Applicability of VAT. Milk cream cannot be classified as milk

It took nearly nine years for a High Court to arrive at the conclusion that ‘milk cream’ is not ‘milk’ and, hence, will not be exempted from Value Added Tax (VAT).

“We are of the opinion that in the instant case also, a scientific or technical meaning of the term ‘milk cream’, as is sought to be projected by the assessee, should not be adopted and the popular meaning of milk cream as is commonly understood, should be taken note of, i.e. it is a product which is different from milk,” Himachal Pradesh High Court held, while disposing a petition filed by Gujarat Co-Operative Milk Marketing Federation Ltd, popularly known as Amul, way back in 2014 and admitted two years later.

The ruling, pronounced on August 8, is now available on the website. Further, the division bench of the Court said: ”A person who wishes to buy milk cream would not go to the market and ask for milk. He would only ask for milk cream because it is a separate product though also a milk product.”

The petition was filed after the State Tax Tribunal said VAT needs to be levied at the rate of 4 per cent for Assessment Years 2005-06 to 2008-09. The petition also challenged suo moto revision, which was rejected by the High Court.

The lawyer for the petitioner submitted that there being no entry in the Tax Law dealing with milk cream, the Central Excise HSN Classification Entry no. 16 should be taken into account, and, in that entry, which relates to fresh milk and pasteurised milk, the product cream is included, and, therefore, should be taken into account, and since milk is not taxable, milk cream also ought not to be taxed.

It was also said, based on the judgement of the Supreme Court on the judgment in Commissioner of Central Excise, Delhi-III versus Uni Products India Ltd, that “Harmonized Commodity Description and Coding System”, Explanatory Notes issued by the World Customs Organization, have strong persuasive value and courts can rely on them. He contended that there was a general trend of taking the assistance of these Explanatory Notes to resolve entry-related disputes and the tribunal had erred in refusing to place reliance on them.

However, counsel for the Tax Department contended that milk and milk cream are totally different products and nobody, who intends to buy milk cream, would ask for milk, and so the common parlance test needs to be applied in such situations.

The court took note of the observation of the Supreme Court where it was said: ”in the absence of a statutory definition in precise terms, words, entries and items in taxing statute, must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words, they have to be construed in the sense that people conversant with the subject matter of the statute, would attribute to it.”

The Apex Court also said that resort to interpretation in terms of scientific and technical meaning should be avoided in such circumstances, except where the legislature has expressed a contrary intention. Based on this, the High Court dismissed the revision petition.