Kamadhenu Milk Products v. State of Kerala

IN THE HIGH COURT OF KERALA AT ERNAKULAM THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER THURSDAY, THE 20TH NOVEMBER 2008 / 29TH KARTHIKA 1930 ## S.T.Rev.No.310 of 2008 T.A.NO.555/2006 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ERNAKULAM - ORDER DATED 28TH JULY, 2008. [ASSESSMENT YEAR 1999-2000 (KGST)] .................... ## REVISION PETITIONER/APPELLANT/ASSESSEE:- KAMADHENU MILK PRODUCTS, WARRIAM ROAD, ERNAKULAM. BY ADV. SRI.R.MURALIDHARAN (AROOR) ## RESPONDENT/RESPONDENT/REVENUE:- STATE OF KERALA. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 20/11/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:- ---------------------------------------------- ## **H.L.Dattu,C.J. & A.K.Basheer,J.** ## **S.T. Rev.No.310 of 2008** ---------------------------------------------Dated, this the 20[th] November, 2008 ## **ORDER** ## **H.L.Dattu, C.J.** This Sales Tax Revision is directed against the orders passed by the Kerala Sales Tax Appellate Tribunal (hereinafter, for the sake of brevity, referred to as “the Tribunal”), in T.A.No.555 of 2006 dated 28.7.2008. (2) By the impugned order, the Tribunal has sustained the orders passed by the assessing authority for the assessment year 1999-2000. The reasoning of the Tribunal appears to be, that, since the assessee does not produce milk within the State, he is not entitled to the exemption under the notification, S.R.O.No.201/05 dated 16.2.2005. (3) Brief facts are - Petitioner is engaged in the processing and marketing of milk products in their processing plant at Edathala. Petitioner procures milk from neighbouring States, such as, State of Tamil Nadu and State of Karnataka, and then processes the said milk as pasteurized milk and markets the same in the State of Kerala. (4) In the returns filed for the assessment year 1999-2000, petitioner had conceded the turnover of the milk, under Entry 23 of the Third Schedule to the Kerala General Sales Tax Act, 1963 (“Act” for short) and had claimed total exemption from payment of tax under the Act. Even though the returns were accepted, the assessing authority, following the Division Bench S.T.Rev.310/2008 - 2 - judgment of this Court in the case of _Ernakulam Regl. Co-operative Milk Producers Union Limited_ v. _State of Kerala_ [(2001) 9 KTR 459 (Ker)] had assessed the sales turnover of the pasteurized milk at 10%. (5) In the aforesaid judgment, this Court is of the view, that “pasteurized milk” is not a “fresh milk” and, therefore, they would not come under Entry 23 of Third Schedule to the Act. (6) In order to protect the dealers in the Co-operative sector, like Kerala Co-operative Milk and Marketing Federation Limited, the Government has issued notification in exercise of their powers under Section 10 of the Act in S.R.O.No.307/2001. The notification is given a deeming effect, to have come into force with effect from 1.1.1994 till 31.12.1999. (7) The Legislature, in order to alleviate the grievance of the milk producers in the State, has also amended Entry 23 of the Third Schedule to the Act with effect from 1.1.2000 by including “pasteurized milk” immediately after the expression “fresh milk”. (8) The assessing authority, for the previous assessment year, viz., 1997-98, had completed the assessments and had levied tax at the rate of 10% on the ground, that, pasteurized milk is different from the fresh milk. The orders of assessment so passed by the assessing authority had been called in question by the petitioner and other milk producers before this Court in O.P.No.18797 of 2002. This Court, while rejecting the Original Petition, by S.T.Rev.310/2008 - 3 - its order dated 3[rd] December, 2002, had made certain pertinent observations. It is as under: _“However, having regard to the considerable hardship faced by the petitioner, who has also been selling milk in the market at price comparable with that of the societies and Kerala Milk Marketing Federation without collection of tax and in view of the original exemption granted by the assessing officer to the petitioner, I feel this is a fit case for the Government to consider waiver of tax or exemption at least in rate of tax retrospectively, because the rate of tax demanded is at an exorbitant rate of 10%. The petitioners are free to approach the Government for exemption or reduction in the rate of tax retrospectively”._ (9) Taking clue from the observations made by this Court, it appears to us, that, the State Government has come out with notification, bearing No.S.R.O.No.201/2005 dated 16.2.2005. Yet again, the notification is given deeming effect, to have come into force with effect from 1.1.1994 till 31.12.1999. The Explanatory Note appended to the notification also has some relevance. The notification, as well as the Explanatory Note appended to it, is extracted and they are as under: **==> picture [165 x 47] intentionally omitted <==** ## _G.O.(P) No.23/2005/TD_ _Dated Thiruvananthapuram, 16[th] February, 2005_ _**S.R.O.No.201/2005** - In exercise of the powers conferred_ S.T.Rev.310/2008 - 4 - _by Section 10 of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do, hereby make an exemption in respect of the tax payable under the said Act on the sale of pasteurized milk, homogenized milk, the toned milk, standardized milk, skimmed milk, full cream milk and recombined or reconstituted milk sold by milk producers within the State._ _This notification shall deemed to have been in force from the 1[st] day of January, 1994 till 31[st] December, 1999._ _Tax, if any, collected shall be paid over to Government and tax, if any, already paid shall not be refunded._ _By order of the Governor,_ _P.MARA PANDIYAN Secretary to Government._ ## _**Explanatory Note**_ _(This does not form part of the notification, but is intended to indicate its general purport.)_ _As per notification published as S.R.O.No.307/2001 dated 22[nd] March, 2001, the exemption from sales tax on the sales of pasteurized milk, homogenized milk, the toned milk, standardized milk, skimmed milk, full cream milk and recombined or reconstituted milk was limited to co-operative societies. Government have now decided to extend the benefit to milk producers within the State also._ _This notification is intended to achieve the above object”._ (10) For the assessment year in question, the assessee had filed his annual returns before the assessing authority claiming exemption from S.T.Rev.310/2008 - 5 - payment of tax under the Act, in view of the notification issued by the State Government in S.R.O.No.201/2005. The assessing authority has rejected the claim solely on the ground, that, the petitioner is not a milk producer within the State. The view of the assessing authority appears to be, that, the said notification can be made applicable only to such of those milk producers who produce milk within the State. The view of the assessing authority is affirmed by the first appellate authority as well as by the Tribunal. Calling in question the correctness or otherwise of the orders passed by the authorities under the Act as well as by the Tribunal, the assessee is before us in this Sales Tax Revision. (11) The assessee has framed the following questions of law for our consideration and decision. They are as under: _“(a) Whether the orders passed by the authorities below is justified in the light of Notification in S.R.O.201/2005 issued under Sec.10 holding that the turnover of milk sold by the revision petitioner is taxable at 10%?_ _(b) Whether the Tribunal is justified in holding that Notification, SRO 201/2005 is not applicable for petitioners, especially when in the explanatory note to the Notification it has been made clear that Government has decided to extend the benefit of previous notification, SRO.307/2001 dated 22[nd] March, 2001 to milk producers within the State also, and when the Milk Marketing Federation and the appellant/petitioner are engaged in the same activity viz. processing and marketing of milk?_ S.T.Rev.310/2008 - 6 - _(c) Whether the Tribunal is justified in dismissing the appeal holding that the Milk sold by the appellant will not come under Entry 23 of the III Schedule to the Act, when proviso to Sec.39(4) mandates to defer the hearing of the appeal before it, if the question of law raised in the appeal is pending for consideration of High Court or Supreme Court and when the fact was brought to the notice of the Tribunal, producing a copy of Interim Order of Supreme Court by the appellant?”_ (12) At the outset, we intend to observe, that, the questions of law framed by the assessee require to be answered in favour of the assessee and against the Revenue, in view of the decision of this Court in the case of _M/s.Pooja Milk Foods (P) Ltd._ v. _State of Kerala_ - S.T.A.No.13 of 2006, disposed of on 30[th] September, 2008. In the said decision, this Court has observed, at paragraphs 10 and 11, as under: _“(10). The admitted facts are, that the appellant is a dairy unit. It procures milk from outside and after processing and packing, it is sold within the State. It is like any other Co-operative Society or any other milk producer. “Producer” means any person engaged in any activity connected with or relatable to any primary produce. The 'milk producer' is not just confined to those persons who produce the milk in the State. The Notification is also made applicable to the Co-operative Societies, milk federations, who collect the milk from the farmers and effects sale of such milk in the State. The activity of the appellant is in no way different from Co-operative Societies or milk federation. In the earlier Notification as we have already pointed out the State_ S.T.Rev.310/2008 - 7 - _Government had extended the benefit of the Notification to all the Co-operative Societies including the Kerala Milk Marketing Federation Limited. The benefit of that Notification came to be extended to other milk producers in the State by a subsequent Notification dated 16.2.2005._ _(11). In our opinion, since the appellant also is a milk producer within the State though procures milk from outside is also eligible and entitled to the benefit of the Notification S.R.O.No.201 of 2005 dated 16.2.2005. In view of the above, the Commissioner of Commercial Taxes was not justified in clarifying that the appellant's diary is not entitled to the benefit of the Notification S.R.O.No.201/2005 dated 16.2.2005. Therefore, while setting aside the order passed by the Commissioner of Commercial Taxes, Thiruvananthapuram, we clarify that the appellant's unit is also entitled to the benefit under Notification S.R.O.No.201 of 2005 dated 16.2.2005.”_ (13) Even otherwise also, admittedly, the assessee procures milk from outside the State and mixes it with certain quantity of powder and markets the milk as “pasteurized milk”. The Division Bench of this Court in the case of _Ernakulam Regl. Co-operative Milk Producers Union Limited_ v. _State of Kerala_ [(2001) 9 KTR 459 (Ker)] has made a distinction between “fresh milk” and “pasteurized milk”. According to the Division Bench, “pasteurized milk” cannot be equated with “fresh milk”. While making this distinction, the Division Bench of this Court has stated as under: _“Milk in question is pasteurised milk. Skimmed milk_ S.T.Rev.310/2008 - 8 - _powder is not fresh milk. Further, what is sold is pasteurised milk. ................. Entry says fresh milk. The word 'fresh' has the meaning of 'original', 'new' etc. According to us, Entry 23 means original milk, that is, the milk obtained from the farm. Hence, the pasteurised milk is not exempted”._ (14) In the notification issued, in number S.R.O.201/2005, the State Government, in exercise of its powers under Section 10 of the Act and in public interest, has exempted payment of tax under the Act on the sale of pasteurized milk, homogenized milk, the toned milk, standardized milk, skimmed milk, full cream milk and recombined or reconstituted milk sold by milk producers within the State. The Explanatory Note appended to the notification once again uses the expression, that, _'the notification can be made applicable only to the milk producers within the State'._ (15) In the instant case, as we have already noticed, that, the assessee purchases milk from the neighbouring States and produces pasteurized milk within the State and markets the pasteurized milk. Even going by the language employed in the notification, it can be safely said, that, the petitioner is a “pasteurized milk producer” within the State. In that view of the matter, the petitioner is entitled to get the benefit of the notification, in number S.R.O.201/2005 dated 16.2.2005. (16) In view of the above discussion, in our opinion, neither the assessing authority nor the Tribunal was justified in denying the claim of the S.T.Rev.310/2008 - 9 - petitioner for exemption from payment of tax under the provisions of the Act. (17) Accordingly, while allowing the revision petition, we set aside the orders passed by the Tribunal. We direct the assessing authority to pass a fresh order for the assessment year 1999-2000, in the light of the observations made by us in the course of the order. Ordered accordingly. H.L.Dattu Chief Justice A.K.Basheer Judge vku/-