2015 (4) TMI 1000 - HC - VAT and Sales Tax

Classification of goods - Clarification of the rate of tax applicable - Whether the commodities (a) to (e) namely, Vegit-Aloo hara bara kebab, vegit aloo veg cutlet, vegit aloo yummy cheese balls, vegit mazedar bonda and vegit aloo jatpat tikki, are covered by Entry 3 to the third Schedule of the Act attracting levy of tax @ 4% or falls under the residuary entry, liable to be taxed at a higher rate - Held that - While construing the provisions relating to commodity classification, the understanding of the commodity in its popular and commercial sense, the predominant test, has to be applied. Applying the said test, it could be construed that the commodities in question are understood in common parlance or trade parlance, as snack mix - a different commercial commodity from that of dehydrated potato flakes. It is settled principle of law that an entry in a fiscal statute has to be read as it is. Nothing could be added to enlarge the meaning of the entry. Processed vegetables denotes the ordinarily understanding of the phrase by a common man. Normally, processed vegetables can be accepted as an alternative to fresh vegetables . The processed vegetables generally available in the market are in different forms viz., canned, frozen, dried, juiced. The benefits of these processed vegetables and fruits is for convenience, longer shelf life and availability around the year. - The commodities (a) to (e) referred to above are classified as, commodities falling under residuary entry to the Act and exigible to the appropriate rate of tax applicable thereon and do not fall under Entry 3 of Third Schedule to the Act - Decided in favour of Revenue.

Summary

Issues Involved:
1. Classification of commodities under the Karnataka Value Added Tax Act.
2. Applicability of tax rates based on commodity classification.
3. Interpretation of "processed vegetables" under Entry 3 of the III Schedule to the Act.
4. Legal precedents and their applicability to the current case.

Detailed Analysis:

1. Classification of Commodities under the Karnataka Value Added Tax Act:
The primary issue is whether the commodities Vegit-Aloo Hara Bara Kebab, Vegit-Aloo Veg Cutlet, Vegit-Aloo Yummy Cheese Balls, Vegit-Aloo Mazedar Bonda, and Vegit-Aloo Jatpat Tikki fall under Entry 3 of the III Schedule to the Karnataka Value Added Tax Act, thereby attracting a tax rate of 4%, or whether they fall under the residuary entry, attracting a higher tax rate.

2. Applicability of Tax Rates Based on Commodity Classification:
The Commissioner of Commercial Taxes initially classified these commodities as unscheduled goods liable to tax at 12.5% up to 31.3.2010 and at 13.5% from 1.4.2010. The respondent challenged this classification, and the learned Single Judge ruled that these commodities fall under Entry 3 of the III Schedule, thereby attracting a 4% tax rate. The State appealed against this decision.

3. Interpretation of "Processed Vegetables" under Entry 3 of the III Schedule to the Act:
The core of the dispute revolves around the interpretation of "processed vegetables" in Entry 3 of the III Schedule, which reads: "All processed fruit and vegetables including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice (whether in sealed container or otherwise)."

- State's Argument: The State argued that the commodities in question are snack mixes and do not fall under the said Entry, which covers only processed fruits and vegetables, including specific items like jams and jellies.
- Respondent's Argument: The respondent argued that the term "including" in Entry 3 enlarges the scope of "processed vegetables" to cover similar commodities, and since the main ingredient is potato (a vegetable), these products should be classified under Entry 3.

4. Legal Precedents and Their Applicability to the Current Case:
Several judgments were cited to support both sides' arguments:

- State's References:
- Pepsico India Holdings (P.) Ltd. v. Assessing Authority: This case was cited to argue that snack mixes do not fall under processed vegetables.
- Raman Boards Ltd. v. State of Karnataka: Emphasized that classification should be based on statutory fiscal entry and the basic character of goods.

- Respondent's References:
- M/s Saraswathi Sugar Mills v. Haryana State Board: Differentiated between "manufacture" and "processing."
- Stovekraft (P.) Ltd. v. State of Karnataka: Classified stainless steel stoves as utensils, emphasizing the inclusive nature of the term "including."
- Pepsico India Holdings (P.) Ltd. v. State of Assam: Held that "potato chips" are processed vegetables under Assam VAT Act, which was later amended to exclude potato chips explicitly.

Judgment Analysis:
The Court, after considering the arguments and precedents, concluded that:

- The term "processed vegetables" should be understood in its popular and commercial sense.
- The commodities in question are understood as snack mixes, a different commercial commodity from dehydrated potato flakes.
- The term "including" in Entry 3 does not enlarge the meaning of "processed vegetables" to cover snack mixes.
- The learned Single Judge's application of the principles from the Guwahati and Madras High Courts' judgments on potato chips was not applicable to this case.

Conclusion:
The appeal was allowed, setting aside the order of the learned Single Judge. The commodities in question were classified under the residuary entry, liable to the appropriate higher tax rate, and not under Entry 3 of the III Schedule to the Act.