Himachal Pradesh High Court Upholds Tax Demand Reiterating ‘Milk Cream’ Cannot Be Classified as ‘Milk’

Himachal Pradesh High Court Upholds Tax Demand Reiterating ‘Milk Cream’ Cannot Be Classified as ‘Milk’

The assessee had earlier appealed before the tax tribunal

The Himachal Pradesh High Court has held that ‘milk cream’ cannot be classified as ‘milk’ and dismissed the revision petition of Gujarat Co-Operative Milk Marketing Federation Ltd.

The Bench comprising Chief Justice M.S. Ramachandra Rao and Justice Ajay Mohan Goel observed that a scientific or technical meaning of the term ‘milk cream’, as projected by the assessee, should not be adopted. Moreover, the popular meaning of milk cream, as is commonly understood, should be noted. This meant it is a product that is different from milk.

The assessee/appellant, Gujarat Co-Operative, a registered dealer, trades in milk products, milk, edible oils, and milk cream.

The excise department scrutinized the assessment relating to the assessees’ qua Value Added Tax (VAT) for the Assessment Years 2005-2006 to 2008-2009 on 16 February 2009, and 27 January 2010.

The Excise and Taxation Commissioner wrote a letter stating that the assessee was liable to pay VAT on its sales of milk cream but was not assessed for the previous five years.

The suo moto revision was entertained by the Additional Excise and Taxation Commissioner-cum-Revisional Authority, and the show cause notice was issued.

The assessee contended that though it was selling fresh ‘milk cream’, it was just fresh ‘milk’. The cream contents were retained up to 25 percent, as a result of which low-fat milk cream was the outcome. Sold under the name fresh cream, it was mainly used for garnishing and in the preparation of tea, coffee, etc., and that the company did not charge any VAT on its sale. The milk cream was a tax-free item under Entries 16 and 23 in Schedule-B.

It urged that merely because milk obtained in its natural form was subjected to certain processing resulting in the redaction of either its water or fat content, it would not cease to be milk. More so, because it did not add vitamins, flavor or essence, sugar, or other material, the nature of fresh milk was not altered. This meant no new product was generated.

However, the department stated that milk cream was neither fresh milk, pasteurized milk, nor separated milk. Therefore, it was taxable at the rate of 12.5 percent or 13.75 percent.

Thereafter, the assessee filed a revision petition under Section 46(3) of the Act before the Himachal Pradesh Tax Tribunal.

The tribunal rejected the contentions of the assessee and held that in composition, milk cream or low-fat cream was entirely different from milk. It provided illustrations of milk and milk products, such as cottage cheese, desi ghee, and khoya, obtained by subjecting natural milk to a process that makes them milk products.

However, the petitioner argued there was no entry in the Act dealing with milk cream. Therefore, the Central Excise HSN Classification Entry No.16 should be applicable, which relates to fresh milk and pasteurized milk, and includes the product cream. Therefore, since milk is not taxable, milk cream should also not be taxed.

The department reiterated that milk and milk cream were totally different products. No one intending to buy milk cream would ask for milk; a consumer would ask for milk cream, which was a milk product. So, the common parlance test is applied in such situations.