Pepsico India Holdings Pvt. Ltd. and Others vs Commissioner of Commercial Taxes and Another

S. Manikumar, J.—Challenging the validity of the clarification dated March 29, 2007, issued by the Commissioner of Commercial Taxes,

Chennai 5, first respondent, holding that branded chips are taxable at 12.5 per cent under Part C of the First Schedule to the Tamil Nadu Value

Added Tax Act, 2006 (hereinafter referred to as, ""the TNVAT Act"") the petitioners have filed the present writ petition. Consequently, the

petitioners have prayed for a direction to the first respondent to classify ""potato chips"" sold under a brand name as taxable under entry 107 of Part

B of the First Schedule to the TNVAT Act, 2006 and for further orders.

Short facts leading to the writ petition are as follows:

The first petitioner is engaged in the manufacture and sale of, inter alia, chips under the branded name of ""Lays"" and ""Uncle Chips"" (potato chips).

They are also a manufacturer and vendor of other products such as ""Kurkure"" and ""Cheetos"". The Assistant Commissioner (Fast Track

Assessment Circle I), Chennai 6, second respondent, is the assessing authority. The operation of the business is conducted in the following manner

: the first petitioner, manufactures and sells potato chips to the distributor, viz., second petitioner, who in turn, sells the same to the retailer, the third

petitioner, and from there it reaches the consumers. It is also the case of the petitioners that on the sale of Kurkure and Cheetos, the petitioners

collect and pay VAT at the rate of 12.5 per cent, because the said products are manufactured by combining various ingredients, such as, grains,

pulses, spices and condiments and that they do not fall in any entry of the First Schedule.

The petitioner has further submitted that ""potato chips"" is a processed vegetable and the same would attract tax under entry 107 of Part B of the

First Schedule to the TNVAT Act. According to them, on and from the introduction of the Act, they classified ""potato chips"" manufactured by the

first petitioner under entry 107 of Part B of the First Schedule to the TNVAT Act, as a processed vegetable and that the manufacturer, first

petitioner herein, has been collecting and paying VAT at the rate of four per cent on the turnover relating to the sale of potato chips. The

respondents were also accepting the returns filed by the first petitioner, paying tax on potato chips at the rate of four per cent per annum.

While that be so, the petitioners understand that the Federation of Indian Chamber of Commerce (in short, ""FICC"") have sought for a

clarification to ascertain the rate of VAT on potato chips sold under a branded name in Tamil Nadu and the Commissioner of Commercial Tax,

Tamil Nadu, first respondent has issued a clarification No. 7342/07, dated March 29, 2007, as follows:

It is clarified that the sale of chips without a brand name are taxable at four per cent vide entry No. 51 of Part B of the First Schedule and with a

brand name are taxable at 12.5 per cent of Part ""C"" of the First Schedule to the TNVAT Act 2006 with effect from January 1, 2007.

The above clarification is to put under challenge in the present writ petition.

At the foremost, Mr. C. Natarajan, learned Senior Counsel appearing for the petitioners, submitted that the petitioners were not a party before

the first respondent and therefore, they do not have any opportunity to represent their case before the impugned clarification was issued. Referring

to the various provisions and Schedules to TNVAT Act, he further submitted that potato chips are nothing but processed vegetable and it finds

place in entry 107 of Part B and the classification by the Commissioner of Commercial Tax, Chennai, first respondent, under the residuary entry of

the Part ""C"" of the First Schedule is erroneous.

Inviting the attention of this Court to the goods that are taxable at the rate of four per cent in Part ""B"" of the First Schedule, wherein, processed

vegetable occur, learned Senior Counsel for the petitioners further submitted that the first respondent has totally ignored the way in which, the

expression ""processed vegetable"" is understood in common parlance. According to him, residuary provision can be attracted only if the goods

cannot, by any process of reasoning, fall under either the Second Schedule or Part A or Part B of the First Schedule and therefore, the first

respondent has manifestly erred in classifying ""potato chips"" under the residuary entry of Part ""C"" of the First Schedule, without having regard to

the specific entry 107 of Part ""B"" of the First Schedule.

Inviting the attention of this Court to the manufacture and sale of Kurkure and Cheetos, by collecting and paying VAT at the rate of 12.5 per

cent per annum and the process involved in the manufacture of the above-said product, by combining various ingredients, such as, grains, pulses,

spices and condiments, learned Senior Counsel for the petitioners further submitted that the abovesaid product undergoes a process of

manufacture and in such circumstances, they do not fall in any entry of the First Schedule and therefore, the collection of VAT at the rate of 12.5

per cent per annum, is understandable. According to him, ""potato chips"" are made from potatoes, i.e., vegetables, by undergoing the following

process as set out below:

(i) De-stoning--Stones and other heavy particles are removed.

(ii) Peeling--Peels are removed.

(iii) Slicing--Potatoes are cut into slices

(iv) Washing--Slices are washed

(v) Frying--Slices are fried in oil

(vi) Application of spices and condiments

(vii) Quality check, and packing in retail packs.

Assailing the impugned clarification as a non-speaking order, learned Senior Counsel for the petitioners further submitted that the petitioners

have enough materials to support their claim that ""potato chips"" are classifiable only under entry 107 of Part B of the First Schedule to the TNVAT

Act and prayed this Court to give an opportunity to the petitioners to place all the necessary materials by remitting the matter to the first respondent

for a de novo consideration, so as to enable the petitioners to prove that the ""potato chips"" would fall within the entry 107 of Part B of the First

Schedule.

Referring to entry 107 of Part B of the First Schedule, learned Senior Counsel for the petitioners further submitted that the said entry does not

have an exclusionary clause, whereas, it only includes certain items. He therefore submitted that the said entry has to be construed in its wide

amplitude without restricting its scope in any way whatsoever. According to him, the expression ""processed vegetable"" as employed in entry 107

of Part B of the First Schedule to the TNVAT Act does not preclude from including within its fold, other processed vegetables not illustrated

therein, such as the petitioner''s product in question, ""potato chips"".

It is also the contention of the learned Senior Counsel for the petitioner that various other products, processed out of vegetables, like for

instance, tomato ketchups, sauces, etc., are being classified under entry 107 of Part B, though this produce is specifically enumerated in the entry in

question. That apart, entry 107 includes manufactured forms of processed vegetables, such as jams, fruit squashes and jelly. Learned Senior

Counsel for the petitioners further submitted that there are certain overlapping items in entries 51 and 107 of Part B of the First Schedule and the

same has to be construed as favourable to the petitioners. He also submitted that the Ministry of Food Processing Industry and the HSN Code

(Harmonized System of Nomenclature) under the Central Excise Tariff Act recognise ""potato chips"" only as a processed vegetable. Therefore,

there is no reason as to how and on what basis, the Commissioner of Commercial Taxes, Tamil Nadu, first respondent, had come to the

conclusion that ""potato chips"" can be classified as a residuary entry.

Pointing out the ratio decidendi in Tvl. Pizzeria Fast Foods Restaurant (Madras) Pvt. Ltd. Vs. Commissioner of Commercial Taxes and

Others, , learned Senior Counsel submitted that though there is no provision to issue the impugned clarification by the first respondent, the same

when issued, would be binding on its subordinates as well as the petitioners to pay tax as per the provisions of the TNVAT Act. Mere issuance of

clarification itself would create a duty on the petitioners to pay VAT at 12.5 per cent and therefore, the impugned clarification is ultra vires of entry

107 of the First Schedule to the TNVAT Act.

Placing reliance on various decisions in Collector of Central Excise, Kanpur v. Krishna Carbon Paper Co. reported in : [1989] 72 STC 280

(SC), Filterco and Another Vs. Commissioner of Sales Tax, Madhya Pradesh and Another, , Shanmuga Traders and Others Vs. State of T.N.

and Others, , H.P.L. Chemicals Limited Vs. Commissioner of Central Excise, Chandigarh, , M/s. Bharat Forge and Press Industries (P) Ltd. Vs.

Collector of Central Excise, Baroda, Gujarat, , Union of India (UOI) and Others Vs. The Tata Iron and Steel Co. Ltd., , learned Senior Counsel

for the petitioners submitted that ""potato chips"" can be classified only as ""processed vegetable"" and the expression used in the entry must be

understood in its ordinary sense or what is known as common parlance. Unless the word or expression employed in a statute, conveys any

scientific or technical meaning, the ordinary or common parlance meaning should be attached to that word or expression and therefore, the

clarification issued by the first respondent, stating that ""potato chips"" are taxable at 12.5 per cent per annum is erroneous and contrary to well

accepted legal principles stated supra and the provisions of the TNVAT Act, 2006.

Per contra, the respondents in their detailed counter-affidavit, denied the submissions made by the petitioners. Reiterating the averments made

in the counter-affidavit, Mr. R. Mahadevan, learned Additional Government Pleader appearing for the respondents, submitted that the clarification

under challenge issued by the first respondent pertains to rate of levy of tax on sale of chips with or without brand names. He further submitted that

it is only the petitioners, who are bringing forward that potato chips are processed vegetables. In the market arena, the purchaser recognise ""Lays

and ""Uncle Chips"" as chips with brand names and the paramount importance is being given only to the brand name and not the factum as to

whether the said chips are manufactured out of potato or any other vegetable or fruit. It is well known that chips can be made from banana,

tapioca, etc., and the impugned clarification is applicable to all kinds of chips with a brand name, irrespective of the base material used or

transformed into a marketable product, chips. Whether ""Lays"" and ""Uncle Chips"" are chips made out of potato or any other thing has to be looked

from the view of the purchaser.

Explaining the process of manufacture set out in the counter-affidavit, learned Additional Government Pleader further submitted that after

getting potato into slices, they were fried, roasted and mixed with masala or spices powder, etc., with the result that their originality undergoes a

drastic change and transformed into a new commodity and therefore, it would be a difficult task even to an unwary observer that those goods had

its origin from potato or banana or tapioca, etc. Therefore, he submitted that the contention of the petitioners that ""Lays"" and ""Uncle Chips"" are

processed vegetable products, is unsustainable and incorrect.

Inviting the attention of this Court to paragraph 19 of the affidavit filed in support of the writ petition, explaining the process involved in the

manufacture of chips marketed by the petitioners, i.e., by adding ingredients to make the chips, learned Additional Government Pleader submitted

that it is not the case of mere preserving or processing, but frying of chips in oil, which would itself go to prove that they are no longer simply

processed vegetables, but something cooked and made ready as savouries or eatables.

Referring to the interpretation adopted in the Ministry of Food Processing Industry, learned Additional Government Pleader submitted that the

same is related to development of food processing industry and it is nothing to do with the interpretation of an entry in the taxing statutes. Referring

to the entry 51 of Part B of the First Schedule to the TNVAT Act and the specific language employed to bring in chips as savouries, he submitted

that the Legislature had clearly intended to treat chips as savouries and not as processed vegetable, as claimed by the petitioners. He further

submitted that there is no ambiguity in the entries, since chips whether made either from potato or from any other commodity so long as they are

unbranded would be eligible for being taxed at four per cent under entry 51 of Part B of the First Schedule, but the chips dealt with by the

petitioners, having a specific brand name, cannot be classified under entry 51 of Part ""B"" of the First Schedule or under entry 107 of Part B of the

First Schedule, since ""savouries like chips"" do not find place under that entry and therefore, it should necessarily be classified only under the

residuary item, i.e., Part ""C"" of the First Schedule, taxable at 12.5 per cent per annum.

Referring to the impugned clarification, learned Additional Government Pleader further submitted that the clarification of an item, is primarily

and essentially a question of fact and it is for the assessing authority to decide, based upon the prevailing facts and circumstances and if the

assessing authority comes to an independent conclusion, within the above parameters, honestly and bona fide, the same is binding on the

petitioners, notwithstanding the clarification issued by the first respondent. Inviting the difference between the entries 51 and 107, he further

submitted that there is no overlapping between the entries as claimed by the petitioners and further submitted that the clarification is according to

the provisions of the TNVAT Act.

Placing reliance on the decision in Pepsico India Holdings (P.) Ltd. Vs. State of Punjab and Another, , learned Additional Government Pleader

further submitted that the Punjab and Haryana High Court, dealing with the petitioners'' own case, on the same lines had already negatived the

claim of the petitioners and directed them to approach the appropriate authority. He also relied on the decisions in Ramavatar Budhaiprasad Etc.

Vs. Assistant Sales Tax Officer, Akola, , Om Prakash Gupta v. Commercial Tax Officer [1976] 38 STC 73, Chandreswar Singh v. State of

Assam [1978] 42 STC 424 (Gau) and State of Goa and others Vs. Leukoplast (India) Ltd. etc., , and submitted that the impugned clarification

issued by the first respondent is in accordance with the statutory provisions and therefore, there is no need to interfere with the same and hence,

prayed for dismissal of the writ petition.

Heard the learned Counsel for the parties and perused the materials available on record.

Before adverting to the facts of this case, it is necessary to extract the relevant provisions for adjudicating the dispute raised in this writ petition.

Section 3(2) of the TNVAT Act is the charged provision and it reads as follows:

Subject to the provisions of Sub-section (1), in the case of goods specified in Part B or Part C of the First Schedule, the tax under this Act shall

be payable by a dealer on every sale made by him within the State at the rate specified therein.

Entry 51 of Part B of the First Schedule to the TNVAT Act reads as follows:

Foods and food preparations and mixes including instant foods, coconut milk powder, pickles, sweets, cheese, confectionery, chocolates, toffees

and savouries like chips and pop corn sold without a brand name other than those specified in the Fourth Schedule.

Entry 107 of Part B of the First Schedule to the TNVAT Act is as follows:

Processed fruit and vegetables including fruit jam, jelly, pickle, fruit squash, paste fruit drink and fruit juice (whether in sealed containers or

otherwise) other than specified in the Fourth Schedule.

Part C of the First Schedule (Sub-section (2) of Section 3) reads as follows:

All goods other than those exempted in Fourth Schedule and those specified in Second Schedule and in Part A and Part B of the First Schedule.

Pleadings disclose that FICQ Chennai, had sought for a clarification from the first respondent, regarding the rate of tax for sale of potato chips

and thereupon, the first respondent by his letter dated July 29, 2007, issued a clarification, stating that the sale of chips without brand name is

taxable at four per cent in entry 51 of Part B of the First Schedule and potato chips with brand name is taxable at 12.5 per cent under Part C of

the First Schedule to the TNVAT Act.

The contention of the petitioners cannot be countenanced for the reasons that even though potato is not immediately perishable, it could be

treated as vegetable. But it is totally inconceivable that chips could also be classified as processed vegetable since in common parlance, processing

means, cleaning, cutting, grinding, filtering, adding additives and preservatives, freezing, etc., and not frying in oil, which would altogether take away

its element of naturalness by becoming a cooked food. Chips dealt with by the petitioners under the brand name, ""Lays"" and ""Uncle Chips"" would

not fall under entry 51, as they are not items without a brand name. Similarly, entry 107 deals with the processed foods and vegetables, including

fruit jam, jelly, pickle, fruit squash, paste fruit drink and fruit juice and therefore, the products of the petitioners would not fall under this entry also.

As branded potato chips cannot be fit in either Part A or Part B of the First Schedule or Second Schedule or Fourth Schedule, they should

necessarily be classified only as a residuary item in Part ""C"" of the First Schedule to the TNVAT Act. Entry 51 of Part B states that unbranded

savouries like chips, would attract TNVAT at four per cent. If the contention of the petitioners that branded chips also would fall under entry 51 is

accepted, then the resultant position related to an unbranded chips mentioned in entry 51 would be against the intention of the Legislature and

therefore, the clarification issued by the first respondent that branded chips would fall under the residuary item in Part C of the First Schedule to the

Act, is in accordance with the provisions of the Act.

The circulars issued under the Central Excise Act and relied on by the petitioners are not relevant for the reason that the wording of the entries

in the Central Excise Tariff Schedule is different from that of those found in the Tamil Nadu Value Added Tax Act, 2006 and no parallel line could

be drawn between the two enactments. External aid can be taken for construction of a statute, only when there is any ambiguity in interpreting the

meaning of the words used in a particular statute. Even assuming that if there is any ambiguity in interpreting the words used in the statute, courts

have held that the theory of purposive construction should be applied. In the given case, the distinction is with reference to the goods marketed,

with or without a specific brand name and the Legislature has clearly demarcated the difference in placing goods in appropriate entries for the

purpose of levy of tax. If the intention of the Legislature was to treat ""potato chips"" as processed vegetable, then it could have been included in

entry 107 of Part B of. the First Schedule, as was done in the case of fruit jam, fruit squash, etc. When there is a specific exclusion of branded

potato chips"" in the said entry, courts cannot add or insert the processed final product in the said entry, as it would be amounting to usurping the

legislative domain.

The apex court in Hiralal Rattanlal Vs. State of U.P. and Another etc. etc., held as follows:

In construing a statutory provision, the first and the foremost rule of construction is the literal construction. All that we have to see at the very outset

is what does that provision say? If the provision is unambiguous and if from that provision, the legislative intent is clear, we need not call into aid the

other rules of construction of statutes. The other rules of construction of statutes are called into aid only when the legislative intention is not clear.

The principle of strict interpretation of taxing statutes is as explained in Cape Brandy Syndicate v. Commissioners of Inland Revenue [1921] 1

KB 64 is extracted hereunder,

In a taxing statute, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no

presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

Though ""pickle"" finds its place in both entries 51 and 107 of Part B of the First Schedule, the contention of the petitioners that the same

yardstick should be applied to the case of chips cannot be accepted. Scrutiny of the two entries would reveal that entry 51 states that pickles

without brand name would be liable to be taxed at four per cent. But a question may arise as to what would be the rate of tax on the sale of pickles

with brand name. In the absence of any entry covering branded pickles, it would inevitably fall under the residuary entry, viz., Part C of the First

Schedule, taxable at 12.5 per cent, similar to the branded chips. Perhaps, the Legislature, taking into consideration the labour involved in the

manufacture of the pickles and the market, decided to help the pickle industry and specifically included this item under entry 107, so that pickles

with brand name also would get the benefit of levy of tax.

32 As regards the contention that the petitioners have not been given an opportunity to place the materials before the appropriate authority to

substantiate their claim, this Court is of the view that it is not required to be given for the reason that the decision taken by the first respondent is

not a quasi-judicial one, whereas, it is purely an administrative function of clarifying the rate of tax applicable to the goods under the TNVAT Act

on the request made by the manufacturer or dealer. If the request of the petitioners that every manufacturer or dealer of goods, in the instant case,

potato chips"", has to be given an opportunity before issuing a clarification, is accepted, then there will not be any end to the process of

determination of the rate of tax applicable to any goods. It would only open the pandora''s box and any clarification issued by the competent

authority will not reach its finality. As long as the administrative decision is not unfair, arbitrary or irrational, the same cannot be held as ultra vires

the statutory provisions. It is evident that the authority has issued the clarification with reference to the classification of the goods, occurring in

various entries in the Schedule appended to the TNVAT Act. Therefore, the request of the petitioners to remit the matter for reconsideration, does

not merit acceptance.

The intention of the Legislature to levy a lesser rate of tax with reference to the usage of the product or goods in the market, cannot be said to

be arbitrary or capricious. Neither the manufacturer nor the dealer has any absolute or legal right to demand that the goods sold by him should

attract only a particular rate of tax. As long as there is a rationale in distinguishing the goods for levying different rate of tax, then the same cannot

be questioned as arbitrary or ultra vires of the statutory provisions. It is true that many clarifications have been issued on a single day, but that alone

cannot be put against the Department to mean that the administrative decision taken by the first respondent in the matter of potato chips is hasty. It

cannot be disputed that the then existing fiscal statute, viz., the TNGST Act, underwent a drastic change and while classifying the goods in different

entries, the competent authority has issued clarifications, whenever a doubt was raised by the manufacturers or dealers. In the process of

transformation, there is every possibility of a bona fide mistake happening in taking administrative decisions, but that cannot be generalised to give

an impression that the clarifications issued by the Commissioner of Commercial Taxes, Tamil Nadu are without any basis.

One cannot disown that FICC is one of the organisations recognised by the Government and the trading community to ventilate their

grievances in trade or business, on behalf of the manufacturers, dealers or for that matter, even customers, to the Government and the

Departments. When the Chambers of Commerce have come forward with the request to clarify the rate of VAT applicable to ""potato chips"" sold

under a brand name in Tamil Nadu and when the clarification was issued on March 29, 2007, stating that the sale of chips without brand name

would attract four per cent tax, vide entry 51 of Part B of the First Schedule and sale of chips with brand name, is taxable at 12.5 per cent under

Part C of the First Schedule to the TNVAT Act, with effect from January 1, 2007, the distinction is explicit and it could be inferred that the

competent authority has taken the administrative decision with reference to the entries in the Schedules and the sale of goods in the market. Once

the clarification is issued by the competent authority on the request of the FICC, a body recognised by the Government and Departments, the

same is binding on all the manufacturers and dealers. But that does not create a total embargo on the power of the assessing authority to consider

each case on merits and decide the rate of tax applicable to goods, sold by the assessee.

There is no inconsistency or overlapping in the entries in respect of pickles. As a corollary, if the Legislature had intended to include branded

chips similar to branded pickles, it would have included the same in entry 51 of Part B of the First Schedule. But the intention of the Legislature is

explicit that branded chips were specifically omitted to be included as attracting difference in the rate of tax.

It is well-settled that in the matter of classification the Legislature possessed wider latitude to pick and choose the objects, persons or goods

for levying tax and mere fact that some or few of the goods, falling within the same clause is placed in disadvantageous position, cannot be a

subject to be decided, as discriminatory, considering the complexity involved in fiscal legislation. For all these reasons, I do not find any patent

illegality or irregularity in the decision-making process of the competent authority in issuing the clarification that ""potato chips"" with brand names

Lays"" and ""Uncle Chips"" would fall under Part C of the First Schedule to the TNVAT Act.

In the result, the writ petition is dismissed. No costs.