Taxability of Chilli Powder under Kerala Sales Tax Act: Full Bench Decision

The Full Bench ruled that chilli powder produced from tax-paid chillies is not taxable again under entry 27 of the Kerala General Sales Tax Act, as it does not change the essential nature of the commodity. Curry powder, considered a distinct commodity, is not taxable as "spices" under the same entry but at a lower rate as general goods. Dissenting, Paripoornan, J., argued for taxing chilli powder separately. The writ petition was allowed, partially quashing the government's clarification, with no costs awarded.

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Issues Involved:
1. Taxability of chilli powder produced from tax-paid chillies.
2. Taxability and rate of tax on curry powder made by blending different spices powders.

Summary:

Issue 1: Taxability of Chilli Powder

The primary issue was whether chilli powder produced from chillies that have already suffered tax u/s entry 27 of the First Schedule to the Kerala General Sales Tax Act, 1963, is again exigible to tax. The Full Bench overruled the decision in Ambika Provision Stores v. State of Kerala [1987] 67 STC 170, which held that chilli powder and coriander powder were new and distinct commodities taxable again under entry 27. The Court applied the "substantial identity" test from Pio Foods' case [1980] 46 STC 63 and Sterling Foods' case [1986] 63 STC 239, concluding that converting chillies into chilli powder does not change the essential nature of the commodity. Therefore, chilli powder is not taxable again under entry 27 once it has already been taxed as chillies.

Issue 2: Taxability and Rate of Tax on Curry Powder

The second issue was whether curry powder, made by blending different spices powders, is taxable and at what rate. The Court agreed with the decision in Deputy Commissioner of Sales Tax v. Rani Food Products [1988] 68 STC 446, which held that curry powder, being a mixture of different spices powders, is a commercially distinct commodity. However, it is not taxable under entry 27 as "spices" but is liable to tax as general goods at a lesser rate. The government's clarification in exhibit P2 that curry powder is taxable under entry 27 was deemed erroneous.

Separate Judgment by K.S. Paripoornan, J.:

Paripoornan, J. dissented, maintaining that chilli powder is distinct and different from chillies and should be taxed again. He emphasized the commercial and common parlance understanding of commodities and upheld the decisions in Ambika Provision Stores' case and Rani Food Products' case.

Conclusion:

The writ petition was allowed, quashing exhibit P2 in part, with no order as to costs.

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