Finding that the Maize oil & Maize cake are independently declared as goods as edible oil under the Commercial Tax Act/VAT Act, the Madhya Pradesh High Court (Indore Bench) clarified that these two products, viz. Maize oil & the Maize cake are being manufactured while manufacturing the starch, which could be one of the methods of production of Maize oil & Maize cake, and therefore, the same cannot be treated as a by-product of cereals. Reference was made to the decision of the Apex Court in the case of Commissioner of Commercial Tax, U.P., Vs. M/s A.R. Thermosets Pvt Ltd. [2016(16) SCC 122], where it was held that “the nature and composition of the product or the goods and the particular entry in the classification table are important”.
Pointing out that the applicant is admittedly engaged in the manufacturing of starch, dextrose, gluten, Maize oil, Maize cake, and their sale, and they are manufacturing and selling Maize oil & Maize cake as independent products along with other products, the Court emphasized that Maize Oil and Maize cake are being manufactured while manufacturing the main product, i.e., starch. Accordingly, the Court ruled that when ‘starch’ itself is not exempted, then its by-products, i.e., Maize oil & Maize cake, also cannot be treated as exempted.
The Court therefore concluded that Entry 38 of Part V of Schedule II of the M.P. Commercial Tax Act, 1994 specifying “vegetable & edible oil except hydrogenated vegetable oil” was a specific entry. Since the Maize oil & Maize cake are not covered under Entry 91(ii) of Schedule II of the M.P. Commercial Tax Act, 1994, for the purpose of exemption from payment of tax, they are also not exempted from payment of central sales tax under Section 8(2A) of the Central Sales Tax Act, 1956.
The Division Bench comprising Justice Vivek Rusia and Justice Binod Kumar Dwivedi observed that matching of the good with the Entry or Entries in the Schedules is tested based on the identity of the goods in question with the Entry or the contesting entries and by applying the common parlance test, i.e. whether the goods as understood in the commercial or business parlance are identical or similar to the description of the Entry. Where such similarity in popular sense of meaning exists, the generic entity would be construed as including the goods in question.
The Bench found that the applicant in the present case is relying on a residuary entry, whereas the revenue is insisting that the so-called by-product, Maize oil & the Maize cake are covered under the specific entry as an independent product. Therefore, instead of applying the general entry/residuary entry that all the by-products of cereals are exempted, the Bench held the applicant as not entitled to exemption.
Speaking for the Bench, Justice Vivek Rusia noted that the Maize oil & Maize cake are the products of the applicant, apart from the starch, which is being sold in the market. In the dictionary meaning the byproduct means ‘an incidental or secondary product made in the manufacturing of something else’. The Bench also noted that the Commercial Tax Board has held that the Maize oil & Maize cake can be a by-product of starch, but not the by-product of Maize, and Maize is a cereal, whereas the main manufacturing product of the applicant is starch from Maize or Makka, and during this process, Maize oil & Maize cake are manufactured as by-products, but they have an independent identity in the market.
Briefly, in this case, the applicant is engaged in the manufacture & sale of Maize Starch, Dextrose, Gluten, Maize Oil, Maize Cake & allied products, and its principal place of business is at Indore & the factory is situated in District Dhar. In the process of manufacturing starch yields, apart from starch itself, certain derivatives such as Maize Oil & Maize Cake are by-products. Under the provisions of the M.P. Commercial Tax Act, 1994, the Assistant Commissioner of Commercial Tax treated Maize Oil & Maize Cake as independently taxable commodities & not as exempt by-products of Maize or Maize starch & consequently imposed tax on these items under entries covering vegetable oil & oil cake for all the assessment periods.
When the matter reached the Commercial Tax Appellate Board, it was concluded that in the process of manufacturing starch, the resultant Maize Oil & Maize Cake cannot be classified as by-products of Maize starch as claimed, but are to be recognised as independent commodities in trade & since they fall under separate entries as vegetable & edible oil, they are taxable. However, considering that the matter raised substantial questions of law touching the nature & classification of Maize Oil & Maize Cake, the Board referred the same for adjudication to the present High Court.
Appearances:
Advocate Prakhar Karpe, for the Petitioner/ Taxpayer
Advocate Bhuwan Gautam, for the Respondent/ Department
