2008 with effect from 01.7.2008, which says that the goods sold asindustrial inputs would fall under Entry 100 of Schedule - IV to the VAT Act, and erroneously classified the product in question that it falls under theresiduary Schedule - V to the VAT Act.

In support of his contentions, the counsel relied on the decisions of the Apex Court in State of Tamil Nadu

v. M/s. Pyare Lal Malhotra[[1]], Dunlop India Ltd. & another v. Union of India and others[[2]], M/s. Bharath Forge and Press Industries (P) Ltd. v. Collector of Central Excise, Baroda, Gujarat[[3]],Indian Metals and Ferro Alloys v. CCE[[4]], Rajasthan Roller Flour Mills Association and another v.State of Rajasthan and others[[5]], Commissioner of Central Excise, Calcutta v. M/s. SharmaChemical Works[[6]], M/s. Puma Ayurvedic Herbal (P) Ltd. v. Commissioner, Central Excise,Nagpur[[7]], and also a decision of this Court in M/s. Ravi Agencies v. The State of A.P.[[8]]

6. The counsel for the respondent – State would submit that the Ruling Authority as well as theTribunal rightly held that the product in question does not fall under Entry 100 of Schedule - IV and fallsunder residuary Schedule V to the VAT Act, and therefore, it is liable to tax at 12.5% and the same doesnot warrant interference of this Court in any manner.

7. Now, the points that arise for consideration are ‘whether the product “Rich’s Whip Topping” is araw material and/or an industrial input and whether it falls under Entry 100 of Schedule - IV or ResiduaryEntry of Schedule - V to the VAT Act? ’

8. For better reappraisal of the case, it is expedient to extract Entry 100 (4) of Schedule – IV andSchedule - V to the VAT Act which reads as under:

SCHEDULE – IV

100. [the following goods, when sold as industrial inputs]

___________________________________________________________

Sl.No. Heading Sub-heading Description of goods No. No.

------------------------------------------------------------------------------------------ (1) (2) (3) (4)------------------------------------------------------------------------------------------ 4. 1518 Animal or vegetable fats boiled, oxidized, dehydrated, sulphurized, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically odified; inedible mixtures or preparations of fats and oils of this chapter.

____________________________________________________________

____________________________________________________________

SCHEDULE – V

(See sub-section (3) of Section 4)

Goods Taxable at Standard Rate (RNR) of 12.5%

____________________________________________________________

9. Even according to the petitioner, it manufactures the product in question from out of vegetableoils and fats and the ingredients of it are water, edible hydrogenated oils, sugar, emulsifiers, soy proteinconcentrates, stabilizers, buffering agents and salt. The product is outcome of the process of emulsification, pasteurization, homogenization, chilling and ageing of thecombination of solution of sugar and hydrogenated vegetable oils. Further, the case of the petitioner isthat the product in question cannot be consumed directly by anyone and it can be used only in makingbakery products and in hotel industry, as such, it is an industrial input and/or raw material and falls underEntry 100(4) of Schedule - IV to the VAT Act.

10. The petitioner placed a document (chart) showing the process of making the product. The saidprocess shows that there are more than a dozen stages in making the product. However, the raw materialmeans “any substance, in its natural unprocessed state that serves as the starting point for a production ormanufacturing process”. But, the product in question is a combination of different ingredients viz., water,edible vegetable fat, sugar emulsifiers, and soy-protein concentrates, stabilizers, acidity regulators, saltand also contains natural and artificial flavour substances. In view of the same, it cannot be said that theproduct is a raw material and/or industrial input.

11. The Apex Court while dealing with a similarly placed matter in A.P. Products v. State of A.P.[[9]]

at paragraph 26 held as under.

We have heard the learned counsel for the parties at length and carefully examined variousjudgments cited by the appellant and the respondents. It is an admitted position that the ingredientswhich are used in preparation of masala after grinding and mixing lose their own identify andcharacter and a new product separately known to the commercial world comes into existence. According to the ratio in Pyare Lal Malhotra case the sales tax is intended to tax sales of differentcommercial commodities and not to tax the production or manufacture of particular substance out ofwhich these commodities may have been made. Since separate commercial commodities emergeinto existence, they become separately taxable goods or entities for the purpose of sales tax.judgments cited by the appellant and the respondents. It is an admitted position that the ingredientswhich are used in preparation of masala after grinding and mixing lose their own identify andcharacter and a new product separately known to the commercial world comes into existence. According to the ratio in Pyare Lal Malhotra case the sales tax is intended to tax sales of differentcommercial commodities and not to tax the production or manufacture of particular substance out ofwhich these commodities may have been made. Since separate commercial commodities emergeinto existence, they become separately taxable goods or entities for the purpose of sales tax.

12. Further, as rightly held by the Tribunal, individually the ingredients of the product in questionmay fall under Entry 100 of Schedule - IV to the VAT Act and may be exigible to be taxed at 4%, but whenonce all the ingredients are mixed together, the product in question emerges, and therefore, the product,which is a combination of the above ingredients cannot be said that it falls under Entry 100 of Schedule-IVto the VAT Act and liable to be taxed at 4% only, as such, the same renders the contention raised onbehalf of the petitioner as misconceived. Apart from that, admittedly the petitioner uses hydrogenated oilalso in the making of the product in question, which does not find place in Entry 100 (4) of Schedule - IV tothe VAT Act. On the other hand, Schedule - V to the VAT Act reveals that all the goods other than thosespecified in Schedules – I, III, IV and VI are taxable at 12.5%. Thus, the petitioner failed to establish thatthe product in question falls under Entry 100(4) of Schedule - IV to the VAT Act. On the other hand, asrightly pointed out by the respondent-State, the product in question does not fall in any of the Schedules I,III, IV and VI, and therefore, it falls under residuary Schedule – V to the VAT Act. In that view of the matter,the decisions relied on by the counsel for the petitioner which are mostly to the effect that the onus of proving the classification of goods lies on the revenue, are not helpful to the petitioner and that theremaining decisions are not relevant to the point involved in this case.

13. In the circumstances, we are of the considered opinion that the Tribunal as well as the RulingAuthority rightly found that the product in question falls under residuary Schedule - V and not under Entry 100(4) of Schedule – IV to the VAT Act, and therefore, it is taxable at 12.5%. Hence, there are nogrounds to interfere with the order impugned.

14. The Tax Revision Case, is accordingly, dismissed.

______________

V.V.S.RAO, J

Date: 30-12-2011

Note:L.R.Copy to be marked. B/o.STP/PV

_____________

B.N. RAO NALLA, J

[1]AIR 1976 SC 800[2]AIR 1977 SC 597[3]AIR 1990 SC 616(1)[4]1991 (1) SCC 125[5]1994 (1) SCC 413[6]AIR 2003 SC 2448[7]AIR 2006 SC 1561[8]7 APSTJ (1988) 216[9](2007) 6 SCC 365