Tribunal’s lower tax classification overturned; court restores higher tax rate and upholds interest and penalty under Gujarat VAT Act
The Gujarat High Court has held that chewing gum cannot be classified as “sweets and sweetmeats” under Entry 74A of Schedule II of the Gujarat Value Added Tax Act, 2003, and must instead be taxed under the residuary Entry 87. The court also set aside the Tribunal’s order that had reduced the tax liability and deleted the interest and penalty imposed on the assessee.
A Division Bench of Justices Bhargav D. Karia and Pranav Trivedi delivered the ruling in an appeal filed by the State of Gujarat against Cad Mak Chew Foods. The dispute concerned the tax rate applicable to sales of chewing gum manufactured by the respondent firm.
The assessee had argued that chewing gum should be treated like other confectionery products such as toffee, chocolate, and peppermint, which had earlier been considered under the “sweets and sweetmeats” category. It also relied on departmental circulars, determination orders, and food safety regulations to support the claim that chewing gum was a sweetmeat and therefore taxable at the lower rate of 4%.
The State, however, contended that chewing gum was not specifically covered by any entry in the VAT schedule and could not be brought within the meaning of “sweets and sweetmeats.” It argued that chewing gum is not an eatable item in the ordinary sense, but is merely kept in the mouth and discarded after chewing. Therefore, it should fall under the residuary entry attracting tax at 12.5%.
The High Court accepted the State’s position and placed strong reliance on the Supreme Court’s ruling in Commissioner of Trade Tax, U.P. v. Associated Distributors Ltd. The Bench noted that the Supreme Court had clearly held that bubble gum and chewing gum are not sweetmeats in common parlance and cannot be treated as “mithai.” Applying the common parlance test, the High Court observed that chewing gum is not ordinarily regarded as a sweet or sweetmeat by consumers or traders.
The court further held that materials such as food safety standards, excise tariff classifications, and departmental e-service commodity codes could not override the legal position declared by the Supreme Court. It also rejected the assessee’s argument based on earlier departmental practices and determination orders, stating that such materials could not change the statutory classification under the VAT Act.
As a result, the court ruled that chewing gum is taxable under the residuary Entry 87 of Schedule II of the VAT Act. Since the Tribunal’s classification was found incorrect, its consequential deletion of interest and penalty was also held unsustainable.
Allowing the Revenue’s appeal, the court answered both substantial questions of law in favour of the State and against the assessee.
Bottom Line :
Gujarat VAT Act - Classification of chewing gum - Chewing gum is not taxable as "sweets and sweetmeats" under Entry 74A of Schedule II - In view of common parlance test and Supreme Court decision in Associated Distributors Ltd., chewing gum is not an eatable sweetmeat and falls under residuary Entry 87 - Tribunal erred in reducing tax rate and deleting interest and penalty.
Statutory provision(s): Gujarat Value Added Tax Act, 2003 Section 78, Gujarat Value Added Tax Act, 2003 Schedule II Entry 74A, Gujarat Value Added Tax Act, 2003 Schedule II Entry 87, Gujarat Value Added Tax Act, 2003 Section 42(6), Gujarat Value Added Tax Act, 2003 Section 34(7), Gujarat Value Added Tax Act, 2003 Section 34(12)
State of Gujarat v. Cad Mak Chew Foods, (Gujarat)(DB) : Law Finder Doc id # 2985696
