1999 (8) TMI 944 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of solvent extracted oil as edible or non-edible oil.
2. Applicability of different tax rates on refined and non-refined edible oils under the Karnataka Sales Tax Act.
3. Interpretation of relevant Control Orders and legislative intent regarding the classification and taxation of edible oils.

Detailed Analysis:

1. Classification of Solvent Extracted Oil as Edible or Non-edible Oil:
The primary issue revolves around whether solvent extracted oil, particularly from oil cakes, should be classified as edible or non-edible oil. The petitioner argued that solvent extracted oil sold to vanaspathi manufacturing units or refining units has been wrongly treated as non-edible oil. They cited the Essential Commodities Act, 1955, and the Pulses, Edible Oil Seeds and Edible Oils (Storage Control) Order, 1977, which defines "edible oils" under clause 2(g) as oils used directly or after processing for human consumption, including hydrogenated vegetable oil. The Prevention of Food Adulteration Rules, 1955, also includes non-refined sunflower oil extracted from oil cake as edible oil, stating that non-refined edible oil can be consumed after refining.

The court considered the opinion of the Director of the Oil Technological Research Institute, Anantapur, which stated that groundnut oil cake is essentially the same as groundnut oil and that unrefined solvent extracted groundnut oil is "perfectly edible oil" after refining, hence should be known as potential edible oil.

2. Applicability of Different Tax Rates on Refined and Non-refined Edible Oils:
The respondents contended that the edible oil produced by the petitioner from oil cake through solvent extraction is vegetable non-edible oil and not fit for human consumption. They referred to a separate entry from April 1, 1993, in Part E of the Second Schedule, which enumerated edible oils other than those falling under serial No. 28 of the Fifth Schedule, including non-refined and refined oils and hydrogenated oils. They argued that only oil meant for direct human consumption could be considered edible oil, excluding oil sold to vanaspathi manufacturing units or refining units.

The court examined the Karnataka Sales Tax Act, noting that edible oil under entry 1, Part E of the Second Schedule, includes non-refined, refined, and hydrogenated oil. From April 1, 1995, both non-refined and refined oils were treated at par for tax purposes. The Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967, regulates the production and sale of solvent extracted oil, prohibiting its sale for direct human consumption unless refined. The court observed that refining does not change the basic character of the oil, and solvent extracted oil should be considered as falling within the category of edible oil.

3. Interpretation of Relevant Control Orders and Legislative Intent:
The court referred to various judgments to interpret the legislative intent and relevant Control Orders. It highlighted that the Solvent Extracted Oil, De-oiled Meal and Edible Flour (Control) Order, 1967, defines solvent extracted oil as vegetable oil obtained by the use of solvent and prohibits its sale for direct human consumption unless refined. The Vegetable Oil Products (Control) Order, 1947, and the Vegetable Oil Products (Standards of Quality) Order, 1975, also regulate the quality and sale of vegetable oils, including solvent extracted oil.

The court concluded that the basic character of the oil obtained from crushing/expeller from the seed and the oil obtained from the oil cake remains the same, except for the impurity of hexane. It emphasized that refining is a process that removes impurities without changing the fundamental nature of the oil. Thus, solvent extracted oil, after refining, should be considered edible oil.

Conclusion:
The court allowed the writ petitions, directing the respondents to pass fresh orders in light of the observations made, recognizing that solvent extracted oil, after refining, falls within the category of edible oil and should be taxed accordingly under the Karnataka Sales Tax Act. The court clarified that the legislative intent and relevant Control Orders support the classification of solvent extracted oil as edible oil after refining, and the same tax rate should apply to both refined and non-refined edible oils.

Petitions allowed.