1. Everyone, especially in Gujarat, loves Fryums. However on a lighter note it seems that the advance ruling authorities in Gujarat do not love it so much so as to merit its classification as exempted goods. They have held (re: Sonal Product- Advance Ruling No. GUJ/GAAR/R/2019/03) that fryums shall be subjected to tax at the rate of 18%. This is in contrast to the ruling by the Advance Ruling Authority in the State of Tamil Nadu ( Re. Subramani Sumathi Order No. 7/AAR/2019) wherein it has been held that the same shall be exempted from tax. Present article seeks to analyze the issue involved considering the legal precedents.
2. Before discussing the precedents it is worthwhile to briefly note the production process of fryums. Firstly the flour (maida) as well as other ingredients (such as starch, salt, baking powder, etc.) are cleaned by the cleaning machine and thereafter are put into a mixture machine to create a composite mixture of all the said ingredients. Thereafter the said mixture is put into an extruder machine to manufacture the extruded products. Said products are then cut into various shapes and sizes and are subsequently dried by the machine which results into fryums. Said fryums are then packed and supplied to various customers.
|Notification No.||S. No.||Chapter/Heading/Sub-heading /Tariff item||Description of Goods||Rate|
|2/2017-Central Tax (Rate)||96||1905||Pappad, by whatever name it is known, except when served for consumption||Nil|
|1/2017-Central Tax (Rate)||23 (Schedule III)||2106||Food preparations not elsewhere specified or included [other than roasted gram, sweetmeats, batters including idli/dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready for consumption form, khakhra, chutney powder, diabetic foods]||18%|
4. Hence the issue before us relates to the classification of the fryums under any one of the above referred entries.
5. It is a settled legal position that a specific description shall be adopted in place of a general description (re: Moorco India Ltd. v. CC (1994) 74 ELT 5 (SC)). Similarly it is also a settled legal position that resort of residuary entry is to be made with extreme caution being only attracted when no other provision expressly or by necessary implication applies to the goods in question (re: Western India Plywood Ltd. v. CC (2005) 188 ELT 365 (SC)).
6. Hence we need to identify whether the fryums in question can be considered as “papad” or not so as to fall under heading 1905. We may also state that “papad” referred at the Sr. No. 96 suprafalls under tariff entry 1905 90 40. Thus only if the same is not considered as “papad” that a resort can be made to the heading 2106 given at Sr. No. 23 supra which is general in nature as it includes food preparations not elsewhere specified or included.
7. We may also state that even if the fryums in question are considered as “papad” and thus fall under tariff entry 1905 90 40, papad when served for consumption is not covered at Sr. No. 96 Hence we shall now presume that the fryums under question are not served for consumption.
8. Now the term “papad” has not been defined in the above referred notification. Hence the meaning of the same needs to be ascertained by referring to certain legal precedents.
9. Supreme Court had an occasion to interpret the term “papad” in the case of Shiv Shakti Gol Finger vs Asstt. Commissioner (1996) 9 SCC 514. In the said case the issue before the Court was whether “Gole papad” manufactured out of Maida, Salt Starch, Papad Soda, Alum and Food colour, being circular in nature, can be considered as “papad” or not in the context of exemption granted to “papad and Badi” u/s 4(2) of the Rajasthan Sales Tax Act, 1954. The Court held as under:
“It is seen that the notification clearly mentions that the word ‘Papad’ has been used a genus and its species are made from pulses, rice, maida, potato, sago etc..”
10. We may now refer to the decision rendered by Karnataka High Court in the case of State of Karnataka vs. M/s. Vasavammba Stores (2010) 60 VST 19 (Karn). In this case the issue was whether fryums can be treated as “papad” or not. The Court held relying on the decision of Shiv Shakti Gol Finger (supra)that the shape of the papad is not the relevant consideration when ingredients are the same and hence fryums of different shapes shall be regarded as “papad”.
11. It must also be noted that the said judgment was in the context of entry at Sr. No. 40 of Schedule – I to the KVAT Act, 2003 which granted exemption to “pappad”. Description under tariff entry 1905 90 40 also carries the same word “papad”.
12. Above discussions thus leads to an inescapable conclusion that if the ingredients for the manufacture of the fryums in question are maida mixed with other additives, the same shall be considered as papad irrespective of its shape and size. It merely comes in different shapes and sizes to attract the customer but that would not lose its identity as a papad.
13. We may also refer to the decision of Apex Court in the case of TTK Health Care Limited 2007 11 SCC 796 wherein it has been held that fryums are not cooked food. It is submitted that the said decision has no applicability to the present discussion as in referred case the issue was whether the fryums are cooked food or not? and not whether the fryums are papad or not ? In fact in the said decision as rightly observed by Karnataka High Court in the case of Vasavammba Stores (supra) the Apex Court nowhere stated that fryums are not papad.
14. We also refer to the decision of Bangalore CESTAT in the case of CCE v. T T K Pharma Ltd. 1993 (63) E.L.T. 446 (Tribunal) (relied by the Gujarat Advance Ruling Authority) wherein it has been held that fryums if put up in unit containers and ordinarily intended for sale are classifiable under sub-heading 2107.91 as a namkeen. It is humbly submitted that the said ruling has no applicability to the present issue on the grounds that:
a) It is with respect to the interpretation of sub-heading 2107. It is submitted that the said sub-heading no longer forms part of the tariff and hence the goods falling therein have been included elsewhere including heading 1905 which covers “papad”.
b) It is with respect to interpretation of an exemption notification which referred to the goods falling under 2107.
c) The present issue is concerning the interpretation of the term “papad” and not whether the same requires further frying or not and hence whether the same is “namkeen” or not as was the case in the given decision.
d) We may also draw reference to Circular No. 27/36/86-TRU, dated 4-8-1986 wherein it has been clarified that papad shall be rightly classifiable under heading No. 19.05 of the Central Excise Tariff.
15. Before we end we may also refer to the settled position that the classification of goods followed by the department for a number of years cannot be departed unless new material or cogent reasons are available for changing the classification (re: Ponds India Ltd. v. Commissioner of Trade Tax (2008) 15 VST 256 (SC)). Fryums have been treated as “papad” by the department since number of years (one may refer to number of advance rulings under GVAT, 2003) and hence the department cannot depart from the said settled position without any underling change in the language used.
16. We thus submit, on the basis of above reasoning that the fryums merit classification as papad only and the same is exempted from tax. It is thus hoped that the decision of Gujarat Advance Ruling Authority is reconsidered by the higher forum in light of the above contentions. That will surely pave way to enjoy fryums without any tax.