Hindustan Coca Cola Beverages Pvt. Ltd. v. State of Kerala

**CR** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 24TH DAY OF NOVEMBER 2020 / 3RD AGRAHAYANA, 1942** **ST.Rev..No.46 OF 2015** **AGAINST THE ORDER/JUDGMENT IN TA 173/2009 DATED 23-12-2014 OF S.T.A.T.ADDITIONAL BENCH,TVM.** ## **PETITIONER:** **M/S.HINDUSTAN COCA - COLA BEVERAGES PVT.LTD. KANNIMARI P.O., CHITTUR TALUK, PALAKKAD, REPRESENTED BY ITS AUTHORISED SIGNATOR SRI.J.V.R. JOGA RAO.** **BY ADVS. SRI.A.KUMAR SRI.P.J.ANILKUMAR SMTG.MINI(1748) SRI.P.S.SREE PRASAD** ## **RESPONDENT:** **STATE OF KERALA REPRESENTED BY SECRETARY, DEPARTMENT OF FINANCE, THIRUVANANTHAPURAM - 695 001.** ## **OTHER PRESENT:** ## **SENIOR GOVT.PLEADER SRI.V.K.SHAMSUDHEEN** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 24.11.2020, ALONG WITH ST.Rev..11/2016, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **St.Rev. Nos.46/2015 & 11/2016** ## **- 2 -** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** ## **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **TUESDAY, THE 24TH DAY OF NOVEMBER 2020 / 3RD AGRAHAYANA, 1942** **ST.Rev..No.11 OF 2016** **AGAINST THE ORDER/JUDGMENT IN TA 174/2009 DATED 23-12-2014 OF S.T.A.T.ADDITIONAL BENCH,TVM.** ## **PETITIONER:** **M/S.HINDUSTAN COCA COLA BEVERAGES PVT. LTD KANNIMARI P.O., CHITTUR TALUK, PALAKKAD DISTRICT, REPRESENTED BY ITS AUTHORISED SIGNATOR J.V.R. JOGA RAO.** **BY ADVS. SRI.A.KUMAR SRI.P.J.ANILKUMAR SMTG.MINI(1748) SRI.P.S.SREE PRASAD** ## **RESPONDENT:** **STATE OF KERALA REPRESENTED BY THE SECRETARY, DEPARTMENT OF FINANCE, THIRUVANANTHAPURAM, PIN-695 001.** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 24.11.2020, ALONG WITH ST.Rev..46/2015, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **St.Rev. Nos.46/2015 & 11/2016** **- 3 -** CR **K. Vinod Chandran & T.R.Ravi, JJ. ------------------------------------S.T.Rev.Nos.46 of 2015 & 11 of 2016 -----------------------------------Dated, this the 24[th] day of November, 2020** ## **ORDER** ## **Vinod Chandran, J.** **The revisions by the assessee arise from penalty proceedings; which found the assessee having declared and paid the tax on the bottled drinking water sold by the assessee at a lower rate than that prescribed under the First Schedule of the Kerala General Sales Tax Act, 1963 (for brevity 'the KGST Act'). The Department was of the view that the bottled drinking water sold by the assessee comes within the definition of 'mineral water' exigible to tax @20% as per Entry 141 of the First Schedule. The assessee claimed that the bottled drinking water sold by the assessee is 'packaged drinking water', under the Prevention of Food Adulteration Rules, 1955(for short 'PFA Rules'); which is not covered by any Entry under the Schedules of the KGST Act and hence assessable to tax @8% under the residual Entry.** **2. The questions of law arising are re-framed as** **St.Rev. Nos.46/2015 & 11/2016** ## **- 4 -** ## **follows:-** _**1. Whether the Tribunal was correct in having classified the product sold by the assessee as 'mineral water' when by the specific standards provided under the PFA Rules, the product is 'packaged drinking water', required to be sold only with that description on the label; failing which the assessee would invite prosecution under the PFA Act & Rules ?**_ _**2. In the context of the sale price fixed for the product being inclusive of the tax liability; whether it could be found that the assessee had collected more tax than that has been returned?**_ **3. The penalty orders relate to the year 200405, the first one for the period April 2004 to February 2005 and the second for March, 2005. The case of the assessee before the lower authorities and before us was that after the amendment of Appendix B to the PFA Rules the standard specification of mineral water has undergone a sea change; which standard admittedly the assessee's product does not satisfy. As per the amendment to the PFA Rules in the year 2001, there is a new item with standards and specifications prescribed; termed 'Packaged drinking water'. From then on the product can only be covered under the residual Entry since any sale of the assesse's product as mineral water would attract prosecution under the PFA Act & Rules. It is also** **St.Rev. Nos.46/2015 & 11/2016** **- 5 -** **submitted that the assessee having sold the product at a fixed price inclusive of tax payable there could be no** _**mens rea**_ **found on the assessee.** **4. The State on the other hand argues that the assessee had earlier conceded the very same product as mineral water exigible to tax @20%. The assessee also admits that the products sold in the year was one fortified with minerals. The price structure for distributors issued by the assessee also indicates the tax having been reckoned @20%.** **5. Admittedly the assessee has been selling the same product in the previous years, even after the amendment to the PFA Rules; returning it as exigible to tax @20%. Only after the decision of the Division Bench of this Court in** _**M/S. Teejan Beverages Ltd. v. State of Kerala 2003(11) KTR 443 (Ker)**_ **pronounced on 17.03.2003, the assessee returned the sales of the product at 8%. The contention of the assessee before the lower authorities was also on the aspect of the change in nomenclature brought into Appendix B of the PFA Rules. Before we proceed further we have to look at the issue as** **St.Rev. Nos.46/2015 & 11/2016** ## **- 6 -** ## **raised in** _**Teejan Beverages**_ **.** **6. The issue that arose in** _**Teejan Beverages**_ **was as to whether drinking water packaged in bottles, earlier sold as 'mineral water', but during the relevant time renamed as 'packaged drinking water' qualifies for sales tax exemption as a manufactured product within the meaning of S.R.O No.1729/93. A learned Single Judge of this Court found that the SSI units are engaged in mere filtration and sterilization to make the water safe for drinking, which does not answer the description of manufacture. The notification specifically excluded processes like cleaning, blending, packing etc., from the scope of definition of manufacture. The Division Bench which upheld the judgment of the learned Single Judge also declined exemption. It was found; the fact that the product was earlier sold as 'mineral water' which after the revised fixation of standards under the PFA Rules, have been sold as 'packaged drinking water' itself establish that the product was not mineral water as understood under the PFA Rules. It was found that the SSI units claiming exemption were attempting to mislead** **St.Rev. Nos.46/2015 & 11/2016** **- 7 -** **the tax authorities for the purpose of getting exemption. The packaged drinking water sold by the assessees was held to be not a new and distinct commercial commodity, emerging by employment of any manufacturing process on the ground water. The decision with respect to the process employed in packaging drinking water, not answering the description of manufacture, thus disentitling exemption under a specific notification; whether could decide the classification of the product under the sales tax enactment is the question we have to first address.** **7. At the risk of repetition, exemption was declined under the notification for reason of the SSI units having not employed a process of manufacture as spoken of in the notification granting exemption. The learned Single Judge and the Division Bench did not go by the description of the product and merely held that the earlier description was a mere euphemism used and there was no manufacturing process carried out on the ground water for it to be enabled exemption as a manufactured product of SSI Units. In fact, going by the description** **St.Rev. Nos.46/2015 & 11/2016** ## **- 8 -** **of 'mineral water' in the PFA Rules, prior to amendment, there can be no manufacture found. Entry 141 anyway does not speak of any manufactured product and only refers to “sqaushes sauces … mineral water, Horlicks, Boost … and similar other items whether or not bottled, canned or packed”. Mineral water was first brought under the First Schedule by an amendment in 1991 to Entry 127 of the First Schedule of the KGST Act, as substituted in 1987. Entry under 127 was amended by Act 23 of 1991 by substituting the words “and beverages bottled or canned” with the words “mineral water, beverages, Horlicks, Boost, Bournvita, Complan and similar items whether bottled, canned or packed”. We do not think that the description in the Schedule or the nature of the product specified, would change with the revision of standards of a product, as carried out under the PFA Act & Rules; which was later to the amendment to the First Schedule of the KGST Act. The standards prescribed under the PFA Act itself was to prevent any adulteration of food, which was addressed as an anti-social evil; against which a Bill was introduced in the Parliament to ensure quality and** **St.Rev. Nos.46/2015 & 11/2016** **- 9 -** **safe food products to the consumers at large.** **8. For taxation purpose, the contemporaneous understanding of the description of the product in the Entry has to be looked at. There can be no blind adoption of the definition in one statute for the purposes of another as declared in** _**CIT v. Benoy Kumar Sahas Roy, 1958 SCR 101 : AIR 1957 SC 768 : (1957) 32 ITR 466**_ : ' _**The definition of the term in one statute does not afford a guide to the construction of the same term in another statute and the sense in which the term has been understood in the several statutes does not necessarily throw any light on the manner in which the term should be understood generally'.**_ **This has been reiterated in** _**Maheshwari Fish Seed Farm v. T.N. Electricity Board, (2004) 4 SCC 705.**_ **9.** _**CCE v. Shree Baidyanath Ayurved Bhavan Ltd.,**_ ## _**(2009) 12 SCC 419**_ **held so:** **“55. True it is that Section 3(** _**a**_ **) of the Drugs and Cosmetics Act, 1940 defines “Ayurvedic, siddha or unani drug” but that definition is not necessary to be imported in the new Tariff Act. The definition of one statute having different object, purpose and scheme cannot be applied mechanically to another statute. As stated above, the object of the Excise Act is to raise revenue for which various products are differently classified in the new Tariff Act.”** **St.Rev. Nos.46/2015 & 11/2016** ## **- 10 -** ## **This decision was followed in** _**Medley Pharmaceuticals Ltd.**_ ## _**v. CCE, (2011) 2 SCC 601**_ **, at page 613 :** **"30. Therefore, any requirement or condition imposed by the Drugs Act and Rules made thereunder is in furtherance of its abovestated object of regulating and maintaining the quality of drugs.** **31. The primary object of the Act is to raise revenue by imposing duty on goods that are manufactured as mentioned above (see** _**Kedia Agglomerated Marbles Ltd.**_ **v.** _**CCE[((2003)2] SCC 494)**_ ~~**)**~~ **. In other words, the scope of the Act extends to the event of manufacture of goods, for the levy of excise duty. These two statutes and the Rules made thereunder, operate in entirely two different fields having different objects, purposes and schemes. The conditions or restrictions contemplated by one statute should not be lightly and mechanically imported and applied to a fiscal - statute for non levy of excise duty, thereby causing a loss of revenue.”** **10. The PFA Act and the KGST Act have different objects and purpose and the latter statute is for earning revenue. The factual background on which the issue of exemption arose in** _**Teejan Beverages**_ **itself indicate that packaged drinking water was sold as mineral water till the standards were revised with respect to 'mineral water' and a new commodity 'packaged drinking water' was introduced under the Rules. The revision of standards made under the PFA Rules cannot alter the description of the product under the General Sales Tax Act.** ## **11. Even looking at the PFA Act & Rules there** **St.Rev. Nos.46/2015 & 11/2016** ## **- 11 -** **was no item under the description of 'mineral water' for which standards were specified, at its inception in 1954. Presumably with a heightened consciousness of hygiene and awareness of contamination, 'mineral water' was introduced in the PFA Rules by G.S.R 870(E) dated 14.11.1994 as Entry A.32 the description of which is as** ## **follows:** **“1. Natural Mineral water means the mineral water obtained directly from potable natural or drilled sources like spring artesian well, drilled well or from an underground formation and not from public water supply. It shall be free from dirt, foreign matter or any other ingredients injurious to health. It shall not be transported in bulk container for packaging or any other processing before packing.** **2. Fortified mineral water means the water derived from any source of potable water which may be blended, treated/fortified with mineral salts.”** **Even prior to that when Entry 127 of the First Schedule under the KGST Act, 1963 was substituted in the year 1991, including 'mineral water' in the said entry. This was retained in the First Schedule as substituted in 1992 by a similar Entry 87 along with “non-alcoholic drinks, squashes, sauces…” etc.. In 2000 the First Schedule was again substituted when “Non-alcoholic drinks whether or not bottled,canned or packed” was retained as Entry 97** **St.Rev. Nos.46/2015 & 11/2016** **- 12 -** **and 'mineral water' figured in Entry 141 along with “Squashes, sauces…” etc.** **12. The description under the PFA Rules, of 'mineral water' in the year 1994 took in natural and fortified mineral water. The former sourced from natural or drilled sources and the latter potable water blended, treated or fortified with mineral salts. As we found this also does not answer the description of manufacture, as defined under the notification for exemption, considered in** _**Teejan Beverages.**_ **The PFA act then or now does not have any effect on the product as far as its exigibility under the sales tax enactment is concerned. The contemporaneous understanding of the product scheduled under Entry 141 of the First Schedule in the RGST Act, for the purpose of taxation in the relevant year and the years prior, is the same and the product or taxability does not alter with the standards prescribed under the PFA Rules.** **13. We also notice the dictionary meaning of the word as noticed by the Assessing Officer; which are as follows:** **a) Websters:- Mineral Water is any natural water impregnated with one or more salts or gases.** **St.Rev. Nos.46/2015 & 11/2016** **- 13 -** **b) Oxford:- Mineral Water is water naturally or artificially impregnated with dissolved salts.** **c) Funk and Wagnall's:- Mineral Water is any water impregnated with mineral salts or gases.** **d) Chambers: Water impregnated with minerals.** **The very same description continues to be applicable;** _**dehors**_ **any amendments made to the PFA Rules so long as there is no specific reference to the description of the commodity under the PFA Rules in the KGST Act. Admittedly the product sold earlier and later to the revision of standards in the PFA Rules is the very same product. Despite the declared nomenclature of the product having been changed to avoid a prosecution under the PFA Act and Rules; the nature of the product remains the same and answers the description of 'mineral water' as available in the First Schedule to the KGST Act. On the first question raised of exigibility to tax we answer the same against the assessee and in favour of the Revenue.** **14. The next question raised is on the sale of the product being effected inclusive of the tax liability. In this context we notice the order of the Tribunal which extracted the price structure issued by** **St.Rev. Nos.46/2015 & 11/2016** ## **- 14 -** **the assessee to its distributors, earlier to the present assessment year, wherein the sale price was specified which was inclusive of the sales tax @20% and additional sales tax @15%. The pricing structure supplied by the assessee, in the relevant year showed the very same price inclusive of the sales tax @8% and AST @ 15%. The assessee does not have a contention that the assessee has been selling the product at a lesser price in the previous year. There is also no ground taken that in the relevant years on increase of production cost or on other factors, there was an increase in the sale price of the product. The price as seen from the table extracted by the Tribunal is identical. It is also an admitted fact that the assessee returned the product @20% sales tax for the previous year; when in the present year the assessee sold the product at the same aggregate price as in the earlier year but returned the sales @8% tax, which itself discloses the contumacious conduct of the assessee.** **15. The assessee relied on** _**Deputy Commissioner of Commercial Taxes (Vigilance) v Hindustan Lever Limited 2016(13) SCC 28**_ **and** _**Bata India Limited v. State of**_ **St.Rev. Nos.46/2015 & 11/2016** **- 15 -** _**Maharashtra [1983(53) STC 132]**_ **which we find to be not applicable.** _**Bata India Limited**_ **was a case in which the sale was made at a discounted price and the tax collected on that sale price. However the invoice showed the aggregate amount of the price and the tax paid. Looking at the Bombay Sales Tax Rules it was found that when the amount by way of tax is not separately collected and the sale price takes in the tax element too, there was a formula by which the aggregate sale price could be arrived at. Hence the tax was found to be leviable only on the discounted price. In** _**Hindustan Lever Ltd.**_ **, the assessee had been selling tea manufactured in two units, at the same price, of which one Unit was exempted from sales tax. Both the tea packets sourced from different units showed the tax to be included in the sale price. The Department attempted to deny exemption on the ground that there was tax collected even on the sale of product from the exempted unit. It was found that when the assessee was exempted, there was no reason for bifurcating the sale consideration on the basis of a mere assumption that tax would also have been included. In the** **St.Rev. Nos.46/2015 & 11/2016** ## **- 16 -** **present case it is neither an instance of a discounted price or that of an exemption. The assessee had been carrying on the sale of mineral water at a price inclusive of the tax component; which even as per the returns of the assessee was @20% prior to the relevant year. The price structure offered by the assessee to the distributors also showed the tax component @20%. Then for the relevant year, when the assessee returned a lesser tax, there was no attempt to reduce the sale price. There was also no contention taken of any factor having influenced increase in the cost of the product. Hence the only assumption on facts could be that the assessee had collected more tax than that returned. In any event, since no forfeiture has been attempted we would not venture to do that. We however, find no question of law arising from the said aspect and we refuse to answer the second question which is entirely on facts held against the assessee by the lower authorities including the Tribunal. We find the appreciation of facts, perfectly in order.** **The question of law arising is answered against** **St.Rev. Nos.46/2015 & 11/2016** **- 17 -** **the assessee and in favour of the Revenue. The revisions are rejected leaving the parties to suffer their respective costs.** **Sd/K.VINOD CHANDRAN JUDGE** **Sd/T.R.RAVI JUDGE** **jma/-** **St.Rev. Nos.46/2015 & 11/2016** ## **- 18 -** ## **APPENDIX OF ST.Rev. 46/2015** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A** **A TRUE COPY OF THE NOTICE DATED 19/03/2005 FOR THE PERIOD APRIL 2004 TO FEBRUARY 2005.** **ANNEXURE B A COPY OF THE REPLY. ANNEXURE C A COPY OF THE LABEL OF KINLEY WATER. ANNEXURE D A TRUE COPY OF THE PENALTY ORDER DATED 30/05/2005.** **ANNEXURE E A TRUE COPY OF THE ORDER DATED 09/01/2009 PASSED BY DEPUTY COMMISSIONER (APPEALS).** **ANNEXURE F** **TRUE COPY OF THE MEMORANDUM OF APPEAL.** **ANNEXURE G** **COPY OF THE ORDER OF HON'BLE TRIBUNAL IN T.A. NO.173/2009 DATED 23/12/2014.** **St.Rev. Nos.46/2015 & 11/2016** **- 19 -** ## **APPENDIX OF ST.Rev. 11/2016** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A A COPY OF THE REPLY. ANNEXURE B A COPY OF THE LABEL OF KINLEY WATER. ANNEXURE C A TRUE COPY OF THE PENALTY ORDER DATED 30/05/2005. ANNEXURE D A TRUE COPY OF THE ORDER DATED 09/01/2009. ANNEXURE E TRUE COPY OF THE MEMORANDUM OF APPEAL. ANNEXURE F COPY OF THE ORDER OF HON'BLE TRIBUNAL IN T.A. NO.174/2009 DATED 23/12/2014.**