2014 (4) TMI 367 - HC - VAT and Sales Tax

Food items sales taxed at 16% under TNGST Act upheld; branded, not unbranded items.

The High Court upheld the Tribunal's decision that the sales of food items were taxable at 16% under Section 3(2) of the TNGST Act, 1959, read with Entry ... Whether ‘Sale in the outlet’ would be a ‘sale in the eating house’ - sale of branded food items - Interpretation of Statute - Classification – Rate of Tax - Exemption from Tax - It is stated that the raw puffs were stored in its own freezer and whenever the customers approached M/s.Food World Super Market Limited, the frozen puffs were fried and delivered. - Held That:- the fact that the sale had taken place in the premises of M/s.Food World Super Market Limited outlet does not mean that the sale was in a eating house to fall under Section 3-D of the Tamil Nadu General Sales Tax Act. There is no ground to admit that the sale in the outlet would be a sale in the eating house for the reason that the assessee did not dispute the fact that it did not sell the puffs directly to the consumer; on the other hand the sale was directly only to M/s.Food World Super Market Limited, which provided the facility for the customer to eat the puff therein - The fact that the assessee had its frying unit therein, however, does not make the outlet as its eating house to sell puff directly to the consumer - As it is stated in the letter addressed to the Special Commissioner, all that the assessee did was collecting the voucher from the cash counter of M/s.Food World Super Market Limited and thus based on the payment made by the customer to M/s.Food World Super Market Limited, the assessee merely supplied the food products to the ultimate consumer - So, the materials placed before clearly pointed out that it was an outright sale by the assessee to M/s.Food World Super Market Limited and this was not 'sale' by the assessee to the ultimate consumer in the retail place, and above all in a eating house to attract Section 3-D of the TNGST Act, 1959. Rate of Tax – Classification - Food items – Items under Brand name - Name not being registered - Liability u/s 3(2) of the TNGST Act, 1959 r/w Serial No.4 (iii) of Part E of the First Schedule to TNGST Act - Held that:- The reading of the Entry in Part E of First Schedule, any food item or a preparation sold under the brand name, whether or not registered under the Trade and Merchandise Mark Act, would fall for consideration under the said entry – What was sold by the assessee in the retail outlet to M/s.Food World Super Market Limited were of preparations with the mark of the assessee, which was a distinct one from what one would find otherwise in the case of food fried with stuff sold either in street or in any other outlet of a similar nature - The assessee admitted that the puff prepared by them had their own dressing done by the staff, served with ketchup, paper napkin etc - It is not the case of the assessee that what was sold by the assessee had no character or distinctiveness of the assessee's preparation to identify this with the assessee; thus, when what were sold had the mark of it being a assessee's product, the mere fact of the name not being registered or imprinted on the product, by itself would not come to the aid of the assessee to contend that assessment would not fall for consideration under Part E of the First Schedule - Order of Tribunal confirmed and Revisions rejected – Decided against assessee. Issues Involved:1. Taxability of sales of food items under specific sections of the Tamil Nadu General Sales Tax Act, 1959.2. Determination of whether the food items sold were branded or unbranded.Issue-wise Detailed Analysis:1. Taxability of Sales of Food Items:The primary issue was whether the sales of food items by the assessee were taxable under Section 3(2) read with Serial No.4(iii) of Part E of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) or under Section 3-D of the same Act. The assessee contended that their sales should be taxed under Section 3-D, which applies to sales in hotels, restaurants, sweet stalls, and other eating houses. The Tribunal, however, held that the sales were taxable under Section 3(2) read with Serial No.4(iii) of Part E of the First Schedule, attracting a higher tax rate of 16%.The Court observed that the assessee prepared food items and sold them exclusively to M/s. Food World Super Market Limited, where the items were fried and sold to consumers. The Court noted that the sales were made directly to M/s. Food World Super Market Limited and not to the ultimate consumers, and thus, the sale did not occur in an 'eating house' as required under Section 3-D. Consequently, the sales were rightly taxed under Section 3(2) at 16%.2. Determination of Branded or Unbranded Food Items:The second issue was whether the food items sold by the assessee were branded or unbranded. The assessee argued that the items were unbranded and thus should attract a lower tax rate of 8% under Entry 12(iii), Part-C of the First Schedule to the TNGST Act. The Tribunal, however, found that the items were sold under the brand name 'Old Chang Kee,' and thus, the higher tax rate of 16% under Entry 4(iii), Part E of the First Schedule was applicable.The Court examined the evidence, including invoices and the nature of the sales process, and concluded that the items were indeed sold under a brand name. The Court noted that the items were distinctively identified with the assessee, served with specially made sauce and napkins, and thus fell under the category of branded items. The Court rejected the assessee's contention that the mere use of a letterhead did not constitute branding, affirming that the items carried a distinct mark of the assessee.Conclusion:The High Court upheld the Tribunal's decision that the sales of food items by the assessee were taxable at 16% under Section 3(2) of the TNGST Act, 1959, read with Entry 4(iii) of Part E of the First Schedule. The Court also affirmed that the items sold were branded and thus did not qualify for the lower tax rate applicable to unbranded items. The Tax Case (Revisions) preferred by the assessee were dismissed, confirming the Tribunal's order.