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Adopt view that favours assessee
May, 31st 2008

The Supreme Court has ruled that in case of conflicting views on two entries in the tax statute, the view that it comes under the tariff entry shall get precedence over the view that it was an unclassified item that falls under the residuary entry. The apex court also said that in case of two divergent views, one which favours the assessee should be adopted.

This is sure to settle the disputes between the revenue department and the assessee by minimising subjective interpretation of the entries in a tax statute like Sales Tax Act for the purposes of assessment.

A bench comprising justices S B Sinha and H S Bedi said: We, therefore, are of the opinion that if there is a conflict between two entries one leading to an opinion that it comes within the purview of the tariff entry and another the residuary entry, the former should be preferred.

The court said: In interpreting different entries, attempts shall be made to find out as to whether the same answers the description of the contents of the basic entry and only in the event it is not possible to do so, recourse to the residuary entry should be taken by way of last resort.

Relying on an earlier order, the court said: When two views are possible, one which favours the assessee should be adopted.

The court allowed the appeals of Mauri Yeast India and Fermentation and Biochem, the companies engaged in the business of manufacturing and sale of yeast used for the purposes of manufacturing bread and other products. They had been filing returns before the sales tax authorities interpreting yeast to be a chemical within the meaning of the UP Trade Tax Act. The returns were accepted and orders of assessment were passed relying on or on the basis thereof.

However, by an order of March 10, 2005, the assessing officer while accepting the books of account as well as the disclosed turnover, rejected the classification of sale of yeast under the head chemical and imposed tax treating it as unclassified item. In support of the order, the revenue department relied on the decision of the Kerala High Court.

The Kerala High Court in a case had ruled that yeast was a living organism and not a chemical interpreting Entry 29 of the Kerala General Sales Tax Act. However, the Gujarat High Court had held yeast to be a chemical within the meaning of Entry 9 of Part A Schedule II of the Gujarat Sales Tax Act, 1969.

The appeals of the companies before the joint commissioner (Appeals) and the Trade Tax Tribunal were dismissed.
The authorities for the assessment year 2003-2004 issued a notice asking to show cause why tax shall not be imposed on sale of yeast at the rate of 10% as an unclassified item.

Questioning the legality of the notice, the companies had approached the Allahabad High Court which refused to entertain the plea. Against it, the companies had came to the apex court.

In our opinion yeast is a chemical within the meaning of the entry in question, said the Supreme Court.

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