Case Background
These two miscellaneous appeals arose from a common order dated 11.03.2005 passed by the Commercial Taxes Tribunal, Bihar, Patna in a Miscellaneous Case and a Revision Case.
The appellant is a dealer registered under the Bihar Value Added Tax Act, 2005 (referred to as the Act of 2005). For the assessment year 2005–06, the first year of the VAT regime in Bihar, the appellant approached the Commissioner under Section 77 of the Act of 2005.
Under Section 77(1)(e), the appellant requested a ruling on how its product “coconut oil” should be taxed under the new VAT law. The dispute was whether the product should be taxed at 12.5% as a residuary item or at 4% as a commodity covered by Schedule III of the Act of 2005.
Initially, Entry 27 of Schedule III covered “edible oil and oil cakes”. By notification dated 09.07.2005, Entry 27 was amended to read “edible oils (other than coconut oil) or oil cakes”. The appellant contended that up to 09.07.2005 its product was clearly within Entry 27, and even after that date it should be taxed at 4% as “vegetable oil” under another entry of Schedule III.
The Commissioner rejected this position. The Commercial Taxes Tribunal, by common order, upheld the Commissioner’s view and also dismissed the appellant’s revision against the assessment order, which had already been confirmed in first appeal. Against this, the appellant filed Miscellaneous Appeal No. 98 of 2015 (challenging the Section 77 ruling) and Miscellaneous Appeal No. 99 of 2015 (challenging the Tribunal’s order in the assessment matter) before the Patna High Court.
What the Court Examined and Decided
The Division Bench of the Patna High Court, comprising Hon’ble the Chief Justice and Hon’ble Mr. Justice Rajiv Roy, heard arguments from both sides. Senior counsel represented the appellant, while State counsel represented the revenue authorities.
The central question framed by the Court was whether the coconut oil sold by the assessee could be classified as edible oil under Entry 27 of Schedule III, and, after coconut oil was expressly excluded from Entry 27, whether it could still be brought under another Schedule III entry covering “vegetable oil” (Entry 82/84 in the relevant year).
The assessment year 2005–06 was significant because it was the first year of VAT in Bihar. The appellant argued that when VAT schedules were drafted in this “nascent stage”, some drafting mistakes were bound to occur. According to the appellant, such ambiguity should benefit the assessee.
The appellant’s stand was that coconut oil is an edible oil. Therefore, till 09.07.2005 it was covered as “edible oil” under Entry 27. After the 09.07.2005 amendment, which excluded coconut oil from Entry 27, the appellant argued that coconut oil was still taxable at 4% as “vegetable oil” under another entry of Schedule III.
To support this, the appellant relied on the Customs Tariff and Central Excise Tariff based on HSN (Harmonised System of Nomenclature) codes. These show coconut oil grouped under the broader heading of “animal or vegetable fats and oils and their cleavage products” and, more specifically, in the list commonly referred to as “vegetable oils”.
The appellant also stressed that the product sold under the brand name “Parachute” was, according to it, 100% pure coconut oil without any perfumes. It stated that it separately manufactured hair oils under other brand extensions like “Parachute Advanced”, “Parachute Light”, “Parachute Jasmine” etc., which could be clearly distinguished from the pure coconut oil product.
On this basis, the appellant maintained that its “Parachute” coconut oil should be treated as ordinary edible coconut oil and taxed at the lower 4% rate.
The State, through its counsel, opposed this. The State pointed out that, despite claiming the product as edible oil, the appellant in reality marketed and sold it as hair oil. This was evident from its invoices, which showed “coconut oil” sold along with soap, detergents and similar items, all of which are toiletries.
The Commissioner, in the Section 77 order (Annexure-2 in M.A. No. 98 of 2015), had already recorded a factual finding that the product was used as hair oil and was part of the toiletries group. On that basis, he concluded that the product did not qualify as edible oil or vegetable oil under Schedule III. Instead, it fell under the residuary category of toiletries, taxable at 12.5%.
The Tribunal agreed with this reasoning and dismissed both the miscellaneous case and the revision filed by the assessee. This led to the present appeals.
The High Court first examined the factual foundation of the case. It noted that even in the memorandum of appeal, the appellant did not clearly assert whether the “Parachute” brand coconut oil was sold as edible oil or as hair oil. The appellant only emphasised the product’s purity and absence of perfume, and highlighted that it had separate, clearly branded “hair oils”.
However, the first Appellate Authority had already made a clear factual finding that the product manufactured from coconut and sold by the appellant was being sold as hair oil, as shown in the invoices. The High Court treated this as a finding of fact.
The Court held that no substantial question of law arose from this factual aspect. Once it was accepted that the product was sold as hair oil, it could not be classified under “edible oil”. Moreover, from 09.07.2005 onwards, “coconut oil” was specifically excluded from Entry 27, further weakening the appellant’s claim.
The Court then turned to the appellant’s argument that, even after this exclusion, coconut oil should still be treated as “vegetable oil” under another entry (referred to as Entry 82/84 in the judgment) of Schedule III.
The appellant again relied on HSN-based Customs and Excise Tariffs and other material to show that coconut oil was treated as vegetable oil under those laws. The High Court, however, rejected this line of argument.
The Court observed that the entries under the Act of 2005 had no express link to HSN codes. The VAT Schedule needed to be read on its own terms. The Court held that it was not permissible to import tariff classifications from other enactments (like the Customs Tariff Act) when interpreting entries under the Bihar VAT Act.
Even within the Customs Tariff, the Court noted that though the broader heading “Animal or vegetable fats and oils and their cleavage products” existed, coconut oil, palm oil, sunflower oil, mustard oil and so on were treated separately from other fixed vegetable fats and oils and their fractions. This further undermined the attempt to force coconut oil into the expression “vegetable oil” as used in the VAT Schedule.
The appellant relied on a Patna High Court judgment in Tata Oil Mills Company Ltd. v. Director, Marketing, Bihar State Agriculture Board, Patna, reported in 1986 PLJR 172. That case interpreted the term “agricultural produce” under the Bihar Agriculture Produce Markets Act, 1960. There, the Court held that coconut and coconut oil were “agricultural produce”.
The Division Bench in the present case carefully examined that decision. It explained that the definition of “agricultural produce” in that statute was an inclusive one, covering all processed and non-processed products of agriculture, horticulture, animal husbandry and forests. Coconut oil, being a processed product of coconut, which itself was agricultural produce, naturally fell within that wide definition.
However, the Court pointed out that this earlier case did not involve any issue of whether coconut was a vegetable, fruit or nut. Nor did it interpret the expression “vegetable oil”. Therefore, it could not assist the appellant’s argument in the present VAT classification dispute.
The Court next referred to the Supreme Court decision in Deputy Chief Controller of Imports and Exports v. K.T. Kosalram, AIR 1971 SC 1283. That judgment held that dictionary meanings or meanings used in the Customs Tariff are not helpful when the meaning in the statute itself is clear.
Applying this principle, the Patna High Court held that in the context of the VAT entries, “vegetable oil” indicates oil extracted from items commonly understood as vegetables. In ordinary usage and common parlance, coconut is not considered a vegetable.
To reinforce this “common parlance” approach, the Court cited another Supreme Court judgment reported in 1992 Supp (1) SCC 298, Shri Bharuch Coconut Trading Co. v. Ahmedabad Municipal Corporation. In that case, the Supreme Court dealt with whether different forms of coconut could be considered as green fruit, fresh fruit or vegetable for octroi and sales tax purposes.
The Supreme Court had examined earlier precedents and dictionary definitions. It concluded that, in everyday commercial language, betel leaves and coconuts, although they might scientifically fit into broader categories like “vegetables” or “fruits”, are not treated that way by ordinary consumers. Coconut was described in various forms (tender coconut, watery coconut, dried coconut, copra), and these were treated as “oil seeds” or other distinct commercial items, not as “vegetables” for daily household purchase.
Relying on this line of reasoning, the Patna High Court held that, in ordinary commercial parlance, coconut cannot be termed a vegetable. Therefore, oil extracted from coconut cannot naturally fall under “vegetable oil” as that term is commonly understood.
The Court also stated that in classifying goods for tax purposes, not only the nature of the product but also its use must be considered. In the present case, the factual finding was that the appellant’s product, though derived from coconut, was sold and used as hair oil, a toiletry, and not as edible oil.
Combining both strands of reasoning—commercial parlance of “vegetable” and the actual use of the product—the Court concluded that the appellant’s product could not, “by any stretch”, be treated as edible oil or vegetable oil.
Finally, the Court affirmed the views of the authority under Section 77 and of the Commercial Taxes Tribunal. It answered the questions of law against the assessee and in favour of the revenue. As a result, both Miscellaneous Appeal No. 98 of 2015 and Miscellaneous Appeal No. 99 of 2015 were dismissed, and the higher tax rate of 12.5% on the coconut hair oil product stood confirmed.
Why This Judgment Matters
This decision is important for businesses dealing in products that can serve more than one purpose, such as coconut oil that may be both edible and usable as hair oil.
The Patna High Court has made it clear that, for VAT purposes under the Act of 2005, authorities will look at how a product is actually marketed, sold and used in ordinary life, and not just at its chemical composition or purity.
Even if a product is technically capable of being eaten, it will not automatically get the benefit of a lower tax rate meant for food items if it is, in reality, sold and used as a toiletry or cosmetic.
The judgment also reinforces that HSN codes or classifications under the Customs Tariff or Central Excise Tariff cannot be used to stretch or modify the meaning of entries in the Bihar VAT Schedule, unless the VAT statute itself links to those codes.
For dealers and manufacturers, the case is a reminder to be consistent in how they present, invoice and market their products. Invoices showing a product in the toiletries segment can be strong evidence against later claims that it should be treated as edible oil or food item for lower tax.
Legal Issues and Answers
Issue: Can the coconut oil product sold by the assessee be classified as “edible oil” under Entry 27 of Schedule III of the Bihar VAT Act, 2005?
Answer: No. Based on factual findings, the product was sold and used as hair oil, a toiletry, and could not be treated as edible oil.
Issue: After “coconut oil” was expressly excluded from Entry 27, could it still be brought within another Schedule III entry as “vegetable oil” for concessional tax?
Answer: No. In ordinary commercial parlance coconut is not a vegetable, and coconut oil is therefore not “vegetable oil” within the meaning of the relevant entry. The product remained taxable at 12.5% as a toiletry.
Issue: Can HSN-based Customs and Excise Tariff classifications or dictionary meanings control the interpretation of “vegetable oil” under the Bihar VAT Act, 2005?
Answer: No. Where the statute is clear and there is no link to HSN codes, meanings must be derived from the statute and common commercial usage, not from external tariff or dictionary definitions.
Cases Cited by the Court
- Tata Oil Mills Company Ltd. v. Director, Marketing, Bihar State Agriculture Board, Patna, 1986 PLJR 172.
- Deputy Chief Controller of Imports and Exports v. K.T. Kosalram, AIR 1971 SC 1283.
- Ramavatar Budhaiprasad v. Assistant Sales Tax Officer, (1961) 12 STC 286 : AIR 1961 SC 1325 : (1962) 1 SCR 279.
- CST v. S.N. Brothers, (1973) 3 SCC 496 : 1973 SCC (Tax) 254 : (1973) 31 STC 302.
- 1992 Supp (1) SCC 298, Shri Bharuch Coconut Trading Co. v. Ahmedabad Municipal Corporation.
- P.A. Thillai Chidambara Nadar v. Additional Appellate Assistant Commissioner, (1985) 4 SCC 30 : (1985) 60 STC 80.
- Sri Krishna Coconut Co. v. Commercial Tax Officer, (1965) 16 STC 511 : AIR 1966 AP 128.
- Kunchi Rajeshwara Sastry & Sons v. Assistant Commercial Tax Officer, (1976) 37 STC 399 (AP HC) : 1976 Tax LR 1786.
- Sri Lakshmi Coconut Industries v. State of Karnataka, (1980) 46 STC 404 (Karn HC).
- Deputy Commissioner of Agricultural Income Tax and Sales Tax, Kerala v. A.P. Raman, (1960) 11 STC 263 (Ker HC).
- CST v. Ram Kumar Nand Kumar, (1973) 31 STC 321 : 1973 Tax LR 2165 (All HC).
Case Details
Case Number: Miscellaneous Appeal No. 98 of 2015 with Miscellaneous Appeal No. 99 of 2015
Case Title: M/s Marico Ltd. v. The State of Bihar & Ors.
Coram: Hon’ble the Chief Justice K. Vinod Chandran and Hon’ble Mr. Justice Rajiv Roy
Citation: 2024 (1) PLJR 674
Advocates: For the appellant: Mr. Alok Kumar Agrawal, Advocate. For the respondents/State: Mr. P. K. Shahi, Advocate General.
Nature of the case: Miscellaneous appeals under the Bihar Value Added Tax Act, 2005, challenging a Section 77 determination and Tribunal order in a tax assessment/revision concerning classification and tax rate of coconut oil.
Date of Judgment: 06.12.2023
Link to Judgment: Patna High Court Judgment – M.A. No. 98 of 2015 with M.A. No. 99 of 2015
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