2025 (9) TMI 188 - HC - VAT / Sales Tax

Maize oil and maize cake are by-products of starch, taxable; not cereal by-products, CST not exempt under Section 8(2A)

M/s. Tirupati Starch & Chemicals Ltd. Indore Versus Commercial Taxes Department

M/s. Tirupati Starch & Chemicals Ltd. Indore Versus Commercial Taxes Department - 2025:MPHC - IND:23625 ISSUES PRESENTED AND CONSIDERED 1. Whether Maize oil and Maize cake produced in the course of starch manufacturing are by-products of Maize starch and thus exempt under Entry 91(ii) of Schedule I to the M.P. Commercial Tax Act, 1994 (exemption for 'by-products of cereals & food grains') and consequently exempt from central sales tax under Section 8(2A) of the Central Sales Tax Act, 1956. 2. Whether Entry 38 of Part V of Schedule II to the M.P. Commercial Tax Act, 1994 ('vegetable & edible oil except hydrogenated vegetable oil') is a specific entry applicable to Maize oil, and whether Entry 15 of Part V of Schedule II ('oil cake including de-oiled cake') is a specific entry applicable to Maize cake, thereby precluding reliance on the general/residuary exemption in Schedule I. ISSUE-WISE DETAILED ANALYSIS Issue 1: Are Maize oil and Maize cake by-products of Maize starch and exempt under Entry 91(ii) of Schedule I? Legal framework: - Entry 91(ii) Schedule I exempts 'by-products of cereals & food grains.' The question requires classifying the goods in trade parlance and determining whether they are by-products of a cereal (Maize) or by-products of a non-exempt processed product (starch). Precedent treatment: - The applicant relied on a prior decision treating Maize grain, its oil and cake as by-products entitled to exemption. The Tribunal and lower authorities considered that precedent but differed in characterisation. Interpretation and reasoning: - The Court applied the 'common parlance' identity test and examined production context: the applicant's primary industrial activity is manufacture of Maize starch, and Maize oil and Maize cake are produced in that industrial process and sold as distinct commodities. The Court observed that starch itself is not a 'cereal' within the meaning of Entry 91(ii). - The Court emphasised that whether a product is a by-product of a cereal must be determined by reference to the nature of the primary product and the commodity identity in commercial trade; incidental emergence in a manufacturing process does not automatically make a product a by-product of the raw cereal if the production context and commercial identity indicate otherwise. - The Court noted that Maize oil and Maize cake have an independent commercial identity and are separately traded and used (edible oil and oil cake for cattle feed), and that they are deliberately produced and marketed rather than being mere residual waste. Ratio vs. Obiter: - Ratio: Maize oil and Maize cake, when produced in the course of manufacturing Maize starch (a non-exempt processed product), are not to be classified as by-products of cereals for the purpose of Entry 91(ii) where they have independent commercial identity and are marketed as distinct commodities. - Obiter: Observations on the dictionary meaning of 'by-product' and general commercial tests for identity and end-use may be regarded as guidance beyond the immediate ratio. Conclusion: - The Tribunal's finding that Maize oil and Maize cake are by-products of Maize starch is upheld in the sense that they arise from the starch-manufacturing process; however, they are not by-products of the cereal Maize for the purpose of Entry 91(ii). Consequently, they are not covered by the exemption in Schedule I. Issue 2: Does a specific entry for vegetable & edible oil and for oil cake in Schedule II override the general exemption in Schedule I? Legal framework: - Principle of classification: a specific entry in a taxing schedule overrides a general/residuary entry. Resort to a residuary or general exemption is permissible only where the specific entry cannot, by liberal construction, cover the goods in question. Precedent treatment: - The Court relied on authoritative holdings that specific entries prevail over general ones, and that residuary headings are applicable only when goods clearly fall outside specific entries. Prior cases cited by the Court were applied to test whether Maize oil and Maize cake fit specific Schedule II entries. Interpretation and reasoning: - The Court found that Entry 38 (vegetable & edible oil) and Entry 15 (oil cake) of Part V of Schedule II are specific entries that describe commodities identical in commercial identity and end-use to Maize oil and Maize cake respectively. - Given the admitted character of Maize oil as edible oil and Maize cake as oil cake, the specific Schedule II entries apply. The Court held that the revenue cannot be relegated to a residuary/general exemption when the product squarely falls within specific taxable entries. Ratio vs. Obiter: - Ratio: Where goods correspond in identity and commercial understanding to specific taxable entries in Schedule II, the specific entries govern and override any general exemption for by-products; Maize oil and Maize cake fall within such specific entries and are therefore taxable. - Obiter: The Court's discussion on tests (identity, common parlance, end-use) for matching goods to entries serves as general guidance on classification disputes. Conclusion: - Entry 38 of Part V of Schedule II (vegetable & edible oil) and Entry 15 of Part V (oil cake) are specific entries applicable to Maize oil and Maize cake. The specific entries displace reliance on the general/residuary exemption under Entry 91(ii) of Schedule I. Accordingly, Maize oil and Maize cake are taxable under Schedule II. Interrelationship of Issues and Ancillary Conclusion on Central Sales Tax - Cross-reference: Because Maize oil and Maize cake are not covered by Entry 91(ii) Schedule I, they are not entitled to the exemption from central sales tax under Section 8(2A) of the Central Sales Tax Act, 1956. The specific classification under Schedule II thus produces the concomitant result that central sales tax exemption is inapplicable. Final Disposition - The Court answered the framed questions in favour of the Revenue: Maize oil and Maize cake produced in the starch-manufacturing context are not exempt by-products of cereals under Entry 91(ii) Schedule I and are taxable under specific entries in Schedule II; the Tribunal's contrary classification was not sustained to the extent it treated them as by-products of cereals entitled to exemption. The ancillary question on central sales tax exemption was resolved against exemption.