2011 (8) TMI 1046 - HC - VAT and Sales Tax

Summary

Issues:
Classification of products for tax levy under the Kerala Value Added Tax Act - Differentiation between "fat paste cream" and "choco paste" for tax assessment.

Analysis:
The judgment of the High Court of Kerala addressed the issue of tax classification for products manufactured and sold by the respondent under the Kerala Value Added Tax Act. The dispute revolved around whether the products, namely "fat paste cream" and "choco paste," should attract a tax rate of four percent under entry 7 of the Third Schedule or 12.5 percent under entries 19 and 103 of SRO No. 82/2006. The respondent argued that both products should be classified as "confectioneries" falling under entry 7, while the assessing officer contended that they fell under entry 19 or residuary entry 103 of SRO 82/2006. The court examined the ingredients and usage of the products to determine their classification.

Regarding "fat paste cream," the court found that it qualified as an item falling under entry 7 of the Third Schedule as it was a sweet preparation and a food product, despite being used as an ingredient in the manufacture of other products like ice cream and toffees. The court emphasized that the distinction in entry 7 was between branded and unbranded items, and since the respondent was not a registered brand name holder, the products could be assessed at four percent tax.

In contrast, concerning "choco paste," the court disagreed with the respondent's classification under entry 7 and upheld the contention that it fell under entry 19 of Notification SRO 82/2006. The court highlighted that food preparations with cocoa as an ingredient were specifically covered under entry 19, attracting a tax rate of 12.5 percent. The court rejected the Tribunal's finding that cocoa powder was a waste material, emphasizing its importance in chocolate production and the significant presence in the respondent's product. The court concluded that "choco paste" was indeed a cocoa product falling under entry 19.

The court concluded by allowing the revisions in part, modifying the orders of the Tribunal and the first appellate authority based on the classification of the products under the respective tax entries. The judgment provided a detailed analysis of the ingredients, usage, and legal provisions to determine the appropriate tax levy for "fat paste cream" and "choco paste" under the Kerala Value Added Tax Act.