IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. CWP No. 1506 of 2009. Judgment Reserved on: August 20, 2010. Decided on: September 9, 2010. PEPSICO India Holdings Pvt. Ltd. ….... Petitioner. Versus The Assessing Authority-I & ors. ….Respondents. Coram The Hon’ble Mr. Justice Kurian Joseph, Chief Justice The Hon’ble Mr. Justice Rajiv Sharma, Judge. Whether approved for reporting? Yes. For the petitioner: Mr. C.S.Lodha, Sr. Advocate, with Mr. Janesh Gupta, Advocate. For the Respondents Mr. Ankush Dass Sood, Addl. Advocate General. ---------------------------------------------------------------------------------------------- Justice Kurian Joseph, C.J. Whether potato chips would fall within the classification of processed vegetables in the Schedule under the Himachal Pradesh Value Added Tax Act, 2005, is the question essentially to be tackled in this case, though several other legal and factual issues are also raised ancillary thereto. 2. The petitioner-Company is …… “ engaged in the sale of processed potato i.e. potato chips under the brand name ‘Lays’ and ‘Uncle Chips’. The processes involved in obtaining potato chips from potato are very simple namely slicing, frying and adding salt-spices or flavouring 2 agents” (extracted from the Writ Petition). The Himachal Pradesh Value Added Tax, 2005 came into effect from 1st April, 2005. The charging provision under Section 6, to the extent relevant, reads as follows: “6. Levy of tax.- (1) Subject to the provisions of this Act, there shall be levied a tax,- (a) at every point of sale in respect of the goods specified in the second column of Schedule ‘A’, (b) at the prescribed points of purchase in respect of goods specified in the second column of Schedule ‘C’, and (c) at the first point of sale in respect of the goods specified in the second column of Schedule ‘D’, 3. The Act contains 4 Schedules. Schedule ‘A’ containing 3 parts: Part I enumerates goods taxable @ 1%, Part II @ 4% and Part III covers goods other than those specified in Part I and Part II of Schedule ‘A’ and Schedules ‘B’, ‘C’ & ‘D’. Schedule ‘B’ enumerates goods which are exempted from tax. Schedule ‘C’ enlists goods which are subject to purchase tax and Schedule ‘D’ deals with goods which are subject to tax at the first point of sale. Part III of Schedule ‘A’ which in taxing statutes is generally known as residuary entry, reads as follows: [SCHEDULE-A] PART -- III Goods Taxable @ 12.5 percentum “ All goods other than those specified in Part I, Part II of Schedule ‘A’, Schedule ‘B, Schedule ‘C’ and Schedule ‘D’.” 4. The question before us is whether potato chips are goods specified in Part II of Schedule ‘A’, or Part III, residuary entry. 3 5. In order to analyze the said issue as to whether potato chips falls under Part II enumerated goods with 4% tax or residuary entry with 12.5% tax, it is necessary to refer to certain other entries. Schedule ‘B’ deals with goods exempted from tax. To the extent required for discussion, we may extract certain entries: [SCHEDULE ‘B’] GOODS EXEMPTED FROM TAX. Sl. No. GOODS Conditions of exemption 2. Agriculture or horticulture produce, including herbs or saplings of trees sold by person or a member of his family, grown by himself or grown on any land in which he has an interest whether as owner or usufructuary mortgagee, tenant or otherwise. 22. Fresh fruits. ---- 23. Fresh milk and pasteurized milk. ---- 24. Fresh plants, sapling and fresh flowers. ---- 25. Fresh vegetables. ---- 26. Garlic, ginger, green chillies, onions, potatoes, sweet potatoes, tapioca and their seeds. ---- 39. Meat, fish prawn and other aquatic products when not cured or frozen; eggs and live stock and animal hair. (Except when sold in sealed container). Except when sold in sealed containers. Part II of Schedule ‘A’ deals with goods taxable @ 4%. To the extent relevant, the Schedule reads as follows: [SCHEDULE ‘A’] [ PART – II] GOODS TAXABLE @ 4 Percentum. Sl. No. GOODS 21. Coffee beans and seeds, cocoa pod, tea of all kind (whether leaves or in processed form) and chicory. 30. Dry fruits, Wet dates & porridge. 39. Flour (atta), maida, suji, besan etc. 41. Fried and roasted grams. 44. Herbs, bark, dry plants or dry roots, commonly known as jari booti and dry flowers. 78. Processed fruits, vegetables etc. including fruit jams, jelly, pickles, fruit squash, paste, fruit drink & fruit juice (whether in sealed containers or otherwise). 4 79. Processed meat, poultry & Fish. 95. Spices of all varities and forms including cumin seed, aniseed, turmeric and dry chillies. 98. Starch. 109. Vegetable oil including gingili oil and bran oil. 6. A bare comparison of the two Schedules would give a clear indication that though the legislature exempted certain goods wholly from tax, if the very same exempted goods are processed in the manner indicated in Schedule ‘A’ Part II, such goods are liable to tax @ 4% and in respect of other processes not indicated in Schedule ‘A’ Part II, such goods are to be covered by the Part III, residuary entry. In this context, it is also required to refer to the definition of the term goods as appearing under Section 2(k) of the Act, which reads as under: (k) “goods” means every kind of movable property (other than news-papers, actionable claims, stocks and shares and securities) and includes live stock, all materials, commodities and articles and every kind of property (whether as goods or in some other form) involved in the execution of a works contract, and all growing crops, grass, trees or things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale;” It needs no elaborate discussion to hold that potato chips is also covered by the definition of “goods”. Then the simple question is whether potato chips is goods covered under Schedule ‘B’ exempted, Schedule ‘A’ Part II, goods taxable @ 4% or Schedule ‘A’ Part III, goods taxable @ 12.5%. 7. At the outset, we have to state that the petitioner-Company has no case that potato chips being basically potato itself, is goods wholly exempted from tax. It is also to be noted that the residuary entry also deals with goods assessable to tax @ 12.5 %. The only difference is that 5 under the residuary entry, the goods are not specifically enumerated as under other Schedules. The State has specified under Schedule ‘B’, goods which are exempted from tax and under Schedule ‘A’ Part I, goods which are liable to tax @ 1% and in Part II goods @ 4%. Schedule ‘C’ goods @ 12.5%, Schedule ‘D’ 25%, 14%, 12.5% etc. The purpose of the taxing statute is to provide for the levy of Value Added Tax on the sales or purchases of goods in the State of Himachal Pradesh. Therefore, the State Legislature has specified the goods which are exempted from tax and the goods which are assessable to tax at varying percentage and goods which are not specified in any other Schedules are also assessable to tax and those un-specified goods are covered by Part III of Schedule ‘A’ and they are taxable @ 12.5%. Thus, the residuary entry is intended for covering goods assessable to tax, which are not otherwise specified in any of the other Schedules. Hence the moot question is whether potato chips as manufactured and sold by the petitioner-Company under the brand name of “Lays and Uncle Chips” is covered by any of the Schedules. 8. As already stated above, the legislature intended a few goods to be wholly exempted from tax and those goods are enumerated under Schedule ‘B’. But, if those goods undergo the enumerated treatment—process like drying, powdering, juicing etc. as referred in Part II of Schedule ‘A’, those goods are liable to tax under 4% and if those processes—treatment is not covered by Part II Schedule ‘A’, such processed goods would be covered only by Part III, the residuary entry. 9. Under the exempted goods covered by Schedule ‘B’, potato is at entry No. 26. Other items in entry No. 26 are garlic, ginger, green chillies, onions, sweet potatoes, tapioca and their seeds. Entry 22 is fresh fruits, No. 25 is fresh vegetables, 39 is meat, fish, prawn and other aquatic products when not cured or frozen; eggs and live stock and animal hair 6 (except when sold in sealed container). The legislature in Schedule ‘B’ having specifically exempted all agriculture and horticulture produce under entry No. 2, fresh fruits under entry No. 22, fresh vegetables under entry No. 25, potato under entry No. 26, meat, fish, prawn etc. under entry No. 39, deemed it fit to impose tax @ 4%, on coffee, beans and seeds, cocoa pod, tea of all kind (whether leaves or in processed form) and chicory under entry No. 21, on dry fruits under Sl. No. 30, flour (atta), maida, suji, besan etc. under Sl. No. 39, fried and roasted grams under Sl. No. 41, herbs, bark, dry plants or dry roots (jari booti) and dry flowers under processed fruits under entry No. 78, processed vegetables under entry No. 78, fruit jams, jelly, pickles, fruit squash, paste, fruit drink & fruit juice under entry No. 78, processed meat, processed poultry and processed fish under entry No. 79. Spices under entry No. 95, starch under entry No. 98 and Vegetable oil under entry No. 109, all at in Part II of Schedule ‘A’ @ 4%. It is significant to note that the legislature has conspicuously left out any form of potato processing or processed potato, under Part II Schedule ‘A’ to be taxed @ 4%, though potato is exempted from tax under Schedule ‘B’. The vehement contention of the assessee is that potato is a processed vegetable. Technically or say scientifically, it cannot be disputed that potato chips is also a processed form of potato and potato is a vegetable and by the processing of slicing, frying and spicing, the potato chips do not cease to be vegetable. However, we may make a passing observation that in common man’s dictionary of vegetables, we may not find a place for potato chips. We may also record the submission of Sh. Ankush Dass Sood, learned Addl. Advocate General that the branded goods, ‘lays and Uncle Chips’ do not claim to have starch after the processing of potato to make it the branded item. But the question is whether the legislature 7 intended potato chips to be covered by the omnibus expression ‘processed vegetable’? The answer in the context of the specified items exempted and taxed @ 4% when processed in the prescribed manner, is only in the negative in view of the conspicuous omission of processed potato under entry 78 of Part II of Schedule ‘A’, or any other specific entry despite ‘potato’ being exempted goods under Schedule ‘B’. The answer in the negative is also fortified for the reason that the goods which are exempted under Schedule ‘B’, if specified in any other form under Part II of Schedule ‘A’, are put to tax @ 4% like meat and processed meat, fish and processed fish, fruits and processed fruits, vegetables and processed vegetables, fruits and dry fruits etc., but processed potato is left out. 10. By another angle of analysis also, our view is fortified. Under the 4%- Part II of Schedule ‘A’ entry 78 deals with processed fruits, vegetables etc. including fruit jams, jelly, pickles, fruit squash, paste, fruit drinks and fruit juices. It has to be specifically noted that all items specified under the entry mainly relate to fruits except pickles. Though fruits are also sometimes used to make pickles- achars (and sometimes meat, fish including prawns are also used to make pickles), in common parlance, nobody would dare to give the colour and company to the group of pickles or paste or jam or jelly or fruit squash with potato chips. Potato chips in common parlance are known as snacks. No doubt, they are vegetable in content; but in form, it is not specified as an item either under entry 78 or any other entry under 4% group of Part II of Schedule ‘A’ despite indicating several all such processed goods, the basic form of which are exempted under Schedule ‘B’. 11. The petitioner assessee itself understood potato chips as an item covered by the residuary entry as is born out from the fact that from 2005 to 2008, the petitioner had paid tax @ 12.5%, only treating it as 8 covered under the residuary entry. Only in the year 2008, the objection is raised by the petitioner who made a self-classification on re-thinking after three years of payment of tax, to be covered by the 4% group under entry No. 78 in Part II of Schedule ‘A’, as a processed vegetable. It has also to be specifically noted that there is no contention that potato chips are exempted from tax in view of the exemption of potatoes under entry No. 26 of Schedule ‘B’. In the context of the entries as analyzed above, under the provisions of the H.P. VAT Act, 2005, since processed potato is not a specified item under Part II of Schedule ‘A’ in the 4% group, it has to be covered by the residuary entry for the un-specified items in the other Schedules. 12. It is one of the cardinal principles of construction of an entry in a fiscal statute that the articles in the Schedules should be construed in its normal, popular and commercial parlance. In the words of Lord Wright in Attorney General for the Isle of Man v. Emily Moore, reported in AIR 1938 Privy Council 238, where the question considered was a particular material is ‘mineral’ or not. “Whether particular material is mineral and comes within the reservation made by the Crown is an issue of fact to be decided according to the particular circumstances of the case, the duty of the Court being to determine what the words meant in the vernacular of the mining world, the commercial world and landowners at the relevant time.” 13. In M/S Ganesh Trading Co. Karnal etc. etc., v. State of Haryana and another etc. reported in AIR (61) 1974 Supreme Court 1362, the question considered was whether paddy and rice are identical goods. It was held that where paddy is de-husked and rice is produced, there is a change in the identity of the goods. In the said decision in the matter of interpretation of a taxing statute, it has been held as follows: 9 “In finding out the true meaning of entries mentioned in a Sales Tax Act, what is relevant is not the dictionary meaning but how those entries are understood in common parlance, specially in commercial circles.” 14. In Mukesh Kumar Aggarwal & Co., v. State of Madhya Pradesh and others, reported in AIR 1988 Supreme Court 563, the principle has been succinctly dealt with at paragraph 4. To the extent relevant, the judgment reads as follows: “In a taxing statute words which are not technical expressions or words of art, but are words of everyday use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance i.e. “that sense which people conversant with the subject matter with which the statute is dealing, would attribute to it.” Such words must be understood in their ‘popular sense’. The particular terms used by the legislature in the denomination of articles are to be understood according to the common, commercial understanding of those terms used and not in their scientific and technical sense “for the legislature does not suppose our merchants to be naturalists or geologists or botanists”. The expression ‘Timber’ has an accepted and well recognized legal connotation and is nomen juris. It has also a popular meaning as a word of everyday use. In this case, the two meanings of ‘Timber’ the legal and the popular, coalesce and are broadly subsumed in each other.” It may be noted that the Apex Court in the said decision held that stacks of ‘eucalyptus-wood’ sold by the forest department after separating the ‘Ballies’ and ‘Poles’ do not constitute and answer the description of ‘Timber’ under Madhya Pradesh General Sales Tax Act, 1958. 10 15. In Collector of Central Excise, Bombay-I and another v. M/s. Parle Exports (P) Ltd., reported in AIR 1989 Supreme Court 644, the Apex Court held as follows: “The expressions in the Schedule to the fiscal statute and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur. The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them.” 16. In Indian Cable Company Ltd., Calcutta v. Collector of Central Excise, Calcutta and others, reported in (1994)6 SCC 610, at paragraph 5, it has been held as follows: “……..in construing the relevant item or entry, in fiscal statutes, if it is one of every day use, the authority concerned must normally, construe it, as to how it is understood in common parlance or in the commercial world or trade circles. It must be given its popular meaning. The meaning given in the dictionary must not prevail. Nor should the entry be understood in any technical or botanical or scientific sense. In the case of technical words, it may call for a different approach. ……” 17. In Mauri Yeast India Pvt. Ltd. v. State of Uttar Pradesh and another, reported in (2008) 5 SCC 680, it has been reiterated that the trade or commercial meaning or the end-user context would, thus, be a relevant factor in construing the fiscal statute. We may also refer to a celebrated decision of the Supreme Court of United States in Wilma E. Addison v.Holy Hill Fruit Products, reported in 322 US 607, wherein it has been held as follows: 11 If legislative policy is couched in vague language, easily susceptible of one meaning as well as another in the common speech of men, the courts should not stifle the policy by a pedantic or grudging process of construction; but in construing a statute the courts may not draw on some unexpressed spirit outside the bounds of the normal meaning of its words. ……… Legislation when not expressed in technical terms is addressed to the common run of men and is therefore to be understood according to the sense of the thing, as the ordinary man has a right to rely on ordinary words addressed to him.” 18. In view of the age old principles thus well settled in construing the fiscal statutes, it is difficult for us to accept the contention of Sh. C.S.Lodha, learned Senior Counsel for the petitioner-Company that potato chips should be taken to be included in the general expression ‘processed vegetables’. The reliance placed on the decision of the Apex Court in Collector of Central Excise, Kanpur v. Krishna Carbon Paper Co., reported in (1989) 1 SCC 150, wherein it has been held as follows: “But there is a word of caution that has to be borne in mind in this connection, the words must be understood in popular sense, that is to say, these must be confined to the words used in a particular statute and then if in respect of that particular items, as artificial definition is given in the sense that a special meaning is attached to particular words in the statute then the ordinary sense or dictionary meaning would not be applicable but the meaning of that type of goods dealt with by that type of goods in that type of market, should be searched.” has no relevance or application in the instant case. The legislature has not given any artificial definition or attributed a special meaning to processed vegetables. Infact, the intention of the legislature is to the contrary by 12 attributing a special meaning to potato chips as snacks and excluding the said item from the illustrated group of processed vegetables. The contention, based on Deepak Agro Solution Ltd. vs. Commissioner of Customs Maharastra, reported in (2008) 8 SCC 358, that “what is not excluded would be held to be included” is also un-acceptable since the legislature, as we have discussed above, has specifically excluded potato chips or for that matter any form of processed potato in the entries for concessional tariff @ 4% in Part II of Schedule’A’ though several other such exempted goods, when processed have been granted the concessional rate of 4% tax. The reason is simple. Potato chips in common and commercial parlance has distinct identity and the State does not want to put such a commercially different product in the basket of processed vegetables. The legislature only included potato for exemption and excluded a commercially different product namely potato chips for reduced tax- concessional tax. Thus, it is a case of exclusion by express omission in the entry for concessional tariff. Such goods, being taxable have to find a place in the fiscal statute and thus, the relevance for residuary entry, which is also an entry for taxable goods not specified elsewhere. 19. Having analyzed the factual position on the basis of pristine first principle of taxation, we shall also deal with various other contentions raised by the learned Senior Counsel, Sh. C.S. Lodha, appearing for the assessee. One of the main contentions is on the persuasive value of the decisions rendered by the High Courts of Guahatti, Punjab and Haryana, Madras and Uttrakhand. At the outset, we may specifically note that the factual position regarding entry as analyzed in the first decision in the series, by the High Court of Assam is entirely different from that of the Himachal Pradesh. All other High Courts have 13 only followed the High Court of Guahatti. Therefore, we shall first analyze the factual position in the Assam VAT Act. 20. The decision of the Guahatti High Court is in PEPSICO India Holding Pvt. Ltd. Versus State of Assam & others, decided on 28th April, 2009. In the Assam VAT Act, 2003, First Schedule deals with list of exempted goods. To the extent relevant, we may extract the Schedule. FIRST SCHEDULE List of exempted goods Sl. No. Description of goods Conditions and exception 17. Fresh plants, saplings and fresh flowers 18. Fresh vegetables and fruits 19. Garlic and ginger 24. Meat, fish, prawn and other aquatic products when not cured or frozen; eggs and livestock and animal hair The Second Schedule deals with goods taxable @ 4%. To the extent relevant, we may extract the Schedule as under:- SECOND SCHEDULE (at the relevant time) Sl. No. Description Rate of tax (paise in the rupee 31. Flour, atta, maida, suji and besan 4 32. Fried grams 4 35. Herb, bark, dry plant, dry root, commonly known as jari booti and dry flower 4 80. Processed or preserved vegetables and fruits including fruit jam, jelly, pickle, fruit squash, paste, fruit drink and fruit juice. 4 21. Entry No. 80, as originally stood covered only following items “ processed or preserved vegetables and fruits”. The inclusive 14 illustration was added only thereafter, w.e.f. 5.12.2005. The entry was once again amended w.e.f. 16.10.2008 and as amended, the entry reads as follows: “Processed or preserved vegetables and fruits including jams, jelly, pickles, fruit squash, paste, fruit drinks and fruit juice but excluding ‘potato chips’, banana chips and cooked preparation of the vegetables and fruits.” 22. The High Court in the case at hand examined the situation prior to 2008 as to whether potato chips would be covered by the expression ‘processed vegetables’. It has to be specifically noted that potato is not goods exempted under the first Schedule in the Assam Act. The exempted goods are only fresh vegetables and fruits, garlic and ginger. Still further, it has