Rajasthan High Court under Section 84 of the Rajasthan Value Added Tax Act, 2003 (RVAT Act)

In a recent case that came before the Rajasthan High Court under Section 84 of the Rajasthan Value Added Tax Act, 2003 (RVAT Act), Justice Sameer Jain rendered a significant decision regarding the classification of ‘Kurkure’ and ‘Cheetos.’ The Rajasthan High Court determined that these popular snack items should be categorized as “namkeen” rather than “snacks.” This classification had important implications for sales tax revisions, ultimately highlighting the significance of adhering to specific classifications within the RVAT Act for accurate taxation of products like ‘Kurkure’ and ‘Cheetos.’

Background Rajasthan High Court under Section 84 

The case revolved around the classification of ‘Kurkure’ and ‘Cheetos’ in various Sales Tax Revisions. The petitioner was a private limited company registered under the Companies Act, 1956, with its main office in Gurugram, Haryana, and a principal place of business in Jaipur, Rajasthan. The petitioner was a registered dealer under the RVAT Act, involved in selling a range of food products, including ‘Kurkure,’ ‘Cheetos,’ and branded potato chips under the names ‘Lays’ and ‘Uncle Chips.’

The petitioner initially classified these goods under Entry 131 of Schedule IV of the RVAT Act, which encompassed ‘Sweetmeat Deshi, bhujiya, branded and unbranded namkeens,’ and paid taxes at the rate of 4% or 5%. However, a survey conducted for the assessment year 2011-2012 led to an assessment order on 20-09-2016, where the respondent reclassified the mentioned goods under the Residual Entry in Schedule V of the RVAT Act. This change attracted a higher tax rate of 12.5% or 14%, resulting in the imposition of differential tax and interest on the petitioner.

An appeal was made against this assessment order, and the First Appellate Authority partially allowed it on 20-11-2017 by classifying branded potato chips under Entry 107 of Schedule IV to the RVAT Act. However, the classification of ‘Kurkure’ and ‘Cheetos’ under the residual entry of Schedule V was upheld.

Additionally, the Rajasthan Tax Board dismissed the petitioner’s appeal through an order dated 03.01.2020, maintaining the levy of additional tax and interest by classifying ‘Kurkure’ and ‘Cheetos’ under the residual Entry No. 78 of Schedule V to the RVAT Act, leading to the filing of the present Sales Tax Revisions.

Analysis, Legal Precedent, and Ruling Rajasthan High Court under Section 84

The Rajasthan High Court recognized that the central issue in this case concerned the classification of ‘Kurkure’ and ‘Cheetos,’ proprietary food items produced by the petitioner. It was established that, in the legal framework, a specific entry always takes precedence over a general entry. In this context, the burden of proof rested on the respondent to demonstrate that the goods in question fell under a general entry rather than a specific one.

The Rajasthan High Court identified a misinterpretation of the Pepsico India Holdings Pvt. Ltd. v. CTO, 2016 SCC Online Raj 10791 case by the Tax Board. This judgment was related to the Rajasthan Sales Tax Act, 1994 and focused on the classification within two competing specific entries. However, in the present case, the specific entry competed with the general entry. The Court cited HPL Chemicals v. Commissioner of Central Excise, (2006) 5 SCC 208 and emphasized that when two specific entries deserved equal consideration, the more specific one should prevail.

In line with legal precedents such as CCT v. A.R. Thermosets Pvt. Ltd., Hindustan Poles Corporation v. CCE, Dunlop India v. Union of India, and Mauri Yeast India Pvt. Ltd. v. State of U.P., the Court noted that the resort to the residual entry should be a last resort. It could only be invoked if the department could prove that, by no conceivable process of reasoning, the goods in question fit into any of the tariff items.

Regarding the issue of whether the respondent successfully demonstrated that the goods in question could not be placed in any specific entry and had to be classified under the residual entry, the Court found that the respondent had failed to provide any expert opinion or present evidence to support their claim.

The Rajasthan High Court also criticized the Tax Board’s classification of the goods in question as snacks based solely on the ingredients, deeming it fallacious and lacking in reasoning. It pointed out that the Tax Board had disregarded the standard definition of namkeen, as well as specifications provided by the Bureau of Indian Standard and Food Safety and Standards Authority of India Licenses issued to the petitioner, all of which categorized the goods as namkeen. Legal precedents, including CCE v. Frito Lay India and Pepsi Foods Ltd. v. Commr. of Cus. and Ex., were cited, which classified the goods in question as namkeen.

Rajasthan Value Added Tax Act, 2003 (RVAT Act)

The Rajasthan High Court ruled that ‘Kurkure’ and ‘Cheetos’ should be classified as namkeen and not as snacks. The respondent failed to establish that these products belonged to general, residual, or orphan categories, rather than the specific entry. The Court’s decision emphasized the importance of accurate classification under the RVAT Act for taxation purposes and allowed the Sales Tax Revisions.

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