2018 (5) TMI 461 - HC - VAT and Sales Tax

Rate of tax - sale of chips with a brand name - taxable at 4% under Entry 107 of Part B of the first Schedule or at 12.5% under residuary entry? - Held that - Entry No.107 in Part B of the first Schedule specifically specifies that processed fruit and vegetables including fruit jam, jelly, etc., other than those specified in the fourth Schedule, are liable to be taxed at 4% and for the other goods under Entry 69, the tax payable would be at the rate of 12.5% - potato chips will fall under the processed vegetable and when there is a specific entry, the tax applicable to that entry alone has to be applied and it is not expected to go to the residuary item. The product in question to be taxed at 4% - petition allowed.

Summary

Issues:
1. Interpretation of tax liability on the sale of chips with a brand name under the Tamil Nadu Value Added Tax Act, 2006.
2. Validity of revision notice issued by the respondent based on VAT audit findings.
3. Applicability of specific tax entry for processed vegetables in the TNVAT Act.
4. Reliance on the clarification issued by the Commissioner of Commercial Taxes for tax determination.

Issue 1: Interpretation of tax liability on the sale of chips with a brand name
The petitioner, a dealer of food items, was found to have sold chips with a brand name attracting 12.5% tax under Part C of the first Schedule of the TNVAT Act. The petitioner argued that the chips should be taxed under Entry 107 of Part B for processed vegetables at 4%. The respondent relied on a clarification stating that chips with a brand name are taxable at 12.5%. The court referred to a previous judgment regarding potato chips as processed vegetables and concluded that the chips in question should be taxed at 4% under Entry 107, not 12.5% under Entry 69.

Issue 2: Validity of revision notice based on VAT audit findings
The respondent issued a revision notice based on a VAT audit conducted at the petitioner's business premises. The petitioner contested the revision, claiming that the chips should be taxed at 4% under processed vegetables. Despite the petitioner's detailed reply, the respondent confirmed the proposal based on the Commissioner of Commercial Taxes' clarification. The court found the revision notice unsustainable due to the misapplication of tax rates and the reliance on an erroneous clarification.

Issue 3: Applicability of specific tax entry for processed vegetables
The court highlighted Entry No. 107 in Part B of the first Schedule, which specifies that processed fruit and vegetables are taxed at 4%. The court emphasized that when a specific entry exists, the tax applicable to that entry should be applied, as in the case of the petitioner's chips being classified as processed vegetables under Entry 107.

Issue 4: Reliance on the clarification issued by the Commissioner of Commercial Taxes
The respondent relied on a clarification by the Commissioner of Commercial Taxes stating that chips with a brand name are taxable at 12.5%. However, the court rejected this clarification, emphasizing that the chips should be taxed at 4% under Entry 107 for processed vegetables. The court held that once a clarification is deemed unsustainable, it cannot be applied in similar cases.

In conclusion, the court allowed the Writ Petition, setting aside the respondent's order and emphasizing the correct tax liability of the petitioner's chips as processed vegetables taxable at 4%. The judgment highlighted the importance of specific tax entries and the inapplicability of erroneous clarifications in determining tax liabilities under the TNVAT Act.