Strict construction of milk tax exemptions leaves milk powder taxable and supports penalty for nondisclosure after notice.

Milk powder was held to fall outside the exemption for fresh milk, recombined milk and milk drinks, and also outside the reduced-rate notification for milk food including baby milk foods, because the taxing entry specifically included milk powder and the notifications were construed strictly. Tax was therefore payable under entry 103(viii). Penalty under section 12(5)(iii) was also upheld because the taxable turnover was reflected in the books but not disclosed as taxable turnover even after notice, and no revised return was filed before final assessment; the separate penalty notice was not invalidated by the date reference.

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Issues: (i) Whether milk powder fell within the exemption notification for fresh milk and recombined milk or within the reduced-rate notification for milk food including baby milk foods, so as to escape or reduce tax under entry 103(viii) of the First Schedule; and (ii) whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was rightly deleted.

Issue (i): Whether milk powder fell within the exemption notification for fresh milk and recombined milk or within the reduced-rate notification for milk food including baby milk foods, so as to escape or reduce tax under entry 103(viii) of the First Schedule.

Analysis: Entry 103(viii) specifically brought milk foods including milk powder within the taxable single-point entry from July 1, 1983. The exemption notification covered fresh milk, recombined milk and milk drink sold as a beverage, and on a strict construction of the notification, that expression did not extend to milk powder. The reduction notification also referred only to milk food including baby milk foods and did not specifically include milk powder. The Court treated the product as commercially distinct from milk and held that the earlier decisions relied on by the assessee did not govern the specific statutory entry and notifications in force.

Conclusion: Milk powder was not covered by the exemption or reduced-rate notifications and was liable to tax at 10 per cent under entry 103(viii); this issue was decided against the assessee.

Issue (ii): Whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was rightly deleted.

Analysis: The assessed turnover of milk powder was already reflected in the books, but it was not disclosed as taxable turnover even after the pre-assessment notice, and no revised return was filed before final assessment. On those facts, the basis for deleting penalty was not accepted. The Court also held that the separate notice and proceedings for penalty under section 12(5) were not vitiated by the incorrect mention of the date of the penalty order.

Conclusion: The deletion of penalty was unsustainable and the penalty as fixed by the Appellate Assistant Commissioner was restored; this issue was decided against the assessee.

Final Conclusion: The assessee obtained no relief on the tax liability issue, while the Revenue succeeded on the penalty issue, resulting in confirmation of tax on milk powder and restoration of the penalty.

Ratio Decidendi: A product specifically included in a taxing entry cannot be taken out by a general exemption notification unless the notification clearly covers it, and penalty under a turnover-disclosure provision is sustainable where taxable turnover is not disclosed despite notice and no revised return is filed before final assessment.

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