2012 (10) TMI 977 - HC - VAT and Sales Tax

Validity of order u/s 39(1) of the Karnataka Value Added Tax Act 2003 - Whether the fryums can be treated as pappad which falls under entry 40 of the First Schedule to the KVAT Act Held that - The records clearly disclose that the assessee in STRP Nos. 6 and 29-63 and STRP Nos. 73 and 170-192 of 2011 are the dealers in the commodity in question known as fryums - The respondent in STRP No. 89 of 2009 is the manufacturer and dealer of the food articles popularly known as fryums - The commodity manufactured by the assessee was taxed at two per cent as pappad under the KST and CST Acts - after coming into force of the KVAT Act the pappad was brought under entry No. 40 of the First Schedule to the Act - only consumables are sought to be included in the term cooked food in Commissioner of Commercial Tax Indore and others Versus TTK. Health Care Ltd. 2007 (4) TMI 354 - SUPREME COURT OF INDIA it has been held that in the case of fryums there is no dispute that the dough/base is a semi-food - There is also no doubt that in the case of fryums a further cooking process was required - the fryums came in plastic bags - These fryums were required to be fried depending on the taste of the consumer - fryums were like seviyan - Fryums were required to be fried in edible oil - That oil had to be heated - There was certain process required to be applied before fryums become consumable - the item fryums will not fall within the term cooked food under item 2 Part I of the Second Schedule to the 1994 Act - It will fall under the residuary item all other goods not included in any part of Schedule I . The honourable Supreme Court has not declared that the fryums are not the pappad it has been clearly held that the shape of the pappad is not a relevant consideration when the ingredients are the same - there is no infirmity or irregularity in the order passed by the Karnataka Appellate Tribunal - The petitioners have not made out a case to interfere with the order passed by the Karnataka Appellate Tribunal Decided against petitioner.

Summary

Issues Involved:
1. Classification of fryums as pappad under the KVAT Act.
2. Taxability of fryums under the residuary entry of the KVAT Act.
3. Validity of reassessment proceedings initiated after a significant lapse of time.
4. Applicability of previous Supreme Court judgments on the classification of fryums.

Detailed Analysis:

1. Classification of Fryums as Pappad:
The primary issue revolves around whether fryums can be classified as pappad under entry 40 of the First Schedule to the Karnataka Value Added Tax Act, 2003 (KVAT Act). The respondents, who are registered dealers and manufacturers of fryums, claimed that fryums should be treated as pappad and thus be exempt from tax. They argued that fryums contain all the ingredients of pappad but are smaller in size and come in different shapes. The Karnataka Appellate Tribunal (KAT) accepted this contention, relying on the Supreme Court's judgment in Shiv Shakti Gold Finger v. Assistant Commissioner, Commercial Taxes, Jaipur, which held that all varieties of pappad, irrespective of their shape, should be treated as pappad if they consist of the same ingredients.

2. Taxability of Fryums under the Residuary Entry:
The State Government contended that fryums should be taxed under the residuary entry under section 4(1)(b) of the KVAT Act, as they do not qualify as pappad. The Deputy Commissioner of Commercial Taxes (Audit) observed that fryums are semi-cooked food and cannot be treated as pappad. Consequently, the assessing authority reassessed the tax liability of the respondents, classifying fryums as taxable goods under the residuary entry and imposing penalties and interest.

3. Validity of Reassessment Proceedings:
The respondents challenged the reassessment orders before the first appellate authority and subsequently before the KAT. The KAT set aside the reassessment orders, holding that fryums are pappad and thus exempt from tax. The State Government argued that the reassessment proceedings were valid and necessary to correct the misclassification of fryums as exempt goods. However, the respondents contended that the reassessment was barred by limitation and that they had not suppressed any information.

4. Applicability of Previous Supreme Court Judgments:
The State Government relied on the Supreme Court's judgment in Commissioner of Commercial Tax, Indore v. T.T.K. Health Care Ltd., which held that fryums are semi-cooked food and not pappad. However, the respondents argued that this judgment dealt with whether fryums are cooked food and not specifically with their classification as pappad. The respondents further relied on the Shiv Shakti Gold Finger case, which clearly held that the shape of pappad is irrelevant if the ingredients are the same.

Judgment:
The High Court dismissed the State Government's revision petitions, upholding the KAT's decision that fryums should be classified as pappad under entry 40 of the First Schedule to the KVAT Act. The court found that the judgment in Shiv Shakti Gold Finger was applicable and that the shape of the product was not a relevant consideration. The court also noted that the Supreme Court's judgment in T.T.K. Health Care Ltd. did not specifically address the classification of fryums as pappad. Consequently, the court concluded that there was no infirmity or irregularity in the KAT's order, and the issues framed in the revision petitions were held in favor of the respondents.