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Judgment
T.S. Sivagnanam, J.—Since the issue involved in all the three writ petitions are identical, these Writ Petitions are heard together and are disposed of by a common order.
Heard Mr.C.Natarajan, learned Senior Counsel for Mr.N.Prasad, learned counsel for the petitioners and Mr. Kanmani Annamalai learned Additional Government Pleader appearing for the respondents.
The petitioner in W.P. No.5115 of 2008 is M/s. Glaxo Smithkline Consumer Healthcare Limited and the petitioners in other two petitions are the distributors of M/s. Glaxo Smithkline Consumer Healthcare Limited. The petitioners seek for issuance of Writ of Certiorarified Mandamus and Writ of Mandamus respectively to quash the proceedings of the 2nd respondent dated 25.01.2008 and to forbear the 2nd respondent from levying or recovering tax under the Tamilnadu Value Added Tax, Act 2006 over and above 4% on the sales of Women''s Horlicks covered by Sl.No.82 of the Part B of the First Schedule to the Act. The impugned proceedings dated 25.01.2008 is a clarification issued by the 2nd respondent, Commissioner of Commercial Taxes, Chennai. The petitioner filed an application dated 04.10.2007 requesting for clarification with regard to the rate of tax of Women''s Horlicks. An opportunity of personal hearing was granted to the petitioners in which it appears that the petitioners have placed all the materials in support of their contentions. The 2nd respondent by the impugned order clarified that Women''s Horlicks is not a "milk product" and they are made of milk along with other ingredients and liable to tax at the rate of 12.5% under Entry No. 69 (Code No. 301) of Part C of the First Schedule to the Tamilnadu Value Added Tax Act, 2006.
Aggrieved by the same, the petitioners have independently filed the writ petitions. The petitioners have been marketing the product Women''s Horlicks by charging 4% tax to the whole sale dealers and these taxes are regularly remitted as per the monthly returns filed under the Act.
The question which arises for consideration is whether Women''s Horlicks can be taxed under residuary entry as against the specific entry arrived tax at 4% on Part B of the First Schedule.
The petitioners case is that Women''s Horlicks was launched by the petitioners during 2007-2008 and Milk is constituted at 58.8% by weight in caramel flavor and 56.4% by weight in chocolate flavour. In terms of value in the finished product, it constitutes 76.11% and 69.8% respectively. The rest are construed with malt and other ingredients. Further the goods are registered as "milk product" as defined under the Milk and Milk Products '' Order 1992 and under Section 2(g) of the Control Order, Milk Product and Women''s Horlicks is registered under the clause 5 of the Control Order and Certificate to that effect has been issued by the Government of India vide Certificate dated 13.08.2005.
It is the further case of the petitioner that the Hon''ble Division Bench of this Court held that Horlicks is a milk product in the case of H.M.M. Limited Vs. Deputy Commercial Tax Officer reported in 79 STC 421 (Madras), which judgment was confirmed by the Hon''ble Supreme Court in Special Leave to Appeal in S.L.P. Nos. 15973-74/91 dated 23.08.1993. The Hon''ble Division Bench in the said decision held that goods to be "milk food" or "milk product" because milk predominated by weight and value. The Hon''ble Division Bench of this Court has also referred to the fact that the goods were all along classified as "milk product" under Serial No. 24 of the First schedule Tamilnadu General Sales Tax Act, 1959 and accordingly the Government has also clarified by a Memorandum No. 129579- ST/SPL/62-2 dated 09.02.1962. Though this legal contention has been raised and reliance has been placed on the decision of the Hon''ble Division Bench of this Court and the same has been confirmed by the Hon''ble Supreme Court, the main ground of challenge to the impugned proceedings is on the ground that it is non-speaking order and it is arbitrary and violative of Article 14 of the Constitution of India. It is submitted that the impugned order communicates only the conclusion and no reason is given or found and it is contrary to the decision of the Hon''ble Division Bench in the case of H.M.M. Limited as stated supra. The 2nd respondent failed to take note of the fact that if milk predominated by weight and value, the goods will remain "milk" or "milk product", the 2nd respondent cannot state that goods are taxable at 12.5% under the residuary entry when there is specific entry which prevails over a residuary entry.
Further it is submitted that when the goods are prima-facie classifiable as "milk product" and "milk food preparation", resort to the residuary entry is ex facie illegal and without jurisdiction. The petitioners were compelled to approach this Court challenging the clarification, since the clarification having been issued by the Commissioner would bind the assessing officer throughout the state and cause irreparable hardship to the petitioners as well as its distributors.
The respondents in their counter affidavit submitted that the goods namely, "Women''s Horlicks" which is branded is liable to be taxed at 12.5% as per Part ''C'' of the First Schedule. In the beginning, no goods were listed out under Part ''C'' of the First Schedule and subsequently an amendment was passed with effect from 12.07.2007 and accordingly as many as 68 specific entries have been included in Part ''C'' with last one- 69 namely, "Any other goods not specified in any of the schedule". Further it is submitted that "Women''s Horlicks" is a new product and the manufacturer approached the 2nd respondent for clarification regarding rate of tax and after examining the facts put-forth by the dealer, it was confirmed that "Women''s Horlicks" is not a milk food. Further it is submitted that the Hon''ble Division bench of this Court in the case of H.M.M. Limited stated supra arrived at a conclusion on the basis of material evidence put-forth by H.M.M. Limited, the overall input weight and costs in the manufacture of Horlicks after mixing, evaporation, drying and grinding.
It is further submitted that in the case of "Women''s Horlicks" milk constitute only 20 gm out of 100 gm as seen from the plastic jar of the product in question which is about 20% and all product having milk as a component cannot be called "milk products" and this product contains only 20% milk and hence cannot be classified as a "milk product". Therefore the respondents seek to justify the clarification issued.
After hearing the learned counsel for the petitioner and the learned Additional Government Pleader for respondents and after perusing the materials placed before this Court, two issues arises for consideration in these Writ petitions, namely: -
(i) Whether the product, "Women''s Horlicks" is to be taxed at 4% under Part B of the First Schedule or it should be taxed at 12.5% / 14.45% by applying the residuary entry.
(ii) Whether the impugned clarification is arbitrary for assigning any reasons.
This Court proposes to take into consideration the issue no.2 at the first instance. As noticed above, the 2nd respondent while issuing impugned clarification dated 25.01.2008 stated that in pursuant to the personal hearing on 26.11.2007, it is clarified that "Women''s Horlicks" is not a "milk product" as such and they are made of "milk" along with other ingredients and liable to be taxed at 12.5% under Entry No. 69 (Code No. 301) of Part C of the First Schedule of TNVAT Act 2006. Thus, it is clear that the only reason given in the impugned clarification is that "Women''s Horlicks" is not made up of "milk" alone but with other ingredients, therefore, it is taxable under the residuary entry. In the personal hearing, the petitioner has placed for consideration before the authority as regards the constituent of the product. The petitioners'' case is that "milk" is constituted at 58.8% by weight in caramel flavour and 56.4% by weight chocolate flavored "Women''s Horlicks" and in terms of the value in the finished product, it constitutes 76.11% and 69.8% respectively.
Further the petitioners would state that "Women''s Horlicks" is registered under Clause 5 of the Milk and Milk Products'' Order, 92 and certificate has been issued by the Government of India dated 13.08.2005 under Section 2(g) of the said Control Order. The Milk product means cream, malai, curd, yogurt, skimmed milk, butter, deshi butter, ghee or butter, oil and includes any other substances containing on a dry weight basis not less than fifty percent of milk solids (excluding added sugar), or any other substance declared by the Central Government notification as a milk product". Therefore, it is their case that "Women''s Horlicks" is classifiable as a "milk product". In the petitioner''s own case, which was filed by the erst while company, which has now been amalgamated with the present petitioner, the question arose whether "Horlicks" is "milk food" and the Hon''ble Division Bench of this Court in H.M.M. Limited (supra) has held as follows:-
".....In this connection, it was conceded that the Revenue has been treating Horlicks all along as a milk food falling under entry 24. Even after Tamilnadu Act 39 of 1983 came into force from 1st July, 1983, Horlicks was being treated as falling under entry 103(viii), which was the replacement of entry 24. it is only when the Notification G.O.P. No.253 dated 17th March, 1986 was promulgated reducing the tax from 10 per cent to 4 percent in respect of milk foods that the department has changed its approach purely with a view to prevent the products like Horlicks from getting the benefit of reduced rate of tax. We may also refer to a series of letters from the side of the Revenue indicating that products like Horlicks are only milk foods. The Commissioner of Commercial Taxes in his letter dated 29th April, 1986 says as follows:-
"''Viva'' is a milk food taxable at the reduced rate of 4 per cent single point with effect from 17th March, 1986. The copy of the Board''s Proceedings Rt. 33/72 dated 6th January, 1972 is not furnished, as it is not readily available"
The above referred decision has been confirmed by the Hon''ble Supreme Court by Judgment dated 23.08.1993 in Special Leave Appeals in S.L.P. Nos.15973 and 15974 of 1991, wherein the Hon''ble Supreme Court has held as follows:-
We have heard Sri A.K. Ganguli, learned senior counsel for the State of Tamilnadu and Sri Soli J.Sorabjee, learned senior counsel for the first respondent.
The question before the High Court was whether the preparation "Horlicks" manufactured and marketed by first respondent was "milk food including milk powder" within the meaning of item (viii), Entry 103 or "Foods including preparation of vegetables, fruits, milk, cereals, flour, starch, birds, eggs, meat etc., "in item (x), Entry 103 of the Tamilnadu General Sales Tax Act, 1959. Under the Exemption Notification dated 17th March, 1986 the goods would attract tax at 4 percent if it falls under item (viii) or 10 percent if it falls under item (x). The High Court has taken into consideration the manner in which ''Horlicks'' was treated as falling within "milk food" occurring in the earlier Entry 24 and has come to find against the Revenue. In the circumstances of this case, we decline to interfere with the decision of the High Court. The question is confined to a period of interregnum between 1986 and 1991 whereafter the examination itself was done away with, so far as these goods are concerned. Secondly, the first respondent asserts that it has, during the interregnum, collected tax only at 4 percent, and that any interference in the order of the High court would expose the first respondent to an unforeseen liability. We direct the first respondent to file an affidavit to the effect that taxes higher than 4 percent were not so collected. This may be done within four weeks. The special leave petitions, in so far as the first respondent is concerned, are dismissed. However, if the Revenue has grounds to assail the correctness of the affidavit, it is at liberty to do so and mention.
So far as the 2nd respondent is concerned, the question in relation to the product ''Spert'' will be considered separately. Call after 3 weeks."
Though, the petitioners have placed the above details before the 2nd respondent, the 2nd respondent without adverting to any of the facts has passed a non-speaking order (clarification) solely on the ground that the product contains other ingredients. The 2nd respondent did not take into consideration the facts placed as the impugned clarification does not speak for itself. The grounds which are to be taken into consideration while classifying a product is by applying the relevant tests which are to be taken note of, which have been laid down in several decisions of the Hon''ble Supreme Court and these tests have been categorized as "essential tests" and it would be worthwhile to refer to the decision in the case of The Commissioner of Central Excise, Bhubaneswar-I Vs. Champdany Industries Limited, wherein the question arose whether the carpets manufactured by the respondent-company are classifiable as "Jute products". The Hon''ble Supreme Court pointed out that since the goods admittedly classified under Chapter 57 ibid and consisting of more than two or more textile materials and hence, to be classified based on textile material which predominates by weight over other single textile material and jute being predominant by weight in impugned goods and classifiable as jute carpets and nothing else. In the said decision, the Hon''ble Supreme Court while considering the question as to when the residuary entry could be applied ignoring a specific entry, pointed out that after referring to the decision of M/s. Bharat Forge and Press Industries (P) Ltd. Vs. Collector of Central Excise, Baroda, Gujarat, that the residuary entry should be applied only when the goods cannot be brought under the various specific entries in the tariff, and the same was followed by the Division Bench of this Court in Canon India Limited Vs. State of Tamilnadu reported in 2013-2014 (19) TNCTJ Page 251, wherein it was held that Department has to establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items then and then only they can resort to a residuary item. That apart the Hon''ble Supreme Court in the case of Kemrock Industries and Exports Ltd. Vs. Commissioner of Central Excise, Vadodara, explained the text of essentiality and pointed out that if the manufactured goods has the essential character, then one has to treat the item in question with regard to such essential character. When the goods is composite in nature, consisting on various mixtures the clarification should be on the basis of material or component which gives to the product their essential character. Though these decisions were rendered under other central laws, could be very well applied to the cases on hand as we are concerned with classification of the product in question.
The 2nd respondent has not adverted to any of those issues, nor applied the proper tests, failed to ascertain the essential character of the product and merely stated that some other ingredients is also added, which is not "milk". The decision in the case of H.M.M. Limited, supra, which has been confirmed by the Hon''ble Supreme court has also not been dealt with by the 2nd respondent. Therefore, this Court is convinced that the impugned clarification is devoid of reasons and arbitrary and to be held to be bad in law. Accordingly, issue no.2 is held in favour of the petitioners. In the light of the above, this Court is of the view that Issue No. 1 need not be decided by this Court, since it requires examination into factual contention raised by the petitioners. The 2nd respondent is required to apply the proper tests, ascertain the essential character of the product bearing in mind the certificate filed by the petitioners under the provisions of the Milk and Milk Products 92, take note of the principles laid down by the Hon''ble Supreme Court in the decisions referred, with regard to the manner in which the clarification of the products is to be done and the decision of Hon''ble Division Bench of this Court in H.M.M. Limited (supra) confirmed by the Hon''ble Supreme Court (supra) and then take decision on merits and in accordance with law after affording an opportunity of personal hearing. Further the petitioner has placed reliance on the decisions of Authority for Clarification and Advance Ruling, where they have clarified regarding the rate of tax for milk based products and held that product is a milk product since it is pre-dominantly milk.
It is pointed out by the learned counsel for the petitioner that with regard to the clarification regarding rate of tax, now the matter is being placed before the Authority called as Authority for Clarification and Advance Ruling constituted under Section 48A of the Tamilnadu Value Added Tax Act, 2006.
In the light of the above, the Writ Petitions are allowed and the impugned clarification is quashed and the 2nd respondent is directed to place the matter before the Authority for Clarification and Advance Ruling and the petitioner is directed to file an application before the said Authority requesting for clarification with all supportive records and when such application is filed, the said Authority shall afford opportunity of personal hearing to the petitioner and decide the matter on merits and in accordance with law and pass a reasoned order taking note of the findings and observations in this order. During the pendency of the writ petition, by virtue of the interim order granted by this Court, no recoveries were effected, accordingly till a decision is taken by the Authority for Clarification and Advance Ruling, as directed above no recovery shall be initiated against the petitioners and shall abide by the orders to be passed by the Advance Ruling Authority. Consequently connected miscellaneous petitions are closed. No costs.