2014 (4) TMI 327 - HC - VAT and Sales Tax

Entitlement for Deduction/ Exemption Classification - Dry fruits unprocessed salted or roasted Interpretation - Held that - Judgment in Tungabhadra Industries Ltd v The Commercial Tax Officer, Kurnool 1960 (10) TMI 51 - SUPREME COURT OF INDIA and Dunlop India Ltd. & Madras Rubber Factory Ltd. vs Union of India & Ors 1975 (10) TMI 94 - SUPREME COURT OF INDIA followed In manufacturing groundnut oil from purchased groundnuts and refining the oil and hydrogenation to converting it into Vanaspati, no change had occurred in its essential nature and it remained an oil - a glyceride of fatty acids- that it was when it issued out of the press - Entry 31 specifically stated fried grams during the period 10.04.2005 to 10.05.2005 - It was subsequently amended with effect from 11-05-2005 to read Fried and roasted grams - This suggests that the legislature was aware about the process of roasting and could have provided for it - However, that aspect by itself cannot be conclusive; what is important in the given circumstances is the process of salting or roasting do not change or transform dry fruits into something else - The Court relied upon Dunlop India Ltd. & Madras Rubber Factory Ltd. vs Union of India & Ors 1975 (10) TMI 94 - SUPREME COURT OF INDIA Similarly, dry fruits unprocessed salted or roasted- have equal claim to be classified as kirana items under Entry 81 of Schedule III to the Act - Roasting or salting does not result in the creation of a new article, or a significantly altered one as to amount to manufacture - Consequently it would be inappropriate to relegate them to the orphanage of the residuary item - The goods are, therefore, held to be classifiable under Entry 81 of the third schedule to the DVAT Act - The appeal is consequently allowed - Decided in favour of the assessee.

Summary

Issues Involved:
1. Classification of Roasted Dry Fruits under DVAT Act, 2004.
2. Definition and implications of "manufacture" under the DVAT Act.
3. Legislative intent and interpretation of Schedule entries.

Issue-Wise Detailed Analysis:

1. Classification of Roasted Dry Fruits under DVAT Act, 2004:
The primary issue was whether roasted dry fruits fall under entry No. 81 of Schedule III of the DVAT Act, 2004. The appellant, a registered dealer, contended that roasted dry fruits should be classified under entry No. 81 of Schedule III, which includes "kirana items" such as dry fruits. The revenue argued that roasted dry fruits, being processed, should be classified as snacks/namkeen and not as kirana items. The Commissioner, VAT, rejected the appellant's submission, stating that roasted dry fruits are distinguishable from dry fruits and should be considered an unspecified item taxable at 12.50%. The VAT Tribunal upheld this determination, classifying roasted dry fruits under the residuary entry, not as kirana items.

2. Definition and Implications of "Manufacture" under the DVAT Act:
The appellant argued that roasting and salting do not constitute "manufacture" as they do not transform the essential character of the dry fruits. They relied on the Supreme Court's decision in Tungabhadra Industries Ltd. v. The Commercial Tax Officer, Kurnool, which held that neither roasting nor salting results in the creation of a new article. The revenue countered that under Section 2 (ra) of the DVAT Act, all manner of processing, including roasting and salting, falls within the definition of "manufacture." The Tribunal, however, noted that the essential nature of the article does not change and thus does not amount to manufacturing. The Supreme Court in Union of India v. Delhi Cloth & General Mills clarified that "manufacture" implies the creation of a new and distinct article, which does not apply to roasted dry fruits.

3. Legislative Intent and Interpretation of Schedule Entries:
The Tribunal considered the legislative intent behind the entries in the DVAT Act schedules. Entry No. 81 of Schedule III includes "kirana items" such as dry fruits. The Tribunal noted that the legislature specifically mentioned "fried and roasted grams" in Entry 31, indicating awareness of such processes. However, the Tribunal concluded that this awareness does not imply that roasted dry fruits should be excluded from Entry 81. The Supreme Court in Dunlop India Ltd. v. Union of India emphasized that an article should not be consigned to a residuary clause if it reasonably fits an enumerated item. Thus, the Tribunal held that roasted dry fruits should be classified under Entry 81 of Schedule III as kirana items, as roasting or salting does not transform them into a new article.

Conclusion:
The Court concluded that roasted dry fruits retain their essential character and do not undergo a manufacturing process that transforms them into a new article. Therefore, they should be classified under Entry 81 of Schedule III of the DVAT Act as kirana items. The appeal was allowed in favor of the appellant, and the goods were held to be classifiable under Entry 81, not as an unspecified item taxable at a higher rate.