2009 (7) TMI 1173 - HC - VAT and Sales Tax

Classification of White Oats for Taxation: Cereal or Prepared Food?

The court affirmed that white oats sold in air-tight containers should be taxed at four percent under entry 173 of the Kerala General Sales Tax Act, 1963. ... White oats sold by the respondent in air tight containers - whether attract tax under entry 173 of the First Schedule to the Kerala General Sales Tax Act, 1963 which provides tax at four per cent on flour of all cereals? Held that:- As all value added products of cereals sold in air tight containers except in cooked form are also covered by entry 173. We therefore hold that the item sold by respondent was rightly classified by the first appellate authority and the Tribunal as an item falling under entry 173 taxable at four per cent. White oats sold in sealed containers attract tax at four per cent under entry 49(2) of the Third Schedule to the KVAT Act. Going by our above finding the more appropriate classification of oats in the form which it is sold probably is entry 48(5) and not under entry 49(2) of the Third Schedule to the KVAT Act. However so far as the rate of tax was rightly found to be four per cent under VAT, it is immaterial whether the classification should have been under entry 48(5) as against the consignment of the item to entry 49(2) under the judgment. Appeal dismissed. Issues:Classification of white oats for tax purposes under entry 62 or entry 173 of the Kerala General Sales Tax Act, 1963.Analysis:The State challenged the Sales Tax Appellate Tribunal's decision that white oats sold in air tight containers should be taxed at four percent under entry 173, while the Revenue argued that it should be taxed at 12 percent under entry 62. The Tribunal based its conclusion on the assumption that the containers were not air tight. The relevant entries state that food sold in air tight containers falls under entry 62 at 12 percent, while flour of cereals falls under entry 173 at four percent. Oats, not explicitly mentioned, fall under a broader classification of cereals and their products for taxation purposes.The Government Pleader contended that white oats are a food preparation under entry 62, but the court disagreed, stating that oats are not a ready-to-eat item and do not fall under the definition of food preparation. The second part of entry 62, covering food colors and essences, also did not apply to white oats. The court agreed with the respondent's argument that white oats should be classified under entry 173 as it is a cereal and sold in a form that can be considered flour.The court determined that oats sold in flakes or crushed form can be treated as oats flour under entry 173, as the entry is broad enough to cover cereals in various forms requiring cooking for consumption. A Division Bench judgment was cited, indicating that white oats sold in sealed containers should be taxed at four percent under a different entry of the KVAT Act. Ultimately, the court dismissed the revision petitions, affirming that the white oats should be taxed at four percent under entry 173.