‘Milk Cream’ Can’t Be Classified As ‘Milk’: Himachal Pradesh High Court Upholds Tax Demand

The Himachal Pradesh High Court has held that ‘milk cream’ cannot be classified as ‘milk’.

The bench of Chief Justice M.S. Ramachandra Rao and Justice Ajay Mohan Goel, while dismissing the revision petition of Gujarat Co-Operative Milk Marketing Federation Ltd., observed that a scientific or technical meaning of the term ‘milk cream’, as sought to be projected by the assessee, should not be adopted and the popular meaning of milk cream, as is commonly understood, should be taken note of, i.e., that it is a product that is different from milk.

The assessee/appellant is a registered dealer under the said statute and is engaged in the trading of milk products, milk, edible oils, etc. The assessee is dealing with "milk cream".

The Assessing Authority of the Excise Department completed the assessment relating to the assessee qua VAT for the Assessment Years 2005-06 to 2008-09 on February 16, 2009, and January 27, 2010, respectively.

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 is selling fresh milk cream, it is nothing but fresh milk. The cream contents are retained up to 25% (low-fat cream), as a result of which low-fat milk cream is the outcome. The fresh cream is being sold under the name fresh cream by the assessee and is mainly used for garnishing and in the preparation of tea, coffee, etc. The dealer had not charged any VAT on its sale. The milk cream is a tax-free item in view of Entries 16 and 23 in Schedule-B.

The assessee urged that merely because milk obtained in its natural form is subjected to certain processing resulting in the redaction of either its water or fat content, it would not cease to be milk. Moreso, when the assessee had not added anything like vitamins, flavour or essence, sugar, or any other material, the nature of fresh milk at no point in time would be altered, and no new product would come into being.

The Department stated that milk cream is neither fresh milk, pasteurised milk, nor separated milk and is taxable at the rate of 12.5% or 13.75%.

The assessee filed a Revision under Section 46(3) of the Act before the Himachal Pradesh Tax Tribunal. The Tribunal rejected the contentions of the assessee and held that milk cream or low-fat cream is entirely different from milk in composition. The tribunal gave illustrations of milk and milk products, such as cottage cheese, desi ghee, khoya, etc., which are obtained by subjecting natural milk to a process that makes them milk products.

The petitioner contended that there being no entry in the Act dealing with milk cream, the Central Excise HSN Classification Entry no.16 should be taken into account and in that entry, which relates to fresh milk and pasteurised milk, the product cream is also included. Therefore, it should be taken into account, and since milk is not taxable, milk cream also ought not to be taxed.

The department contended that milk and milk cream are totally different products, and nobody, who intends to buy milk cream would ask for milk, so the common parlance test needs to be applied in such situations.

"A person who wishes to buy milk cream would not go to the market and ask for milk. He would only ask for milk cream because it is a separate product, though also a milk product," the bench remarked.

Case Title: M/s Gujarat Co-Operative Milk Marketing Federation Ltd. Versus Additional Excise & Taxation Commissioner and Another

Citation: 2023 LiveLaw (HP) 61

Case No.: Civil Revision No.8 of 2014

Date: 08.08.2023

Counsel For Petitioner: Arjun Lall

Counsel For Respondent: Navlesh Verma, Rakesh Dhaulta, Gautam Sood, Arsh Rattan, Sidharth Jalta, Rakesh Sharma

Click Here To Read The Order