JSA Represents PepsiCo India Before Supreme Court On VAT Exemption For Quaker Oats

JSA Advocates & Solicitors (JSA) successfully represented PepsiCo India Holdings Pvt. Ltd. before the Supreme Court of India, which dismissed the Special Leave Petition (SLP) filed by the Karnataka VAT Department challenging the Karnataka High Court’s decision granting VAT exemption on processed White Oats (Quaker Oats) for the relevant assessment years.

The dispute pertains to a Circular issued in June 2006 issued by the VAT Department under Section 59(4) of the Karnataka VAT Act wherein it was clarified that “White Oats” would be eligible for exemption from VAT under Schedule I of the KVAT Act as coarse grains. PepsiCo India claimed the benefit of exemption on oats manufactured and sold by them under the brand-name ‘Quaker Oats’ post issuance of the Circular. Subsequently, the VAT Department issued another Circular in January 2010, clarifying that the exemption will not be available to processed White Oats.

Thereafter, the VAT Department initiated reassessment proceedings against PepsiCo India for FYs 2007-08 to 2009-10 on the grounds that the Circular dated 03.06.2006 never intended to grant the benefit of exemption to processed white oats and therefore alleged short payment of tax. The assessing authority passed an order levying tax, interest and penalty on sale of oats from FY 2007-08 to 2009-10.

In appeal, the Tribunal reversed the decision of the adjudicating authority on the grounds that the Circular dated June 2006 is binding upon the VAT Department, and the benefit of exemption ought to be granted. This order was appealed by the VAT authorities before the Hon’ble Karnataka High Court. The Hon’ble Karnataka High Court vide its Judgement dated 29.06.2018, followed its earlier decision in Pioneer Trading vs. State of Karnataka, wherein it was held that Petitioner-Department is bound by its Clarification dated 03.06.2006 till the date Department changed its stand with respect to taxability of “White Oats” vide subsequent Clarification.

The VAT Department filed an SLP before the Hon’ble Supreme Court challenging the decision of the Hon’ble Karnataka High Court.

JSA indirect tax team representing the client argued that the Circular in June 2006 was issued by the VAT authorities only after examining the samples of “White Oats” on the specific reasoning that Entry 16 includes not just “coarse grains” but also their “flour”, which implies that Entry 16 is wide enough to cover processed products of such coarse grains. Moreover, the Circular issued under Section 59(4) is binding on the Department. It was further argued that although Department changed its stand subsequently in 2010, the same cannot be made applicable retrospectively and exemption granted vide Circular issued in June 2006 should be available.

The Hon’ble Supreme Court dismissed the SLP filed by the VAT Department since the fact that a subsequent circular was issued to clarify that exemption is not available to Processed White Oats shows that the Circular issued in June 2006 granted the exemption to Processed White Oats.

Senior Advocate Mr. Tarun Gulati was briefed on the matter and led the arguments for PepsiCo.

JSA Disputes and Indirect tax teams worked together on the matter. The Disputes team was led by Dheeraj Nair, Partner, who was the Advocate on Record on the matter, with support from Avni Sharma, Principal Associate.

The Indirect Tax team was led by Manish Mishra, Partner and Head of Practice, Indirect Tax, and included Ankur Mittal, Counsel, and Shubh Dixit, Senior Associate.