2009 (4) TMI 853 - HC - VAT and Sales Tax

Whether potato chips manufactured and sold by the petitioner-company under the brand name Lays and Uncle Chips would be covered by entry 80 of Part A of the Second Schedule to the Assam Value Added Tax Act 2003 or the said product would fall under the residuary entry covered by the Fifth Schedule to the Act? Held that - Potato chips manufactured and sold by the petitioner-company would fall under entry 80 of Part A of Schedule II to the Assam Value Added Tax Act 2003 as contended by the petitioner and that the said item will not fall under the residuary item contained in serial No. 1 of the Fifth Schedule to the Act as claimed by the Revenue. Our above finding naturally has to be understood in the context of the provisions of the Act as it stood prior to the amendment to the Schedule to the Act made with effect from October 16 2008. The revision petition therefore is allowed. The impugned order dated September 10 2007 passed by the learned Commissioner of Taxes Government of Assam is set aside and quashed.

Issues Involved:
1. Classification of "potato chips" under the Assam Value Added Tax Act, 2003.
2. Interpretation of entry 80 of Part A of the Second Schedule to the Act.
3. Applicability of the common parlance test versus technical or special meaning for tax classification.
4. Impact of legislative amendments to entry 80 on the classification of "potato chips."

Issue-Wise Detailed Analysis:

1. Classification of "Potato Chips" under the Assam Value Added Tax Act, 2003:
The core issue is whether "potato chips" manufactured and sold by the petitioner-company under the brand names "Lays" and "Uncle Chips" should be classified under entry 80 of Part A of the Second Schedule to the Assam Value Added Tax Act, 2003, or under the residuary entry in the Fifth Schedule. The petitioner-company argued that "potato chips" should be classified under entry 80, which includes "processed or preserved vegetables and fruits," and taxed at 4%. The Commissioner of Taxes, however, classified "potato chips" under the residuary entry, subjecting it to a higher tax rate of 12.5%.

2. Interpretation of Entry 80 of Part A of the Second Schedule to the Act:
Entry 80 initially covered "processed or preserved vegetables and fruits." Over time, it was amended to include and exclude specific items such as jam, jelly, pickle, fruit squash, paste, fruit drinks, and fruit juice. The petitioner-company contended that "potato chips" should fall under this entry, arguing that the inclusive definition of "processed or preserved vegetables and fruits" should cover "potato chips." The court noted that the legislative intent, as evidenced by the amendments, initially included "potato chips" within entry 80 until its specific exclusion in October 2008.

3. Applicability of the Common Parlance Test versus Technical or Special Meaning for Tax Classification:
The petitioner-company argued that "potato chips" should be classified based on the inclusive definition of "processed vegetables" in entry 80, rather than the common parlance test. The court considered whether the common parlance test or a special/technical meaning should apply. It concluded that the specific inclusion of items like jam, jelly, and pickles, which are not commonly understood as processed vegetables or fruits, indicated a special or technical meaning for "processed vegetables or fruits" in entry 80. This interpretation supported the inclusion of "potato chips" under entry 80.

4. Impact of Legislative Amendments to Entry 80 on the Classification of "Potato Chips":
The court examined the legislative amendments to entry 80, noting that "potato chips" were not specifically excluded from entry 80 until October 16, 2008. This indicated a legislative intent to include "potato chips" under entry 80 until that date. The court also referenced the principle that what is not excluded is included, supporting the inclusion of "potato chips" under entry 80 before the specific exclusion in October 2008.

Conclusion:
The court concluded that "potato chips" should be classified under entry 80 of Part A of the Second Schedule to the Assam Value Added Tax Act, 2003, as a "processed vegetable," and not under the residuary entry in the Fifth Schedule. This classification applied to the period before the amendment on October 16, 2008, which specifically excluded "potato chips" from entry 80. The revision petition was allowed, and the impugned order dated September 10, 2007, by the Commissioner of Taxes, Government of Assam, was set aside and quashed.

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