2010 (3) TMI 1008 - HC - VAT and Sales Tax

Court Quashes Circular Imposing 12.5% VAT on Tomato Sauce Sales

The court allowed the writ petition, quashing the circular and assessment order. It issued a writ of mandamus restraining authorities from imposing 12.5% ... Whetehr the petitioner has not deposited proper tax in respect of sale of tomato sauce? Held that:- The Legislature has not intended to exclude 'sauce' from the ambit of entry 6 of Schedule II(B) of the Act what to say of 'tomato sauce'. It is held that 'tomato sauce' though not specifically included in entry 6, yet, as the same has not been excluded either, would come within the inclusive definition of 'all processed vegetables and fruits' and the same is taken to have been included in entry 6 aforesaid. That being so, the petitioner is liable to pay value added tax at every point of sale at the rate of four per cent in respect of tomato sauce. The petitioner is not liable to pay VAT at 12.5 per cent on the sale of tomato sauce. Consequently, the impugned circular dated May 30, 2009 issued by the Commissioner of Taxes Uttarakhand (annexure 1 to the writ petition) is liable to be quashed. Accordingly, the assessment order dated July 8, 2009 passed by respondent No. 3 imposing VAT on the sale of tomato sauce at 12.5 per cent instead of four per cent is liable to be set aside. The writ petition deserves to be allowed accordingly. W.P. allowed. Issues Involved:1. Quashing of the circular dated May 30, 2009.2. Quashing of the assessment order dated July 8, 2009.3. Restraining the authorities from realizing VAT at 12.5% on the sale of tomato sauce.4. Classification of tomato sauce under the Uttarakhand VAT Act.Issue-wise Detailed Analysis:1. Quashing of the Circular Dated May 30, 2009:The petitioner challenged the circular issued by the Commissioner of Taxes, Uttarakhand, which classified tomato sauce as an unclassified item liable to VAT at 12.5%. The petitioner argued that this classification was contrary to law and based on erroneous interpretation. The court noted that the circular ignored the fact that tomato sauce, being a product made from tomatoes, should be covered under entry 6 of Schedule II(B) of the Uttarakhand VAT Act, which includes all processed and preserved vegetables and fruits. The court concluded that the circular was issued without a proper basis and was liable to be quashed.2. Quashing of the Assessment Order Dated July 8, 2009:The petitioner also sought to quash the assessment order for the year 2005-06, which imposed VAT at 12.5% on the sale of tomato sauce. The court observed that the assessment order was based on the impugned circular, which had already been found to be erroneous. Therefore, the assessment order, which relied on this circular, was also set aside.3. Restraining the Authorities from Realizing VAT at 12.5% on the Sale of Tomato Sauce:The petitioner sought a writ of mandamus to prohibit the respondents from realizing VAT at 12.5% on tomato sauce. The court held that tomato sauce should be taxed at 4% under entry 6 of Schedule II(B) as it is a processed vegetable or fruit. Consequently, the court issued a writ of mandamus restraining the authorities from imposing VAT at 12.5% on the sale of tomato sauce.4. Classification of Tomato Sauce Under the Uttarakhand VAT Act:The primary legal question was whether tomato sauce falls under entry 6 of Schedule II(B) of the Act, which would make it liable to a 4% tax. The court analyzed the provisions of the Act and noted that entry 6 includes all processed and preserved vegetables and fruits, including jams, jellies, and pastes. The court referred to the National Industrial Classification and other relevant documents, which categorized sauces under processed fruits and vegetables. The court also cited the Gauhati High Court's judgment in Pepsico India Holdings Pvt. Ltd. v. State of Assam, which supported the inclusion of processed items like sauces under similar tax entries. The court concluded that tomato sauce, being a processed product, should be taxed at 4% and not as an unclassified item at 12.5%.Judgment:The court allowed the writ petition, quashing the impugned circular dated May 30, 2009, and the assessment order dated July 8, 2009. The court issued a writ of mandamus restraining the respondents from realizing VAT at 12.5% on the sale of tomato sauce from the petitioner. The judgment emphasized that tomato sauce should be classified under entry 6 of Schedule II(B) of the Uttarakhand VAT Act, making it liable to a 4% tax. No order as to costs was made.