Processed vegetable classification kept potato chips out of the residuary schedule, defeating differential tax, interest and penalty.

Potato chips were treated as processed vegetables because slicing, frying and seasoning did not change their essential character as a potato-based product. The specific tariff entry for processed or preserved vegetables was applied on the basis of common parlance and the rule that a specific entry prevails over a residuary entry, with support from comparable VAT and excise classifications and persuasive High Court views. Once covered by the specific entry, classification under the residuary schedule was impermissible, so the consequential levy of differential tax, interest and penalty could not be sustained.

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Issues: Whether potato chips are classifiable under entry 107 of Schedule IV as processed or preserved vegetables and not under the residuary schedule, and whether the consequential levy of tax, interest and penalty could be sustained.

Analysis: Potato chips were held to be produced from potato, a vegetable, and the processing by slicing, frying and seasoning did not alter the essential character of the commodity. The specific entry for processed or preserved vegetables was construed in the light of common parlance, the principle that a specific tariff entry prevails over a residuary entry, and the supportive understanding of the product in comparable State VAT and excise classifications. The Court also relied upon the view that contemporaneous administrative understanding and persuasive decisions from other High Courts supported the classification as a processed vegetable. Once the product was found to fall within the specific entry, resort to the residuary schedule was impermissible, and the consequential demand of higher tax, interest and penalty could not survive.

Conclusion: Potato chips were held classifiable under entry 107 of Schedule IV as processed vegetables, not under the residuary schedule, and the levy of differential tax, interest and penalty was unsustainable.

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