2009 (3) TMI 935 - HC - VAT and Sales Tax

Branded chips - whether taxable at 12.5 per cent under Part C of the First Schedule to the Tamil Nadu Value Added Tax Act, 2006 ? - Held that - It is well-settled that in the matter of classification the Legislature possessed wider latitude to pick and choose the objects, persons or goods for levying tax and mere fact that some or few of the goods, falling within the same clause is placed in disadvantageous position, cannot be a subject to be decided, as discriminatory, considering the complexity involved in fiscal legislation. For all these reasons, do not find any patent illegality or irregularity in the decision-making process of the competent authority in issuing the clarification that potato chips with brand names Lays and Uncle Chips would fall under Part C of the First Schedule to the TNVAT Act. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the clarification dated March 29, 2007, issued by the Commissioner of Commercial Taxes.
2. Classification of "potato chips" under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act).
3. Whether the petitioners were denied an opportunity to represent their case.
4. Interpretation of "processed vegetables" and its applicability to "potato chips".
5. Comparison of entries in the First Schedule to the TNVAT Act.

Detailed Analysis:

1. Validity of the Clarification:
The petitioners challenged the clarification issued by the Commissioner of Commercial Taxes, which stated that branded chips are taxable at 12.5% under Part C of the First Schedule to the TNVAT Act. The petitioners argued that they were not given an opportunity to represent their case before the clarification was issued. The court held that the clarification was an administrative function and not a quasi-judicial one, and thus, there was no requirement for the petitioners to be given an opportunity to present their case.

2. Classification of "Potato Chips":
The petitioners contended that "potato chips" should be classified under entry 107 of Part B of the First Schedule as "processed vegetables" and taxed at 4%. The court examined the process of making potato chips and concluded that the frying process transforms the potatoes into a new commodity, which cannot be considered as merely "processed vegetables." Therefore, branded potato chips were correctly classified under the residuary entry in Part C of the First Schedule, taxable at 12.5%.

3. Opportunity to Represent:
The petitioners argued that they were not given an opportunity to present their case before the clarification was issued. The court ruled that the decision to issue the clarification was administrative and not quasi-judicial, and thus, there was no requirement for the petitioners to be heard. The court also noted that requiring an opportunity for every manufacturer or dealer before issuing a clarification would lead to endless processes and hinder the finality of tax determinations.

4. Interpretation of "Processed Vegetables":
The petitioners argued that "potato chips" should be classified as "processed vegetables" under entry 107 of Part B of the First Schedule. The court held that the term "processed vegetables" in common parlance does not include fried products like potato chips. The court emphasized that the legislative intent was clear in distinguishing between unbranded and branded chips, with branded chips falling under the residuary entry in Part C.

5. Comparison of Entries:
The petitioners pointed to the inclusion of items like pickles in both entries 51 and 107 of Part B to argue for a similar treatment for chips. The court found no inconsistency or overlap in these entries, noting that pickles without a brand name are taxed at 4%, while branded pickles fall under the residuary entry and are taxed at 12.5%. The court concluded that the legislative intent was to specifically exclude branded chips from entry 51 and to classify them under Part C.

Conclusion:
The court upheld the validity of the clarification issued by the Commissioner of Commercial Taxes, classifying branded potato chips under Part C of the First Schedule to the TNVAT Act and taxable at 12.5%. The petitioners' arguments regarding the classification of "potato chips" as "processed vegetables" and the need for an opportunity to represent their case were rejected. The writ petition was dismissed with no costs.