Ahmedabad: Chewing gum may leave a sweet taste in the mouth, but it cannot sweeten the tax deal for manufacturers. Since it is not an edible item, it cannot be bracketed as sweets and sweetmeats to enjoy the lower tax slab of 4%, and will instead attract VAT at 12.5%. With this observation, Gujarat High Court has allowed the state govt’s appeal against a Value Added Tax tribunal’s order.In Feb 2007, a commercial tax officer visited the premises of Cad Mak Chew Foods, which manufactures peppermint, sugar candy, sakariya (sugar balls) and chewing gum. After scrutinising the records, the assessing officer in 2011 raised a total tax demand of Rs 9.8 lakh, holding that chewing gum sales would attract VAT at 12.5% rather than 4%. The department also imposed a penalty.The company challenged the tax demand, and a deputy commissioner reduced the penalty but upheld the 12.5% tax rate on chewing gum. The company, however, managed to get a sweeter deal before the VAT tribunal, which treated chewing gum as sweets and sweetmeats covered by Entry 74A of the VAT Act and held that it was liable to be taxed at 4%. In 2014, the tribunal had said, “The product is consumed for the sweet juice and therefore even though at the end, rubber is thrown out they do not cease to be eatables”.The state govt challenged this decision before the HC, arguing that chewing gum falls under residuary Entry 87 and attracts the higher tax slab. The company defended the tribunal’s observation that bubble gum is mainly consumed for its sweet juice and should therefore be treated as a sweet and confectionery item for taxation purposes.The state argued that chewing gum is not expressly mentioned in Entry 74A and belongs under the residuary entry. It relied on Supreme Court precedent requiring a common parlance test.The bench of Justice Bhargav Karia and Justice Pranav Trivedi said the tribunal’s finding ran contrary to the apex court’s ruling, which categorically held that chewing gum is not an eatable product. The bench said, “We are of the opinion that the tribunal has committed an error in holding that chewing gum is taxable as “sweets and sweetmeats” under Entry 74A of the Schedule II of the Gujarat Value Added Tax Act, 2003 and consequently, deleting the interest and penalty. We, therefore, answer both the questions in favour of the revenue and against the assessee and hold that ‘chewing gum’ cannot be classified as “sweets and sweetmeats” under Entry 74A of the Schedule II of the Gujarat Value Added Tax Act, 2003.”
