2008 (1) TMI 853 - HC - VAT and Sales Tax

Kattimoru (thick buttermilk) and sambharam - whether the items fall under the residuary items covered by entry 177 of the First Schedule to the KGST Act taxable at eight per cent? Held that - The basic scheme is to identify the class of customers for the goods and provide rate of tax depending on their capacity. While value-added milk products and soft drinks are consumed by the more affluent class the class of customers who buy buttermilk are economically weak. Therefore if higher rate of tax is demanded for buttermilk the same will defeat the intention of the Legislature in fixing a lower rate to such products. We therefore find that the Commissioner clearly went wrong in clarifying that the appellant s products are not covered by entry 49. We declare that the products of the appellant referred above are buttermilk covered by entry 49 and the clarification of the Commissioner to the contrary is illegal and unsustainable. We therefore allow the appeal by quashing the impugned order.

Summary

Issues: Classification of products under the Kerala General Sales Tax Act, 1963

Analysis:
The appellant, engaged in packing and marketing "kattimoru" and "sambharam," classified the products under "curd and buttermilk" taxable at four per cent. However, the assessing officer proposed to assess the products as "milk products" taxable at 12 per cent. The Commissioner of Commercial Taxes clarified that the items fall under the residuary items covered by entry 177 taxable at eight per cent, leading to the appeal challenging this order.

To resolve the issue, the court examined entries 49 and 92 of the First Schedule to the KGST Act. The appellant argued that both products fall under "buttermilk" covered by entry 49, emphasizing that "kattimoru" is concentrated buttermilk, and "sambharam" is a diluted form. The court analyzed the product descriptions and prices, concluding that both are variations of buttermilk, with sambharam containing additional ingredients for flavor but remaining essentially buttermilk. The legislative intent behind different tax rates for various products was highlighted, indicating that buttermilk is intended for economically weaker customers, warranting a lower tax rate.

The court found the Commissioner's clarification erroneous, declaring that the products are indeed buttermilk covered by entry 49. The judgment quashed the impugned order, allowing the appeal in favor of the appellant.