Chewing Gum Not Taxable At 4% As 'Sweets And Sweetmeats': Gujarat High Court Holds 12.5% VAT Applies

The Gujarat High Court has recently ruled that chewing gum cannot be classified as “sweets and sweetmeats” under the Gujarat Value Added Tax Act, 2003. It held that the product is taxable at 12.5%, instead of the 4% rate applicable to sweets and sweetmeats.

A bench comprising Justice Bhargav D. Karia and Justice Pranav Trivedi relied on the Supreme Court's ruling in Commissioner of Trade Tax, U.P. v. Associated Distributors Ltd.

The court also held that the tribunal was wrong in deleting the interest and penalties.

The case concerned Cad Mak Chew Foods, which manufactures peppermint, sugar candy, sakariya and chewing gum. The Assessing Officer had held that its chewing gum sales were taxable at 12.5%, rather than 4%.

The tribunal later held that chewing gum was covered by the “sweets and sweetmeats” category and therefore attracted tax at 4%. It also set aside the penalties and directed that interest be calculated consequentially.

The State challenged the tribunal's decision before the high court. It argued that chewing gum was not covered by “sweets and sweetmeats” and therefore had to be taxed under the residuary entry.

The assessee relied on the earlier treatment of chewing gum under the Gujarat sales-tax regime. It also relied on departmental determination orders and circulars, as well as the Central Excise Tariff classification of chewing gum under the heading for sugar confectionery.

The high court rejected the argument that the earlier treatment of chewing gum could override the Supreme Court's ruling in Associated Distributors. The Supreme Court had specifically considered chewing gum and bubble gum and held that they could not be treated as sweetmeats.

The court observed, “However, in the facts of the present case, the Hon'ble Apex Court has categorically held that chewing gum/bubble gum is not an eatable item and cannot be considered as 'sweetmeat'. In view of the decision of Hon'ble Apex Court on the same point, chewing gum cannot be classified as 'sweetmeats' even if Entry 74A has been applied to include chewing gum/bubble gum for several assessment years.”

The court noted that different tests can apply when interpreting entries in a taxing statute, including dictionary meaning, technical meaning, the users' point of view, and popular meaning.

The court also rejected the tribunal's attempt to distinguish Associated Distributors. It found that the tribunal had erred in comparing chewing gum with products such as chocolates and lollipops.

The court held that the principle of preferring a specific entry over a residuary entry could not assist the assessee. Once chewing gum was found not to fall within the “sweets and sweetmeats” category, it had to be classified under the residuary entry.

The court accordingly answered both substantial questions of law in favour of the Revenue and against the assessee. It held that chewing gum could not be classified as “sweets and sweetmeats” and allowed the State's appeal.

For Appellant: Dr. Pooja Ashar, Assistant Government Pleader

For Respondent: S.N. Soparkar, Senior Advocate, with Uchit N. Sheth