2008 (4) TMI 101 - SC - VAT and Sales Tax

Manufacturing & sale of yeast which is used in manufacturing bread etc. AO is not justified in rejecting the classification of sale of yeast under the head chemical and imposed tax thereupon treating the same to be as unclassified item - since the goods were covered by a specific heading 25.01, the same cannot be classified under the residuary heading at all - heading which provides the most specific description shall be preferred to the heading providing general description

Summary

Issues Involved:
1. Interpretation of an Entry in the U.P. Trade Tax Act, 1948.
2. Classification of 'yeast' as a 'chemical' or 'living organism' for tax purposes.
3. Validity of the assessment orders treating 'yeast' as an "unclassified item".
4. Applicability of previous judgments and dictionary definitions in determining the classification of 'yeast'.

Issue-wise Detailed Analysis:

1. Interpretation of an Entry in the U.P. Trade Tax Act, 1948:
The core issue revolves around the interpretation of specific entries in the U.P. Trade Tax Act, 1948, particularly whether 'yeast' falls under the category of 'chemicals'. The relevant entries from various notifications issued under the Act were scrutinized. The entries in question included descriptions like "Chemicals of all kinds including fuel gases" and specified different tax rates over the years.

2. Classification of 'yeast' as a 'chemical' or 'living organism' for tax purposes:
The appellants argued that 'yeast' had always been treated as a 'chemical' and should continue to be classified as such. They cited the chemical composition of 'yeast' and its acceptance by the respondents in their counter-affidavit. The respondents contended that 'yeast' is a 'fungi' and hence not a 'chemical'. They relied on the Kerala High Court's decision, which classified 'yeast' as a 'living organism' and not a 'chemical'.

3. Validity of the assessment orders treating 'yeast' as an "unclassified item":
The assessment orders treating 'yeast' as an "unclassified item" and imposing tax accordingly were challenged. The appellants had been filing returns treating 'yeast' as a 'chemical', which had been accepted for a long time. The sudden reclassification by the Assessing Officer, relying on the Kerala High Court's decision, was contested.

4. Applicability of previous judgments and dictionary definitions in determining the classification of 'yeast':
The judgment analyzed conflicting views from the Gujarat High Court and the Kerala High Court. The Gujarat High Court held 'yeast' to be a 'chemical', while the Kerala High Court viewed it as a 'living organism'. The Supreme Court considered various dictionary definitions and scientific descriptions of 'yeast', noting its chemical composition and its use in chemical processes. The court emphasized the need to interpret entries in fiscal statutes based on their context and the intention behind them.

Conclusion:
The Supreme Court concluded that 'yeast' should be classified as a 'chemical' under the U.P. Trade Tax Act, 1948. The court noted that 'yeast' has a definite chemical composition and formula, and its classification as a 'chemical' had been accepted by the revenue authorities for over 20 years. The judgment highlighted that when two interpretations are possible, the one favoring the assessee should be adopted. Consequently, the impugned judgment of the High Court was set aside, and the appeals were allowed with costs.