Pasteurised milk treated as fresh milk under tax exemption entry, making reassessment and demand notices unsustainable.

Pasteurised milk was treated as falling within "fresh milk" in Entry 23 of the Third Schedule to the Kerala General Sales Tax Act, because pasteurisation was viewed as a preservation process that did not alter milk's essential physical or chemical character. On that reasoning, the product retained its identity as milk and remained exempt from tax. The court also noted that the surrounding statutory scheme and prior administrative understanding supported this reading, and the contrary departmental notices proposing reassessment and levy on pasteurised milk were unsustainable and set aside.

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Issues: Whether pasteurised milk falls within the expression "fresh milk" in Entry 23 of the Third Schedule to the Kerala General Sales Tax Act, 1963 and is therefore exempt from tax; whether the notices proposing reassessment and levy of tax on pasteurised milk were valid.

Analysis: The statutory scheme levies tax on sales generally, but goods specified in the Third Schedule are exempt. At the relevant time, Entry 23 covered only "fresh milk", while other milk products were separately listed and taxed. Pasteurisation was found to be a process of heating and cooling meant to preserve milk, eliminate pathogens, and improve shelf life without changing its physical or chemical character. On that footing, pasteurised milk retained its essential identity as milk and continued to answer the description "fresh milk". The earlier departmental understanding and the retrospective exemption later granted to co-operative societies reinforced that the consistent administrative view was that pasteurised milk was within the exempt entry. The earlier decision relied on by the Revenue was distinguished on facts.

Conclusion: Pasteurised milk is "fresh milk" for Entry 23 and is exempt from tax. The reassessment and demand notices were unsustainable and were set aside.

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