2017 (11) TMI 1315 - HC - VAT and Sales Tax

Rate of tax - confectionery items produced and packed in covers containing the name V.R.S. Confectionery, Rasipuram - whether taxable at 12% under residuary entry or 4% as unbranded confectionery? - Whether the items can be said to have Brand names? - Held that - the mentioning of the name of the petitioner being the producer of those goods in the packing materials cannot be construed as a brand or a brand name or a trade mark or a trade name. At best, it can be taken to indicate the name of the producer of goods, which are contained in the packs. The confectionery items have been specifically mentioned in entry item-4 (iii) of Part-B of first schedule of the TNGST Act taxable at 4%. This being a specific entry the general entry or residuary entry, could be invoked only when a product can be dealt with in any of the entries. Even assuming the respondents construe the products produced by the petitioner as a bakery product, even then, regardless of the product with a brand name or without a brand name registered under the Trade and Merchandise Marks Act, 1958, it would fall under entry Item-11 (ii) of Part-B of first schedule of the TNGST Act. So far as the clarification is concerned, admittedly, the petitioner did not have an opportunity of personal hearing before the clarification was issued. Though, the petitioner sought for revision of the clarification, the same was rejected by letter dated 31.07.2006 - the clarification issued by the Commissioner dated 29.08.2005 is clearly unsustainable. The petitioner is liable to the taxed only at 4% - petition allowed - decided in favor of petitioner.

Summary

Issues:
Assessment of higher tax rate on confectionery items due to branding, validity of clarification issued by Commissioner, interpretation of brand name, applicability of specific vs. general tax entries, legality of taxing under residuary entry.

Analysis:
The petitioner, a registered dealer, contested an assessment order under the TNGST Act imposing a higher tax rate on confectionery items packed with the name V.R.S. Confectionery, Rasipuram, considering it a brand name. The issue arose when the Commissioner clarified that unregistered brand names are taxable at 12%. The petitioner argued that merely mentioning the producer's name does not constitute a brand. The Court agreed, stating it only indicates the producer and cannot be considered a brand or trademark.

The Court found the Commissioner's clarification, issued without the petitioner's input, unenforceable due to lack of opportunity for objection. Additionally, the specific tax entry for confectionery items at 4% should apply unless the product falls under a different specific entry or the residuary entry. Even if considered a bakery product, it should be taxed at 4% or under a specific entry, not the residuary entry at 12%.

Referring to precedents, the Court emphasized that goods should only be taxed under the residuary entry if they cannot fit into any specific entry. The judgment highlighted the need for the Taxing Authority to establish that the goods in question cannot be classified under any specific entry before resorting to the residuary entry for taxation.

Ultimately, the Court allowed the writ petition, quashed the higher tax assessment, and ruled that the petitioner should be taxed at 4%. Any excess tax collected was to be refunded or adjusted accordingly. The judgment clarified the importance of proper classification under specific tax entries and the limitations of taxing under the residuary entry without justification based on the nature of the goods.