2009 (10) TMI 834 - HC - VAT and Sales Tax

Whether the Tribunal was justified in holding that the product sold by the respondent under the name equal in tablet and powder form attracts tax only at the rate of eight per cent under the residuary entry of the First Schedule to the Kerala General Sales Tax Act, 1963 as against the rate of 12 per cent applied by the assessing officer treating the assessed item as one falling under entry 62 of the First Schedule to the KGST Act? Held that - The contention of the respondent that equal is not used for food preparation is unacceptable as the same is contrary to the company s own claim in their website. The fact that it is used as sweetening agent in the preparation of non-alcoholic drinks and other beverages like tea or coffee does not take it outside entry 62 of the First Schedule and it is further accepted by both sides that the product under the provisions of the KVAT Act is taxable at the rate of 12.5 per cent. Even though counsel for the respondent referred to exemption available to sugar produced in India and the low rate of tax at four per cent for the imported sugar and contended that a sugar substitute should not be subjected to tax at a higher rate, we are of the view that it is a matter of legislative policy and the court cannot apply the rate of tax of sugar to sugar substitute. In view of the finding above, we allow the sales tax revision by reversing the order of the Tribunal and by restoring the assessment of the product under entry 62 confirmed in first appeal.

Summary

Issues:
Interpretation of tax rate for a product named "equal" in tablet and powder form under Kerala General Sales Tax Act, 1963.

Analysis:
The primary issue in this case is the correct tax rate applicable to the product "equal" sold in tablet and powder form. The State challenged the Tribunal's decision to tax the product at 8% under the residuary entry of the First Schedule to the Kerala General Sales Tax Act, 1963, while the assessing officer had applied a rate of 12% under a different entry. The product in question is a sugar substitute used as a sweetening agent for beverages and food, particularly by diabetic patients and individuals aiming to reduce weight. The product description provided by the company on their website identifies "equal" as aspartame, composed of amino acids recognized and used by the body in the same way as components found in common foods. Safety approvals from reputable associations further support the product's legitimacy and widespread use in various food items.

The classification of the product under tax entries is crucial in determining the applicable rate. The court analyzed whether the product falls under entry 62 of the First Schedule, which covers food preparations sold in airtight containers, food colors, essences, and powders or tablets used for making food preparations. Despite the respondent's argument that "equal" is mainly used in beverages like tea and coffee and not for general food preparation, the court relied on the company's website information stating that the product is used in over 6000 food products, including sugar-free items. This usage pattern aligns with the entry's description, leading the court to conclude that "equal" falls under entry 62 and is taxable at 12.5%.

The court addressed the respondent's contention regarding the tax rate disparity between sugar and sugar substitutes, emphasizing that tax rates are a matter of legislative policy beyond the court's scope to adjust. Ultimately, the court allowed the sales tax revision, overturning the Tribunal's decision and reinstating the assessment of the product under entry 62 as confirmed in the first appeal. This judgment clarifies the tax treatment of sugar substitutes like "equal" under the Kerala General Sales Tax Act, providing a detailed analysis based on the product's composition, usage, and alignment with relevant tax entry descriptions.