REPORTABLE  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  7731 OF 2011  (Arising out of S.L.P.(C) No.7969 of 2008)

Aluva Sugar Agency .....Appellant.

        Versus

State of Kerala …..Respondent

J U D G M E N T

ANIL R. DAVE, J.

1. Leave granted.

2. Being aggrieved by the judgement and order dated 22nd September,  

2006,  delivered in S.T.R. NO. 569 OF 2004 by the High Court of Kerala at  

Ernakulam, the appellant has filed this appeal.  

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3. The short  question which arises  for  consideration in  this  appeal  is  

whether sale of margarine is to be taxed at 8% or 4% under the provisions of  

Kerala General Sales Tax Act, 1963 (hereinafter referred to as “the Act”).

4. The Sales Tax Officer held that margarine is a lubricant and animal  

fat, which is used for  making bakery products, is neither edible nor inedible  

oil. According to him, edible oil is defined in circular no.2439/96/TD dated  

19.2.96,  where it is stated that edible oil includes refined or hydrogenated  

oil such as ground nut oil, refined oil and vanaspathi and, therefore, he held  

that  margarine  is  not  edible.   As   margarine  is  not  consumed  directly,  

according  to  him,  it  is  inedible  oil.   Entry  90  in  the  First  Schedule  

specifically uses the phrase “and margarine” which establishes the fact that  

the same is neither edible nor inedible oil. Hence, margarine would come  

only under Entry 90 and, therefore, would be taxable  at the rate of 8%  and  

not at the concessional rate of 4%. Hence, the sale of margarine would be  

subjected to tax  at 8%.

5. The  appellant  preferred  an  appeal  before  the  Appellate  Assistant  

Commissioner,  Commercial  Taxes, Ernakulam. The appeal was dismissed  

and the order of the Sales Tax Officer was upheld.   Aggrieved by the above  

order,  the appellant  preferred an appeal  against  the said order  before the  

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Kerala Sales Tax Appellate Tribunal.  The Tribunal set aside the order of the  

Appellate Assistant Commissioner in so far as it related to the rate of tax on  

margarine. According to the Tribunal:  

  “……….margarine  could  be  considered  as  “edible  oil”.  According  to  New  Webster’s  Dictionary,  margarine  is  “a  substitute for butter consisting of a mixture of prepared edible  fats extracted from vegetable oils, and treated with lactic acid  bacilli”. According to Chambers Twentieth Century Dictionary,  margarine  is  “any  imitation  butter”.  According  to  Concise  Oxford Dictionary, margarine is “butter substitute made from  edible  oils  and  animal  fats  with  milk”.  Thus,  margarine  is  considered as a substitute for butter”.  

The Tribunal further held that by virtue of Circular No.  2439/83/96/TD dated 19.2.1996, the Government had clarified  the doubt as to whether hydrogenated edible oil like vanaspathi  oil would come within the ambit of edible oil. In the words of  the  Tribunal  “The  Government  clarified  that  the  expression  edible oil  would include hydrogenated oil  such as groundnut  oil,  gingely oil,  refined oil  and vanaspathi.  But this does not  mean that margarine cannot be considered as edible oil. Further  it  is  to  be  noted  that  the  expression  used  in  the  above  Government notification is  “such as” and hence,  it  is  not  an  exhaustive list. It is only illustrative. In any case, it is pertinent  to  note  that  margarine  has  been  classified  in  Entry  90  (as  extracted  in  para  2  above)  which  relates  to  oils.  Hence,  the  intention of the legislature is to treat margarine as oil. Thus, the  authorities below cannot take the stand that margarine is not oil.  Considering  all  the  above  facts,  we  are  of  the  view  that  margarine could be considered as edible oil.  Since margarine is  edible oil, the appellant is entitled to the benefit of the reduced  rate  of  tax of  4  % as  provided in  Entry  17A of  the  Second  Schedule of the Government notification S.R.O. No. 1725/93”.

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6.     Against  the  order  of  the  Tribunal,  the  respondent  -  State  

Government  filed  a  revision  petition  in  the  High  Court  of  Kerala  at  

Ernakulam.  The question  raised  in  the  revision  petition  was whether  the  

Tribunal was justified in granting concessional rate of tax on BISBRI brand  

of bakery margarine sold by the appellant by treating it as an edible oil under  

Entry17A of the Second Schedule  as per notification SRO 1728/1993 for  

the assessment year 1997-98. The High Court in the impugned judgement  

held that BISBRI brand bakery margarine sold by the appellant cannot be  

used  for  all  purposes  for  which  edible  oils  are  used.   The  High  Court  

observed:  

“……..The product description of Respondent’s product  in the leaflet further shows that the item is enriched with  vitamin  A and  vitamin  D  and  also  contains  permitted  emulsifiers and stabilizers. Even though counsel for the  Respondent referred to the leaflet of Dalda produced in  court  and  contended  that  vitamin  addition  is  there  in  other hydrogenated oils also, we do not think Dalda sold  by hydrogenated oil is similar to bakery margarine sold  by the Respondent. From the product description and the  limited use of the item in the bakery and confectionary  industry, it is clear that the Respondent’s product namely,  bakery  margarine  is  a  product  made  for  a  specific  purpose i.e. for use in bakery and confectionary industry  and the manufacturer has specifically prohibited use of  the item for any other purpose. Edible oil, on the other  hand, whether in hydrogenated form or not, is used for all  cooking  purposes.  Even  though  hydrogenated  oil  or  refined  oil  also  can  be  used  in  the  bakery  or  confectionary industry,  the reverse is  not true.  In other  

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words, margarine exclusively make to use in bakeries or  confectionary industry cannot be treated as edible oil as  the same cannot be used for all purposes for which edible  oil is used. In fact, the Tribunal has allowed respondent’s  claim  on  the  ground  that  the  circular  clarifying  the  notification uses the word “such as” and so much so, the  list is not exhaustive.  However, we find from the circular  that  the  use  of  words  “such  as”  after  including  hydrogenated  oil  is  followed by specific  items namely  ground  nut  oil,  gingili  oil  and  vanaspathi.   This  only  means that those items also are covered by notification.  However, margarine referred above is not similar to those  items is what we found.  Therefore, we are of the view  that  bakery margarine  is  not  edible oil  covered by the  notification and clarified in the circular and therefore, the  decision of the Tribunal holding otherwise is liable to be  reversed”.

7. Being aggrieved by the said judgment, this appeal has been filed by  

the appellant-assessee.

8. The learned  counsel for the appellant submitted that as margarine is  

an edible vegetable oil, it squarely falls in Entry 17A of the Second Schedule  

of the Act and, therefore, it becomes eligible for concessional rate of tax at  

4%.  To substantiate  this  claim,  he  submitted that  there  are  two types  of  

margarine, namely, table and bakery margarine. The product dealt with by  

the appellant is bakery margarine. Photocopies of the labels affixed on the  

container of margarine manufactured by a few companies have been placed  

on record.  The first one is the label of BISBRI bakery margarine. It is stated  

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in the label that the said margarine is made from vegetable oils only and that  

it  is enriched with vitamins A and D and is made from any or all of the  

following permitted ingredients:

“refined  and/or  hydrogenated  sunflower,  soyabean,   cottonseed,  palmoline,  palm  and  sesame  oils,  salt,   permitted emulsifier and stabilizers”.  

9. Similarly,  details  of  some  other   brands  were  given  so  as  to  

substantiate his case that margarine is an edible oil, which is being used in  

eatables. He further submitted that the margarine used by the appellant does  

not  become  inedible  oil  just  because  it  is  meant  for  preparing  bakery  

products. The question is not the use to which the oil is put but whether the  

oil  is  edible.   The learned counsel  for  the  appellant  also argued that  the  

intention of Entry 17A of the Second Schedule was to confer a concessional  

rate of tax at 4% for edible oils. Margarine, being  hydrogenated oil and also  

edible, qualifies for the concession.

10. On the other hand,  the learned counsel for the respondent contended  

that  the notification SRO 1728/93 granted exemption only to edible oils,  

whereas Entry 90 of the First Schedule to the Act includes oils, edible or  

inedible, including refined or hydrogenated oils and margarine. It means that  

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the concession is not granted to margarine as it is included in Entry 90 of the  

First Schedule.  It was argued that as the intention of the legislature is clear,  

the appellant cannot claim the benefit of reduced rate by submitting that its  

product also comes within the ambit of edible oils. He further submitted that  

the BISBRI brand margarine sold by the appellant cannot be used for all  

purposes for which edible oils, including hydrogenated oils and vanaspathi,  

are used.  It was his case that margarine was used for a  limited purpose i.e.  

only for preparing certain eatables and not for all purposes and, therefore, it  

cannot be said to be edible oil.  

11. The learned counsel relied upon a judgment delivered in the case of  

Commissioner of Trade Tax, UP v. Associated Distributors, 2008(7) SCC 409.  

There the dispute was whether  bubble gum was a mithai and could be taxed  

at 6.25% or whether bubble gum was an unclassified item to be taxed at  

10%. This  Court held that although bubble gum contained 60% of sucrose,  

still the same was not a mithai. Relying on the decision of the Apex Court in  

the aforestated case, the counsel contended that although margarine may be  

an edible product and used in bakeries, it cannot fall within the classification  

of ‘edible oil’ which is essentially a cooking medium in common parlance.

12. We have heard the learned counsel and also perused the records.  

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13. The main issue for adjudication in this appeal is whether margarine  

can be treated as edible oil and thus, fall under Entry 17A of the Second  

Schedule of the said Act.

14. Margarine is a generic term and it is used as a substitute for butter.   It  

is  used  in  preparation  of  food  articles  and  specially  used  for  preparing  

bakery  products.   For  the  purpose  of  manufacturing  margarine,   refined  

and/or hydrogenated oils  of  sun-flower, soyabean, cotton seed,  palmoline,  

palm and sesame oils are used.  Moreover,  vegetable oils, salt, permitted  

emulsifiers and stabilizers  are also used for  manufacturing margarine.  So  

far as the  margarine manufactured by  the appellant is concerned,  it is made  

only from vegetable oils as stated by the appellant and as borne out from the  

record.    The margarine manufactured by the appellant is exclusively used  

as  raw-material by  bakeries and those  who manufacture confectionaries.

15. Looking to the contents of margarine, it is clear that it contains  

all  edible  things.   Margarine  is  used  exclusively  as  a  raw-material  for  

preparing bakery products and is also used in confectionary  industry.  Like  

butter, margarine also  contains almost 80%  fat and remaining constituents  

of margarine are edible things which are added thereto  by the manufactures  

of margarine.   Vegetable and hydrogenated  oils are used in manufacturing  

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margarine and as it is used for making eatables,  margarine is also edible  

though  it  is  not  used  for  normal  cooking  as  other  oils  like  coconut,  

sunflower, soyabean, sesame oils are used but it can not be disputed that it is  

an edible oil.

16. So far as imposition of tax under the Act is  concerned,  there are two  

relevant entries, which are as under:

“First Schedule of KGST Act:

Sl. No. Description of goods      Point of levy Rate of  tax

(percentage)

90. Oils, edible  or inedible                     At the point of first       8

       including refined or hydrogerated      sale in the State by  

      oils and margarine not elsewhere      a  dealer  who is liable  

      mentioned in this Schedule or in       to tax under Section 5.

      the second schedule.

Second Schedule:  

Sl.No.   Description of goods Existing rate of tax    Reduced rate of tax

(percentage)    (percentage)

17A Edible oil 8  4

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17. According to  the  above Entry 90 in  the  First  Schedule,  oils,  

whether  edible  or  inedible,  including  refined  or  hydrogenated  oils  and  

margarine, not elsewhere mentioned is to be taxed at 8%.   It is pertinent to  

note that  concessional rate  of 4% is levied on all edible oils  as per  Entry  

17A of the Second Schedule read with Notification SRO  No. 429/95 dated  

31.2.1995.  Thus, instead of  8%, edible oil is taxed at the rate of 4%.  The  

question is whether the appellant is entitled to the aforestated  benefit for the  

margarine manufactured by it.  Margarine is definitely  an edible oil as it is  

used for preparing bakery products but it is not used for normal cooking.  As  

margarine  is not used for normal cooking but is still  used for preparing  

bakery products, a doubt prevailed whether margarine can be considered as  

edible oil.  In the circumstances,  Circular No. 2439/TD dated 19.2.1996 was  

issued by  the Government, which reads as under:

“CIRCUAR

Sub:- Reduced rate of tax on Edible Oil – Clarification –  regarding.

1. As per  the  Entry  90  in  the  1st  Schedule  to  the  Kerala  General  Sales  Tax  Act,  Oils,  -  edible  or  inedible, including refined or hydrogenated oil and  margarine  not  elsewhere  mentioned  in  the  Schedule are taxable @ 8% at the point of 1st sale  in the State.  As per the  notification SRO 429/95  

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dated  31.3.1995,  the  rate  of  tax  edible  oil  is  reduced to 4% with effect from 1.4.1995.

2. Now certain doubts have been raised as to whether  hydrogenated edible oil like vanaspathy will come  within the concessional rate.  Government, having  examined the matter, are pleased to clarify that the  term “Edible  Oil”  mentioned  in the   notification  SRO  429/95 dated 31.3.1995 included refined or  hydrogenated oil  such as ground nut oil,  gingely  oil, refined oil and vanaspathi.”

18. By virtue of the abovereferred circular, it has been clarified that the  

term “edible oil” mentioned in the Notification SRO 429/95 dated 31.3.1995  

includes  refined  or  hydrogenated  oil  such  as  groundnut  oil,  gingely  oil,  

refined oil and vanaspathi.    Thus,  the term “edible oil” has been explained  

by virtue of the circular dated 19.12.1996. The afore-stated circular makes it  

clear that edible oil like  refined or hydrogenated oil such as groundnut oil,  

gingely oil, refined and vanaspathi  oils are to be  taxed @ 4% and not at  

@8%.  The definition of “edible oil” given in the aforestated circular  is not  

dealing  exhaustively with  all edible oils.  It merely illustrates some of the  

oils which are edible oils. It means that the definition of the term “edible oil”  

in the circular is not exhaustive but is illustrative.    This circular does not  

say that only  edible oils referred to  in the said circular would be taxed  

@4%.    

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19. In  the  aforestated  circumstances,  one  has  to  consider  whether  

margarine  can be considered as an edible oil.   We clearly understand  that  

edible oil is that oil which can be used for human consumption.  It is not  

necessary that all edible things should be consumed in the form in which  

they are available.   There are number of ingredients  used in cooking for  

preparation of food articles  which we do not consume in the same form but  

they are used in preparation of food articles which are consumed.   

20. So as to simplify  the conclusion, we may say that normally anything  

which is used for preparation of a food article  is edible  because ultimately  

it  is  being consumed by human beings.    Though one may not  consume  

margarine   directly  or  may not  use for normal cooking,   the fact  is  that  

margarine  is  used  for   preparing  bakery  items  which  are  consumed  by  

human beings and, therefore, margarine is also edible.  Having around 80%  

fat, and being in the nature of oil,  in our opinion, it should be considered as  

edible oil.  

21. Upon perusal of the Circular dated 19th February, 1996, explaining the  

term “edible oil”, we find that intention of the government was to give relief  

in tax to edible oils.  So as to clarify the doubt, it has been specifically stated  

in the said circular that edible oils would also include hydrogenated oils such  

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as ground nut oil, gingely oil, refined oil and vanaspathi oil.  The aforestated  

circular  clarified that hydrogenated edible oil like vanaspathi oil should be  

treated as edible oil.    In our opinion, the Tribunal was right  when it came  

to the conclusion that margarine should be  taxed @ 4% as it is edible oil.  

22. For the aforestated reasons,  we are of the view that the conclusion  

arrived at by the Tribunal to the effect that  margarine  is an edible oil is  

correct and, therefore, the appellant is entitled to benefit of reduced rate of  

4%.

23. We,  therefore,   allow the  appeal  by  quashing  the  impugned  order  

dated  22.9.2006   passed  by  the  High  Court.   The   appeal,  is  allowed  

accordingly with no order as to costs.

………………................................J.                                                                 (Dr. MUKUNDAKAM SHARMA)

                          ……...........................................J.                                                                        (ANIL R. DAVE) New Delhi September 7, 2011.  

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