SEPTEMBER 23, 2014

By Pritam Mahure, CA

Sr. No. 14 of the Not. No. 25/2012-ST provides exemption to:

“14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,-

…

(e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages."

In the above backdrop, the question that seeks an answer is whether a sugar factory is a unit which processes the "agricultural produce as food stuff" since if this question is answered in the affirmative then the services by way of construction, erection, commissioning pertaining to the sugar factory stand exempted.

Sugar cane is an agricultural produce and there can be no two views about it.

But is sugar a 'foodstuff?'

Let's understand.

The term 'foodstuff' is not been defined under the Finance Act, 1994. Thus, reference needs to be made to dictionary meanings and judicial precedence in this regard.

Recently, the Apex Court in the case of Gulati & Co [2014-TIOL-31-SC-CT] observed:

“The meaning of "foodstuff" according to lexicographers is as follows:

a) Oxford Advanced Learner's Dictionary: "a substance suitable for consumption as food"

b) Collins English Dictionary: "any material, substance, etc, that can be used as food"

c) Macmillan English Dictionary for Advanced Learners: "a type of food"

…The Shorter Oxford English Dictionary (Third Edition) defines "food" as "what one takes into the system to maintain life and growth". According to Webster's Third New International Dictionary, "food" means "material consisting of carbohydrates, fats, proteins and supplementary substances, that is taken or absorbed into the body of an organism in order to sustain growth, repair, and all vital processes and to furnish energy for all activity of the organism; something that nourishes or develops or sustains". Therefore, "foodstuff" would refer to anything with a nutritive value which is consumed for growth or sustaining one's life."

In K. Janardhan Pillai & Anr. [AIR 1981 SC 1485] the Apex Court opined that ‘It is well known that the food eaten by human beings consists of cereals like wheat, rice or other coerce grains, pulses, oilseeds, vegetables, sugar, fruits and nuts, animal foodstuffs and sea food like meat, beaf, mutton and fish and dairy products like milk, butter, eggs etc…. Therefore, 'foodstuff' need not necessarily mean only the final food product which is consumed. It also includes raw food articles which may after processing be used as food by human beings'.

Further, in Anchor Sweet Products 1979 UPTC 1290 it was categorically observed that the 'sugar syrup is undoubtedly a foodstuff as it is made out of sugar'.

If sugar syrup is foodstuff then raw foodstuff i.e. sugar will also qualify as 'foodstuff' as in the case of Welcome Hotel [(1983) 4 SCC 575], the Apex Court observed that 'If raw foodstuff with a view to making it consumable by human beings undergoes a change in its condition by the process of cooking, the derivative is nonetheless foodstuff'.

Also, expression 'foodstuff' is understood as ‘which is taken into the system to maintain life and growth and to supply for waste of tissue' .

When sugar is consumed, depending on the genetic predisposition, the body will either burn it for energy or store it as fats. In most parts of the world, sugar is an important part of the human diet, making food more palatable and providing food energy (http://en.wikipedia.org/wiki/Sugar).

Thus, it can be stated that sugar (which is a carbohydrate) is ‘foodstuff' as it is taken into the body to maintain life and growth and to supply waste of tissue.

Even, the Government considers 'sugar' as foodstuff and regulates its trade. Further, sugar has been consistently held as 'foodstuff' in the context of various Acts (including Essential Commodities Act, 1955). Sugar was considered to be a foodstuff for daily consumption (Vishnu Sugar Mills CWJC 13466 of 2011).

At per sr. no. 20 (i) of Not. No. 25/2012-ST the term foodstuff is said to include sugar.

This is what serial no. 20(i) reads –

20. Services by way of transportation by rail or a vessel from one place in India to another of the following goods -

(i) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or

Thus, it can be stated that the Legislature, as matter of abundant caution, has categorically clarified that ‘sugar' is foodstuff.

Also, as per Principles of Interpretation if a term is used more than once in a statute and is defined then it should be given the same meaning throughout.

Reference can also be made to the Education Guide wherein it is clarified:

“7.9.9 I am setting up a wheat flour mill. The supplier of machines is demanding service tax on erection and installation of machineries and equipments in the flour mill. Is he right in demanding service tax?

There is no service tax liability on erection or installation of machineries or equipments for units processing agricultural produce as food stuff excluding alcoholic beverages. You are processing wheat which is made from processing an agricultural produce. Similarly erection or installation of machineries or equipment for dal mills, rice mills, milk dairies or cotton ginning mills would be exempt."

The aforesaid clarification in Education Guide is tabulated below:

In the light of the discussion made in the preceding paragraphs, the aforesaid tabulation can be expanded to incorporate the following -

Conclusion: As "Sugar is a foodstuff" processed out of agricultural produce "Sugarcane" the exemption at Sr. no. 14 of Notification 25/2012-ST would also be available for construction/erection/commissioning or installation of original work pertaining to machinery /equipment for processing Sugarcane as Sugar.