2019 (10) TMI 486 - HC - VAT and Sales Tax

Classification of goods - rusk/toast - whether rusk/toast would fall under entry 7 under the head Bread under Schedule I of the Chhattisgarh Value Added tax Act, 2005 or whether those items would be required to be dragged into residuary entry under Part IV of Schedule II of the said Act? - HELD THAT - The settled position in law is that attempts has to be made to find out as to whether the same answers to description of the contents of the basic entry and only in the event it is not possible to do so, recourse to the residuary entry has to be taken as a last resort. Applying such a principle we cannot accept the arguments of the State that the rusk and toast should be dragged into the residuary item away from the broad head of bread, which finds entry and is exempted from levy of any tax under the VAT Act. The view so taken by the learned single judge in KESHARWANI ENTERPRISES VERSUS STATE OF CHHATTISGARH AND OTHERS (AND OTHER CASES) 2018 (3) TMI 1683 - CHATTISGARH HIGH COURT has held that this court holds that rusk and toast also would fall within entry 7 of Schedule I of the VAT Act and it cannot be considered to be one which would come under the residuary entry, is well fortified and supported by the settled principles of law and binding precedents in relation to such interpretation, therefore, we are not enthused by the argument made on behalf of the State that the decision of the learned single judge needs to be interfered with by treating rusk and toast as different items to be brought under residuary entry and allow the taxing authorities to assess such items as such and demand tax. Appeal dismissed.

Summary

Issues Involved:
1. Classification of rusk/toast under the Chhattisgarh Value Added Tax Act, 2005.
2. Applicability of the residuary entry for taxation purposes.
3. Burden of proof for classification under the residuary entry.

Issue-wise Detailed Analysis:

1. Classification of rusk/toast under the Chhattisgarh Value Added Tax Act, 2005:
The primary issue was whether rusk/toast should be classified under entry 7 under the head "Bread" in Schedule I of the VAT Act, 2005, which would make them tax-free, or whether they should fall under the residuary entry in Part IV of Schedule II, which would subject them to taxation. The learned single judge concluded that rusk and toast are essentially forms of bread, sharing the same ingredients and manufacturing process, with the only difference being the moisture content. The judge emphasized that since toast/rusk were not separately listed for taxation, they should be interpreted under the broad head of "bread," thus carrying zero per cent duty.

2. Applicability of the residuary entry for taxation purposes:
The State argued that rusk and toast should be classified under the residuary entry in Part IV of Schedule II. The learned single judge rejected this argument, citing judicial precedents which state that an item should only be classified under the residuary entry if it cannot be reasonably classified under any specific entry. The judge referenced the Supreme Court's rulings, emphasizing that the residuary entry should be a last resort. The judge concluded that rusk and toast should be classified under the broader category of bread, exempting them from tax.

3. Burden of proof for classification under the residuary entry:
The judgment highlighted that the burden of proof lies with the State to conclusively establish that an item cannot be classified under any specific entry before resorting to the residuary entry. The judge noted that the State failed to provide strong evidence that rusk and toast could not be classified as bread. Various judicial decisions were cited to support this principle, including the Supreme Court's ruling that the revenue must prove the correct classification of a product. The judge concluded that the State did not meet this burden, and thus rusk and toast should be classified as bread.

Conclusion:
The appeals by the State were dismissed, affirming the learned single judge's decision that rusk and toast fall under the entry for bread in Schedule I of the VAT Act, 2005, and are therefore exempt from taxation. The judgment emphasized the established legal principle that the residuary entry should only be used when no other classification is possible, and the burden of proof for such classification lies with the State. The court found no error in the learned single judge's order, and thus, all appeals were rejected.