Gujarat High Court Upholds Classification Of 'Mint Orange 2022' As Industrial Input Under VAT Act

The Gujarat High Court has held that 'Mint Orange 2022' is classifiable as an industrial input under the Gujarat Value Added Tax Act, 2003, clarifying that household use does not prevent a product from being treated as an industrial input when its composition and primary use are industrial in nature.

A Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi dismissed the Tax Appeal filed by the Commercial Tax Department, holding that the product qualifies as an aromatic chemical and compound under Entry 226 of Schedule II, covered by Entry 42A relating to industrial inputs.

The Bench noted the laboratory reports and certificates on record stated that:

“Industrial Flavours are mainly custom made for specific industries like Confectionary, Soft drinks, Ice Cream etc. Generally Industrial Flavours are seldom used by housewives.”

The case arose from proceedings concerning the classification of 'Mint Orange 2022'. In 2011, the Commissioner of Commercial Tax (Legal), Ahmedabad, in an advance ruling, classified the product under the residuary Entry 87, making it taxable at 12.5% VAT along with an additional tax of 2.5%.

Aggrieved, Gujarat Flavours Pvt. Ltd., the taxpayer, filed an appeal before the Gujarat VAT Tribunal. The Tribunal allowed the appeal and held that 'Mint Orange 2022' was classifiable as an industrial input under Entry 226 of Schedule II, covered by Entry 42A. Challenging this order, the Revenue filed the present Tax Appeal before the High Court.

Before the Court, the Revenue contended that the product was liable to be classified under the residuary entry. The taxpayer, on the other hand, relied on certificates, laboratory reports, State notifications, the Central Excise Tariff Act classification under Chapter IV entry 3302, and the product composition to contend that the product was a mixture of odoriferous substances used as an industrial input in industries such as pharmaceuticals, beverages, cosmetics and ice cream.

Accepting the Tribunal's findings, the Court held that the product was appropriately classifiable under the specific entry relating to aromatic chemicals and compounds. Applying the principle laid down by the Supreme Court in Mayuri Yeast India Pvt. Ltd. that specific entries must be preferred over residuary entries where applicable, the Court observed:

“In the instant case, Mint Orange 2022, cannot be classified as a residuary entry, since the same can be satisfactorily accommodated in Entry 226 of Aromatic Chemical and Compound of Entry 42A of Schedule – II of Gujarat Value Added Tax Act, 2003 looking at its composition as a mixture of odiferous substance of aromatic chemical and is used as industrial input in different products like pharma, beverages, cosmetics, ice-cream etc.”

The Bench also considered the relevant State notifications, the Central Excise Tariff Act classification under Chapter IV entry 3302 and the product composition, and found that the product was an industrial input fitting within Entry 226 of Schedule II.

Accordingly, holding that the product was correctly classifiable as an industrial input and that no substantial question of law arose, the Court dismissed the Tax Appeal filed by the Revenue.

For Petitioner: AGP Tanushree Shrimal

For Respondent: Advocate Uchit N. Seth