2022 (6) TMI 1210 - HC - VAT and Sales Tax

Classification of goods - Bread-Rusk - Process of manufacturing - to be classified under Entry 9 of Schedule B of the HPVAT Act or is classified as an unlisted item under the residual entry i.e. Part III of Schedule A of the HPVAT Act and subject to VAT @ 12.5% (subsequently increased to 13.5%)? - Burden/onus to prove - HELD THAT - It needs to be borne in mind that it is now well settled principle of law that in interpreting different entries, attempts shall be made to find out as to whether the same answers the 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 should be taken by way of last resort. Hon'ble Supreme Court in MAURI YEAST INDIA PVT. LTD. VERSUS STATE OF UP. 2008 (4) TMI 101 - SUPREME COURT has held that if there is a conflict between two entries one leading to an opinion that it comes within the purview of the tariff entry and another the residuary entry, the former should be preferred. As regards the contention of the respondents that the Rusk would fall under residuary entry, the burden of proof is on the respondents and the onus also lies on them to first establish conclusively that by no conceivable process of reasoning can the said product be brought under any of the tariff items and hence the product was being brought under any of the tariff items, hence the product was being brought under the residuary item - Hon'ble Supreme Court in PUMA AYURVEDIC HERBAL (P) LTD. VERSUS COMMISSIONER OF C. EX., NAGPUR 2006 (3) TMI 141 - SUPREME COURT has held that It is settled law that the burden of showing correct classification lies on the revenue. If we look at the facts of the instant case there does not appear to have been any strong evidence led by the revenue before the authorities to establish the fact that the matter would not fall within the entry item bread as is reflected under schedule-1, entry-7 of the VAT Act. The burden or onus is on the respondent authorities to establish by placing on record cogent, convincing and substantive evidence to show that Rusk is not Bread so as to bring it under the residuary entry under Part-IV of Schedule-B so as to impose tax on Rusk and Toast at the rate specified under the residuary entry. Once the Court agrees that the raw material as also the manufacturing process for Bread and Rusk is same and thereafter only the moisture is extracted, would not term that activity to be falling within the meaning of manufacturer as used in the Act. Petition allowed.

Issues Involved:
1. Classification of 'Bread-Rusk' under the HPVAT Act.
2. Interpretation of tax exemption for 'Bread' under Entry 9 of Schedule B of the HPVAT Act.
3. Burden of proof and onus on the Taxing Authorities.
4. Judicial precedents and their applicability to the classification of 'Bread-Rusk'.

Detailed Analysis:

1. Classification of 'Bread-Rusk' under the HPVAT Act:
The primary issue revolves around whether 'Bread-Rusk' should be classified under Entry 9 of Schedule B of the HPVAT Act as "Bread," which is exempt from VAT, or under the residual entry in Part III of Schedule A, subject to VAT at 13.5%. The petitioner argues that 'Rusk' is essentially 'Bread' with reduced moisture content and should be classified as such. The respondents contend that 'Rusk' is a distinct product and should be taxed under the residual entry.

2. Interpretation of tax exemption for 'Bread' under Entry 9 of Schedule B of the HPVAT Act:
The court emphasized the principle that in interpreting different entries, attempts should be made to see if the product fits the description of the basic entry before resorting to the residual entry. The Supreme Court's ruling in Mauri Yeast India Pvt. Ltd. vs. State of Uttar Pradesh supports this approach, stating that the basic entry should be preferred over the residual entry if there is a conflict.

3. Burden of proof and onus on the Taxing Authorities:
The court highlighted that the burden of proof lies on the respondents to conclusively establish that 'Bread-Rusk' cannot be classified under any specific tariff item and must be placed under the residual entry. This principle is supported by the Supreme Court's ruling in Commissioner of Central Excise, Calcutta vs. Sharma Chemical Works, which states that the onus to show correct classification lies on the revenue authorities.

4. Judicial precedents and their applicability to the classification of 'Bread-Rusk':
The court referred to several judicial precedents to support the classification of 'Bread-Rusk' as 'Bread.' For instance, the Kerala High Court in Modern Food Industries (India) Ltd. vs. Assistant Commissioner (Assessment) Sales Tax Special Circle held that different forms of bread, including buns, should be classified together. Similarly, the Rajasthan High Court in Assistant Commissioner vs. M/s Britannia Industries Ltd. ruled that 'Rusk' falls within the ambit of 'Bread' and cannot be classified under a different entry.

The court also referred to the Chattisgarh High Court's ruling in State of Chattisgarh vs. Saj Food Product (P) Ltd., which affirmed that 'Rusk' and 'Toast' should not be dragged into the residuary item but should be classified under the broad head of 'Bread.'

Conclusion:
The court concluded that 'Bread-Rusk' should be classified under Entry 9 of Schedule B of the HPVAT Act as 'Bread,' which is exempt from VAT. The respondents failed to provide substantive evidence to classify 'Bread-Rusk' under the residual entry. The court allowed the writ petitions and the civil revision petition, thereby exempting 'Bread-Rusk' from VAT. Pending applications were disposed of accordingly.

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