REPORTABLE
|IN THE SUPREME COURT OF INDIA |
|CIVIL APPELLATE JURISDICTION |
|CIVIL APPEAL NOS. 5307-5308 0F 2003 |
| |
|COMMISSIONER OF CENTRAL EXCISE, |— | APPELLANT |
|NEW DELHI | | |
| |
|VERSUS |
|M/S CONNAUGHT PLAZA RESTAURANT (P)|— |RESPONDENT |
|LTD., NEW DELHI | | |
J U D G M E N T
D.K. JAIN, J.
1. The short question of law for consideration in these appeals, filed by
the revenue, under Section 35L of the Central Excise Act, 1944 (for short
“the Act”) is whether ‘soft serve’ served at the restaurants/outlets
commonly and popularly known as McDonalds, is classifiable under heading
21.05 (as claimed by the revenue) or under heading 04.04 or 2108.91 (as
claimed by the assessee) of the Central Excise and Tariff Act, 1985 (for
short “the Tariff Act”).
2. During the relevant period, the respondent-assessee was engaged in the
business of selling burgers, nuggets, shakes, soft-serve etc. through its
fast food chain of restaurants, named above. In so far as the manufacture
and service of ‘soft serve’ is concerned, the assessee used to procure
soft serve mix in liquid form from one M/s Amrit Foods, Ghaziabad; at
Amrit Foods, raw milk was pasteurised, skimmed milk powder was added (the
milk fat content in the said mixture is stated to be 4.9%, not exceeding
6% at any stage); sweetening agent in the form of sugar or glucose syrup
and permitted stabilizers were added; the mixture, in liquid form, was
then homogenized, packed in polyethylene pouches and stored at 0 to
40C. This material was then transported to the outlets under the same
temperature control, where the liquid mix was pumped into a ‘Taylor-make’
vending machine; further cooled along with the infusion of air, and
finally, the end product, ‘soft serve’, was drawn through the nozzle into
a wafer cone or in a plastic cup and served to the customers at the
outlet.
3. For the periods from April 1997 to March 2000, three show cause notices
came to be issued to the assessee. These alleged that the ‘soft serve’
ice-cream was classifiable under Chapter 21, relating to “Miscellaneous
Edible Preparations” of the Tariff Act, attracting 16% duty under heading
21.05, sub-heading 2105.00 -“Ice-cream and other edible ice, whether or
not containing cocoa”. Invoking the proviso to sub-section (1) of
Section 11A of the Act, additional duty was also demanded. A proposal for
imposing penalty on the assessee and on their Managing Director was also
initiated.
4. While adjudicating on the first show cause notice, vide order dated 31st
May, 2000, the adjudicating authority held that : ‘soft serve’ was
classifiable under heading 04.04. Describing the goods as “other dairy
produce; edible products of animal origin, not elsewhere specified or
included”, it held that the process undertaken by the assessee amounted
to manufacture and the extended period of limitation was not applicable.
However, while adjudicating on the second show cause notice, vide order
dated 28th September, 2001, the adjudicating authority concluded that:
soft serve was classifiable under heading 21.05; the process undertaken
by the assessee for conversion of soft serve mix to ‘soft serve’ amounted
to manufacture and that the assessee was not entitled to small scale
exemption because of use of the brand name “McDonalds”. While
adjudicating on the third show cause notice, the adjudicating authority
reiterated that : ‘soft serve’ was classifiable under heading 21.05; the
process undertaken by the assessee for conversion of soft serve mix to
‘soft serve’ amounted to manufacture and small scale exemption was not
available to the assessee because of use of the brand name “McDonalds”.
In an appeal filed by the assessee, the Commissioner of Central Excise
(Appeals) reversed the above finding and classified ‘soft serve’ under
the sub-heading 2108.91.
5. Being aggrieved, cross appeals were filed, both by the revenue as also
the assessee, before the Customs, Excise and Gold (Control) Appellate
Tribunal, New Delhi, as it then existed, (for short “the Tribunal”). The
appeals arising from the first two show cause notices were disposed of by
the main order, dated 29th January, 2003. The appeal arising from the
third show cause notice was disposed of by the Tribunal vide order dated
3rd August, 2004, following its earlier decision in order dated 29th
January, 2003. The Tribunal came to the conclusion that the process
undertaken by the assessee, namely, conversion of soft serve mix to ‘soft
serve’ amounted to manufacture and that ‘soft serve’ was classifiable
under sub-heading 2108.91, describing the goods as “Edible preparations,
not elsewhere specified or included” – “not bearing a brand name”,
attracting nil rate of duty. The Tribunal held thus :-
“In view of the technical literature, ISI Specification and provisions
made in Prevention of Food Adulteration Act, 1955 and Rules made
thereunder, the impugned product cannot be classified as ice-cream
merely on the ground that the consumer understood the same as ice-cream
or the ingredients of both the products are same. The statement given
by the Managing Director also cannot be a basis for determining the
exact classification of the product in the Central Excise Tariff. The
ratio of the decision in the case of Shree Baidyanath Ayurved Bhavan
Limited case is not applicable to the facts of the present matter. The
dispute in the said case was as to whether the ‘Dant Manjan Lal’ is
Ayurvedic medicine or ‘Tooth Powder’. In that context, the Supreme
Court observed that resort should not be had to the scientific and
technical meaning of the terms and expressions used but to their
popular meaning, which does not mean that if a particular product is
not ice-cream it can be classified as ice-cream because some consumers
treated it as ice-cream. Accordingly, the product in question is not
classifiable under Heading 21.05 of the Central Excise Tariff.”
6. It is manifest that the Tribunal based its conclusion on the technical
meaning and specifications of the product “ice-cream”, stipulated in the
Prevention of Food Adulteration Act, 1955 (for short “the PFA”) and
rejected the common parlance test, viz. the consumers’ understanding of
the product. Being aggrieved by the said approach, the revenue is before
us in these appeals.
7. Mr. Arijit Prasad, learned counsel appearing for the revenue, submitted
that the enquiries conducted by the revenue revealed that in common trade
parlance, ‘soft serve’ is known as “ice-cream”; all the ingredients used
and the process of manufacture adopted for preparation of ‘soft serve’ is
essentially the same as is adopted for manufacture of an “ice-cream”; and
therefore, manufacture of ‘soft serve’ cannot be said to be distinct from
the manufacture of “ice-cream”. It was urged that the specifications for
manufacture of “ice-cream” under the PFA are irrelevant in so far as the
question of classification of goods under the Tariff Act is concerned.
It was asserted that the identity of ‘soft serve’ is associated with how
the public at large identifies it, and not by the parameters or
specifications indicated in other statutes including the PFA in relation
to “ice-cream”. According to the learned counsel ‘soft serve ice-cream’,
‘soft ice-cream’ and ‘Softies’ are commonly taken as different kinds of
“ice-cream”. Finally, it was submitted that since the product is sold
from the outlets of “McDonalds”, the brand is in the customer’s mind when
he/she enters the outlet and therefore, it cannot be covered under sub-
heading 2108.91, as erroneously held by the Tribunal.
8. Mr. V. Lakshmi Kumaran, learned counsel appearing for the assessee, on
the other hand, asserted that but for heading 21.05, “ice-cream” itself
was a dairy product and would have been classified under heading 04.04.
Therefore, ‘soft serve’ would also be classifiable under heading 04.04.
It was argued that ‘soft serve’ cannot be referred to as “ice-cream” even
by applying the common parlance test, in as much as ‘soft serve’ is sold
throughout the world not as “ice-cream” but only as ‘soft serve’. “Ice-
cream”, the world over, is commonly understood to have milk fat content
around 10% whereas ‘soft serve’ does not contain milk fat of more than
5%.
9. Referring to the technical meaning of “ice-cream”, given in Kirk-Othmer
Encyclopedia of Chemical Technology, Third Edition – Volume 15 and
“Outlines of Dairy Technology” by Sukumar De, learned counsel vehemently
submitted that all these books describe “ice-cream” as a dessert, which
is frozen to a hard stage, whereas, soft serve dispensed through the
Taylor machine is served in a semi-solid state, by processing the pre-mix
by blowing air into it. ‘Soft serve’ is not as hard as an ice-cream is,
and thus, cannot be called as “ice cream” even if tested on the
touchstone of the common parlance test. The main thrust of the
submission of the learned counsel was that if the assessee markets ‘soft
serve’ as “ice-cream”, they will be liable to prosecution under the PFA,
because the milk fat content in ‘soft serve’ is less than 10%, a
statutory requirement for manufacture of “ice-cream”. In support of the
submission, learned counsel commended us to the decision of this Court in
State of Maharashtra Vs. Baburao Ravaji Mharulkar & Ors.[1], wherein it
was held that a person selling ice-cream with 5% milk fat content instead
of minimum 10% milk fat, was selling adulterated ice-cream and was liable
to prosecution. Reliance was also placed on the decision of this Court
in Akbar Badrudin Giwani Vs. Collector of Customs, Bombay[2], to contend
that in matters pertaining to classification of a commodity, technical
and scientific meaning of the product is to prevail over the commercial
parlance meaning.
10. Lastly, Mr. V. Lakshmi Kumaran urged that even if we were to hold that
‘soft serve’ is an “ice-cream”, under notification No.16/2003-CE (NT)
dated 12th March, 2003, granting exemption to “softy ice-cream” dispensed
through a vending machine, issued under Section 11C of the Act, the
assessee will not be liable to pay any Excise duty in respect of “softy
ice-cream” during the relevant period.
11. In short, the case of the assessee is that “soft serve” is a product
distinct and separate from “ice-cream” since the world over “ice-cream”
is commonly understood to have milk fat content above 8% whereas ‘soft
serve’ does not contain more than 5% of milk fat; it cannot be considered
as “ice-cream” by common parlance understanding since it is marketed by
the assessee the world over as ‘soft serve’; “ice-cream” should be
understood in its scientific and technical sense; and hence, for these
reasons, ‘soft serve’ is to be classified under heading 04.04 as “other
dairy produce” and not under heading 21.05. On the other hand, Revenue
claims that “ice-cream” has not been defined under heading 21.05 or in
any of the chapter notes of Chapter 21; upon conducting enquiries it was
found that ‘soft serve’ is known as “ice-cream” in common parlance; and
hence, it must be classified in the category of “ice-cream” under heading
21.05 of the Tariff Act.
12. Before we proceed to evaluate the rival stands, it would be necessary
to notice the length and breadth of the relevant tariff entries that have
been referred to by both the learned counsel.
|“Chapter 4 |Dairy Produce, etc. |312 |
| | | |
|04.04 |Other dairy produce; Edible | |
| |products of animal origin, not | |
| |elsewhere specified or included | |
| |-Ghee : | |
|0404.11 |--Put up in unit containers and |Nil |
| |bearing a brand name | |
|0404.19 |--Other |Nil |
|0404.90 |--Other |Nil |
|Heading No. |Sub-heading |Description of goods |Rate of duty |
| |No. | | |
|(1) |(2) |(3) |(4) |
|21.05 |2105.00 |Ice cream and other edible|16% |
| | |ice, whether or not | |
| | |containing cocoa | |
|21.08 | |Edible preparations, not | |
| | |elsewhere specified or | |
| | |included | |
| |2108.91 |-Not bearing a brand name |Nil” |
13. Chapter 4 of the Tariff Act reads “dairy produce; edible products of
animal origin, not elsewhere specified or included.” Heading 04.04 is
applicable to “other dairy produce; or edible products of animal origin
which are not specified or included elsewhere.” As is evident from
Chapter note 4, the terms of heading 04.04 have been couched in general
terms with wide amplitude. Chapter note 4 reads:
“4. Heading No. 04.04 applies, inter alia, to butter-milk, curdled
milk, cream, yogurt, whey, curd, and products consisting of natural
milk constituents, whether or not containing added sugar or other
sweetening matter or flavoured or containing added fruit or cocoa and
includes fats and oils derived from milk (e.g. milkfat, butterfat and
butteroil), dehydrated butter and ghee.”
14. On the other hand, Chapter 21 of the Act is applicable to
“Miscellaneous Edible Preparations”. Heading 21.05 refers to “ice-cream
and other edible ice”. It is significant to note that none of the terms
have been defined in the chapter. Further heading 2108.91 is a residuary
entry of wide amplitude applicable to “edible preparations, not elsewhere
specified or included” and “not bearing a brand name”.
15. According to the rules of interpretation for the First Schedule to the
Tariff Act, mentioned in Section 2 of the Tariff Act, classification of
an excisable good shall be determined according to the terms of the
headings and any corresponding chapter or section notes. Where these are
not clearly determinative of classification, the same shall be effected
according to Rules 3, 4 and 5 of the general rules of interpretation.
However, it is also a well known principle that in the absence of any
statutory definitions, excisable goods mentioned in tariff entries are
construed according to the common parlance understanding of such goods.
16. The general rules of interpretation of taxing statutes were succinctly
summarized by this Court in Oswal Agro Mills Ltd. & Ors. Vs. Collector of
Central Excise & Ors.[3]; as follows :
“4. The provisions of the tariff do not determine the relevant
entity of the goods. They deal whether and under what entry, the
identified entity attracts duty. The goods are to be identified and
then to find the appropriate heading, sub-heading under which the
identified goods/products would be classified. To find the
appropriate classification description employed in the tariff
nomenclature should be appreciated having regard to the terms of the
headings read with the relevant provisions or statutory rules or
interpretation put up thereon. For exigibility to excise duty the
entity must be specified in positive terms under a particular tariff
entry. In its absence it must be deduced from a proper construction
of the tariff entry. There is neither intendment nor equity in a
taxing statute. Nothing is implied. Neither can we insert nor can we
delete anything but it should be interpreted and construed as per
the words the legislature has chosen to employ in the Act or rules.
There is no room for assumption or presumptions. The object of the
Parliament has to be gathered from the language used in the
statute.……….. ..
*** *** ***
…Therefore, one has to gather its meaning in the legal setting to
discover the object which the Act seeks to serve and the purpose of
the amendment brought about.
The task of interpretation of the statute is not a mechanical one.
It is more than mere reading of mathematical formula. It is an
attempt to discover the intention of the legislature from the
language used by it, keeping always in mind, that the language is at
best an imperfect instrument for the expression of actual human
thoughts. It is also idle to expect that the draftsman drafted it
with divine prescience and perfect and unequivocal clarity.
Therefore, court would endeavour to eschew literal construction if
it produces manifest absurdity or unjust result. In Manmohan Das
v. Bishun Das : (1967) 1 SCR 836, a Constitution Bench held as
follows:
“…The ordinary rule of construction is that a provision of a
statute must be construed in accordance with the language used
therein unless there are compelling reasons, such as, where a
literal construction would reduce the provision to absurdity or
prevent manifest intention of the legislature from being carried
out.”
17. Therefore, in order to find an appropriate entry for the classification
of ‘soft serve’, it would be necessary to first construe the true scope
of the relevant headings. As noted above, none of the terms in heading
04.04 and heading 21.05 have been defined and no technical or scientific
meanings have been given in the chapter notes. Evidently, ‘soft serve’ is
not defined in any of the chapters aforesaid. Under these circumstances,
it becomes imperative to examine if the subject good could come under the
purview of any of the classification descriptions employed in the Tariff
Act. Having regard to the nature of the pleadings, the issue is whether
the term “ice-cream” in heading 21.05 includes within its ambit the
product ‘soft serve’. That leads us to the pivotal question, whether, in
the absence of a statutory definition, the term “ice-cream” under heading
21.05 is to be construed in light of its scientific and technical
meaning, or, whether we are to consider this term in its common parlance
understanding to determine whether its amplitude is wide enough to
include ‘soft serve’ within its purview.
Common Parlance Test :
18. Time and again, the principle of common parlance as the standard for
interpreting terms in the taxing statutes, albeit subject to certain
exceptions, where the statutory context runs to the contrary, has been
reiterated. The application of the common parlance test is an
extension of the general principle of interpretation of statutes for
deciphering the mind of the law maker; “it is an attempt to discover
the intention of the legislature from the language used by it,
keeping always in mind, that the language is at best an imperfect
instrument for the expression of actual human thoughts.” [(See :Oswal
Agro Mills Ltd (supra)].
19. A classic example on the concept of common parlance is the decision of
the Exchequer Court of Canada in The King Vs. Planter Nut and Chocolate
Company Ltd.[4]. The question involved in the said decision was whether
salted peanuts and cashew nuts could be considered to be "fruit" or
"vegetable" within the meaning of the Excise Tax Act. Cameron J.,
delivering the judgment, posed the question as follows:
“...would a householder when asked to bring home fruit or vegetables
for the evening meal bring home salted peanuts, cashew or nuts of any
sort? The answer is obviously `no'.”
Applying the test, the Court held that the words “fruit” and “vegetable”
are not defined in the Act or any of the Acts in pari materia. They are
ordinary words in every-day use and are therefore, to be construed
according to their popular sense.
20. In Ramavatar Budhaiprasad Etc. Vs. Assistant Sales Tax Officer,
Akola[5], the issue before this Court was whether betel leaves could be
considered as “vegetables” in the Schedule of the C.P. & Berar Sales Tax
Act, 1947 for availing the benefit of exemption. While construing the
import of the word “vegetables” and holding that betel leaves could not
be held to be “vegetables”, the Court observed thus :
“…But this word must be construed not in any technical sense nor
from the botanical point of view but as understood in common
parlance. It has not been defined in the Act and being a word of
every day use it must be construed in its popular sense meaning
“that sense which people conversant with the subject matter with
which the statute is dealing would attribute to it.”
21. In Commissioner of Sales Tax, Madhya Pradesh Vs. Jaswant Singh Charan
Singh[6], the Court had to decide whether “charcoal” could be classified
as “coal” under Entry I of Part III of Schedule II of the Madhya Pradesh
General Sales Tax Act, 1958. Answering the question in the affirmative,
it was observed as follows :
“3. Now, there can be no dispute that while coal is technically
understood as a mineral product, charcoal is manufactured by human
agency from products like wood and other things. But it is now well-
settled that while interpreting items in statutes like the Sales
Tax Acts, resort should be had not to the scientific or the
technical meaning of such terms but to their popular meaning or the
meaning attached to them by those dealing in them, that is to say,
to their commercial sense……”
XXX XXX XXX XXXX
“5. The result emerging from these decisions is that while
construing the word ‘coal’ in Entry I of Part III of Schedule II,
the test that would be applied is what would be the meaning which
persons dealing with coal and consumers purchasing it as fuel would
give to that word. A sales tax statute is being one levying a tax
on goods must in the absence of a technical term or a term of
science or art, be presumed to have used an ordinary term as coal
according to the meaning ascribed to it in common parlance. Viewed
from that angle both a merchant dealing in coal and a consumer
wanting to purchase it would regard coal not in its geological
sense but in the sense as ordinarily understood and would include
‘charcoal’ in the term ‘coal’. It is only when the question of the
kind or variety of coal would arise that a distinction would be
made between coal and charcoal; otherwise, both of them would in
ordinary parlance as also in their commercial sense be spoken as
coal.”
22. In Dunlop India Ltd. Vs. Union of India & Ors.[7], at page 251, while
holding that VP Latex was to be classified as “raw rubber” under Item 39
of the Indian Tariff Act, 1934, this Court observed:
“29. It is well established that in interpreting the meaning of
words in a taxing statute, the acceptation of a particular word by
the trade and its popular meaning should commend itself to the
authority.”
“34. We are, however, unable to accept the submission. It is clear
that meanings given to articles in a fiscal statute must be as
people in trade and commerce, conversant with the subject,
generally treat and understand them in the usual course. But once
an article is classified and put under a distinct entry, the basis
of the classification is not open to question. Technical and
scientific tests offer guidance only within limits. Once the
articles are in circulation and come to be described and known in
common parlance, we then see no difficulty for statutory
classification under a particular entry.”
23. In Shri Bharuch Coconut Trading Co. and Ors. Vs. Municipal Corporation
of the City of Ahmedabad & Ors.[8], this Court applied the test as "would
a householder when asked to bring some fresh fruits or some vegetable for
the evening meal, bring coconut too as vegetable (sic)?” The Court held
that when a person goes to a commercial market to ask for coconuts, "no
one will consider brown coconut to be vegetable or fresh fruit much less
a green fruit. No householder would purchase it as a fruit.” Therefore,
the meaning of the word ‘brown coconut’, and whether it was a green
fruit, had to be “understood in its ordinary commercial parlance.”
Accordingly it was held that brown coconut would not be considered as
green fruit.
24. In Indian Aluminium Cables Ltd. Vs. Union of India & Ors.[9], this
Court observed the following:
“…This Court has consistently taken the view that, in determining the
meaning or connotation of words and expressions describing an article
in a tariff schedule, one principle which is fairly well-settled is
that those words and expressions should be construed in the sense in
which they are understood in the trade, by the dealer and the
consumer. The reason is that it is they who are concerned with it and,
it is the sense in which they understand it which constitutes the
definitive index of the legislative intention”.
25. In Collector of Central Excise, Kanpur Vs. Krishna Carbon Paper
Co.[10], this Court has opined thus :
“12. It is a well settled principle of construction, as mentioned
before, that where the word has a scientific or technical meaning
and also an ordinary meaning according to common parlance, it is in
the latter sense that in a taxing statute the word must be held to
have been used, unless contrary intention is clearly expressed by
the legislature…..
…But there is a word of caution that has to be borne in mind in this
connection, the words must be understood in popular sense, that is
to say, these must be confined to the words used in a particular
statute and then if in respect of that particular items, as
artificial definition is given in the sense that a special meaning
is attached to particular words in the statute then the ordinary
sense or dictionary meaning would not be applicable but the meaning
of that type of goods dealt with by that type of goods in that type
of market, should be searched.”
26. In Reliance Cellulose Products Ltd., Hyderabad Vs. Collector of Central
Excise, Hyderabad-I Division, Hyderabad[11], it was observed:
“20. In other words, if the word used in a fiscal statute is
understood in common parlance or in the commercial world in a
particular sense, it must be taken that the Excise Act has used that
word in the commonly understood sense. That sense cannot be taken away
by attributing a technical meaning to the word. But if the legislature
itself has adopted a technical term, then that technical term has to
be understood in the technical sense. In other words, if in the fiscal
statute, the article in question falls within the ambit of a technical
term used under a particular entry, then that article cannot be taken
away from that entry and placed under the residuary entry on the
pretext that the article, even though it comes within the ambit of the
technical term used in a particular entry, has acquired some other
meaning in market parlance. For example, if a type of explosive (RDX)
is known in the market as Kala Sabun by a section of the people who
uses these explosives, the manufacturer or importer of these
explosives cannot claim that the explosives must be classified as soap
and not as explosive.”
27. There is a catena of decisions that has dealt with the classification
of Ayurvedic products between the categories of medicaments and cosmetics
and in the process made significant pronouncements on the common parlance
test.
28. In Shree Baidyanath Ayurved Bhavan Ltd. Vs. Collector of Central
Excise, Nagpur[12], at page 404 this Court while applying the common
parlance test held that the appellant’s product “Dant Lal Manjan” could
not qualify as a medicament and held as follows:
“The Tribunal rightly points out that in interpreting statutes like
the Excise Act the primary object of which is to raise revenue and for
which purpose various products are differently classified, resort
should not be had to the scientific and technical meaning of the terms
and expressions used but to their popular meaning, that is to say the
meaning attached to them by those using the product. It is for this
reason that the Tribunal came to the conclusion that scientific and
technical meanings would not advance the case of the appellants if the
same runs counter to how the product is understood in popular
parlance.”
29. In Naturalle Health Products (P) Ltd. Vs. Collector of Central Excise,
Hyderabad[13], two appeals were under consideration. One was with respect
to Vicks Vapo Rub and Vicks Cough Drops while the other was with respect
to Sloan's Balm and Sloan's Rub. It was observed that when there is no
definition of any kind in the relevant taxing statute, the articles
enumerated in the tariff schedules must be construed as far as possible
in their ordinary or popular sense, that is, how the common man and
persons dealing with it understand it. The Court held that in both the
cases the customers, the practitioners in Ayurvedic medicine, the dealers
and the licensing officials treated the products in question as Ayurvedic
medicines and not as Allopathic medicines, which gave an indication that
they were exclusively Ayurvedic medicines or that they were used in the
Ayurvedic system of medicine, though they were patented medicines.
Consequently, it was held that the said products had to be classified
under the Chapter dealing with medicaments.
30. B.P.L. Pharmaceuticals Ltd. Vs. Collector of Central Excise,
Vadodara[14] was a case in which product "Selsun Shampoo" was under
consideration for the purpose of classification under the Tariff Act.
According to the manufacturers this shampoo was a medicated shampoo meant
to treat dandruff which is a disease of the hair. This Court held that
having regard to the preparation, label, literature, character,
common and commercial parlance, the product was liable to be classified
as a medicament. It was not an ordinary shampoo which could be of
common use by common people. The shampoo was meant to cure a particular
disease of hair and after the cure it was not meant to be used in the
ordinary course.
31. Therefore, what flows from a reading of the afore-mentioned decisions
is that in the absence of a statutory definition in precise terms; words,
entries and items in taxing statutes must be construed in terms of their
commercial or trade understanding, or according to their popular meaning.
In other words they have to be constructed in the sense that the people
conversant with the subject-matter of the statute, would attribute to it.
Resort to rigid interpretation in terms of scientific and technical
meanings should be avoided in such circumstances. This, however, is by no
means an absolute rule. When the legislature has expressed a contrary
intention, such as by providing a statutory definition of the particular
entry, word or item in specific, scientific or technical terms, then,
interpretation ought to be in accordance with the scientific and
technical meaning and not according to common parlance understanding.
Classification of ‘Soft-Serve’
32. In light of these principles, we may now advert to the question at
hand, viz. classification of ‘soft serve’ under the appropriate heading.
As aforesaid, the Tribunal has held that in view of the technical
literature and stringent provisions of the PFA, ‘soft serve’ cannot be
classified as “ice-cream” under Entry 21.05 of the Tariff Act. We are of
the opinion, that in the absence of a technical or scientific meaning or
definition of the term “ice-cream” or ‘soft serve’, the Tribunal should
have examined the issue at hand on the touchstone of the common parlance
test.
33. As noted before, headings 04.04 and 21.05 have been couched in non-
technical terms. Heading 04.04 reads “other dairy produce; edible
products of animal origin, not elsewhere specified or included” whereas
heading 21.05 reads “ice-cream and other edible ice”. Neither the
headings nor the chapter notes/section notes explicitly define the
entries in a scientific or technical sense. Further, there is no mention
of any specifications in respect of either of the entries. Hence, we are
unable to accept the argument that since ‘soft serve’ is distinct from
“ice-cream” due to a difference in its milk fat content, the same must be
construed in the scientific sense for the purpose of classification. The
statutory context of these entries is clear and does not demand a
scientific interpretation of any of the headings. Therefore, in the
absence of any statutory definition or technical description, we see no
reason to deviate from the application of the common parlance principle
in construing whether the term “ice-cream” under heading 21.05 is broad
enough to include ‘soft serve’ within its import.
34. The assessee has averred that ‘soft serve’ cannot be regarded as “ice-
cream” since the former is marketed and sold around the world as ‘soft
serve’. We do not see any merit in this averment. The manner in which a
product may be marketed by a manufacturer, does not necessarily play a
decisive role in affecting the commercial understanding of such a
product. What matters is the way in which the consumer perceives the
product at the end of the day notwithstanding marketing strategies.
Needless to say the common parlance test operates on the standard of an
average reasonable person who is not expected to be aware of technical
details relating to the goods. It is highly unlikely that such a person
who walks into a “McDonalds” outlet with the intention of enjoying an
“ice-cream”, ‘softy’ or ‘soft serve’, if at all these are to be construed
as distinct products, in the first place, will be aware of intricate
details such as the percentage of milk fat content, milk non-solid fats,
stabilisers, emulsifiers or the manufacturing process, much less its
technical distinction from “ice-cream”. On the contrary, such a person
would enter the outlet with the intention of simply having an “ice-cream”
or a ‘softy ice-cream’, oblivious of its technical composition. The true
character of a product cannot be veiled behind a charade of terminology
which is used to market a product. In other words, mere semantics cannot
change the nature of a product in terms of how it is perceived by persons
in the market, when the issue at hand is one of excise classification.
35. Besides, as noted above, learned senior counsel, appearing for the
assessee quoted some culinary authorities for the submission that ice
cream must necessarily contain more than 10% milk fat content and be
served only in a frozen to hard stage for it to qualify as “ice cream”.
It was argued that classifying ‘soft serve’, containing 5% milk fat
content, as “ice cream”, would make their product stand foul of
requirements of the PFA which demands that an “ice-cream” must have at
least 10% milk fat content.
36. Such a hard and fast definition of a culinary product like “ice- cream”
that has seen constant evolution and transformation, in our view, is
untenable. Food experts suggest that the earliest form of ice cream may
have been frozen syrup. According to Maguelonne Toussaint-Samat in
her History of Food, “They poured a mixture of snow and saltpeter over
the exteriors of containers filled with syrup, for, in the same way as
salt raises the boiling-point of water, it lowers the freezing-point to
below zero.” The author charters the evolution of “ice cream” in the
landmark work from its primitive syrupy form to its contemporary status
with more than hundred different forms, and categorizes ‘soft serve’ as
one such form.
37. Noted author C. Clarke states the following in “The Science of Ice
Cream”:
“The legal definition of ice cream varies from country to country.
In the UK ‘ice cream’ is defined as a frozen food product
containing a minimum of 5% fat and 7.5% milk solids other than fat
(i.e. protein, sugars and minerals), which is obtained by heat-
treating and subsequently freezing an emulsion of fat, milk solids
and sugar (or sweetener), with or without other substances. ‘Dairy
ice cream’ must in addition contain no fat other than milk fat,
with the exception of fat that is present in another ingredient,
for example egg, flavouring, or emulsifier.’ In the USA, ice cream
must contain at least 10% milk fat and 20% total milk solids, and
must weigh a minimum of 0.54 kg I-’.Until 1997, it was not
permitted to call a product ‘ice cream’ in the USA if it contained
vegetable fat.
Ice cream is often categorized as premium, standard or economy.
Premium ice cream is generally made from best quality ingredients
and has a relatively high amount of dairy fat and a low amount of
air (hence it is relatively expensive), whereas economy ice cream
is made from cheaper ingredients (e.g. vegetable fat) and contains
more air. However, these terms have no legal standing within the UK
market, and one manufacturer’s economy ice cream may be similar to
a standard ice cream from another.”
Therefore, while some authorities are strict in their classification of
products as “ice cream” and base it on milk fat content, others are more
liberal and identify it by other characteristics. There is, thus, no clear
or unanimous view regarding the true technical meaning of “ice cream”. In
fact, there are different forms of “ice cream” in different parts of the
world that have varying characteristics.
38. On the basis of the authorities cited on behalf of the assessee, it
cannot be said that “ice cream” ought to contain more than 10% milk fat
content and must be served only frozen and hard. Besides, even if we were
to assume for the sake of argument that there is one standard scientific
definition of “ice cream” that distinguishes it from other products like
‘soft serve’, we do not see why such a definition must be resorted to in
construing excise statutes. Fiscal statutes are framed at a point of time
and meant to apply for significant periods of time thereafter; they
cannot be expected to keep up with nuances and niceties of the
gastronomical world. The terms of the statutes must be adapted to
developments of contemporary times rather than being held entirely
inapplicable. It is for precisely this reason that this Court has
repeatedly applied the “common parlance test” every time parties have
attempted to differentiate their products on the basis of subtle and
finer characteristics; it has tried understanding a good in the way in
which it is understood in common parlance.
39. Learned counsel for the assessee had strongly relied on Akbar Badrudin
Giwani (supra) to buttress his claim, that in matters pertaining to
classification of commodity taxation, technical and scientific meaning of
the product will prevail rather than the commercial parlance, and hence
on this basis, headings 04.04 and 21.05 were to be harmoniously construed
so that ‘soft serve’ would be classified under heading 04.04. We are
afraid, reliance on this judgment is misplaced and out of context. It
would be useful to draw a distinction between the contexts of Akbar
Badrudin Giwani (supra) and the present factual matrix.
40. In Akbar Badrudin Giwani (supra) the issue was whether the slabs of
calcareous stones (which were in commercial parlance known as marble)
being imported by the Appellant were to be regarded as “marble” under
Item No. 62 of the List of Restricted Items, Appendix 2, Part 8 of Import
and Export Policy given that Item No. 25.15 (Appendix 1-B, Schedule I to
the Import (Control) Order, 1955 referred to “marble, travertine,
ecaussine and other calcareous monumental or building stone of an
apparent specific gravity of 2.5 or more and Alabaster…”. Hence, the
controversy revolved around whether “marble” should be construed in its
scientific and technical meaning, or according to its commercial
understanding, in order to determine whether the appellant’s goods would
come within the ambit of Entry No. 62 of List of Restricted Items. The
Court examined both the entries and opined that Item No. 25.15 referred
specifically not only to marble but also to other calcareous stones
having specific gravity of 2.5, whereas, Entry No. 62 referred to the
restricted item “marble” only. The content of Item No. 25.15 had been
couched in scientific and technical terms and therefore, “marble” had to
be construed according to its scientific meaning and not in the sense as
commercially understood or meant in trade parlance. Hence, in this
context this Court held that the general principle of interpretation of
tariff entries is of a commercial nomenclature but the said doctrine of
commercial nomenclature or trade understanding should be departed from in
a case where the statutory content in which the tariff entry appears,
requires such a departure. In other words, a trade understanding or
commercial nomenclature can be given only in cases where the word in the
tariff entry has not been used in a scientific or technical sense and
where there is no conflict between the words used in the tariff entry and
any other entry in the Tariff Schedule. Thus, these observations of the
Court were made in a context where one of the tariff entries was couched
in a scientific and technical sense and had to be harmonized with the
other entry. It would have run counter to the statutory content of the
legislation, to construe the term “marble” in its commercial sense.
41. It is significant to note that the question of classification of ‘soft
serve’ is based on a different set of facts in a different context.
Heading 21.05 which refers to “ice cream and other edible ice” is not
defined in a technical or scientific manner, and hence, this does not
occasion the need to construe the term “ice-cream” other than in its
commercial or trade understanding. Since, the first condition itself has
not been fulfilled; the question of harmonizing heading 21.05 with 04.04
by resort to the scientific and technical meaning of the entries does not
arise at all. Hence, we are of the opinion that the ratio of Akbar
Badrudin Giwani (supra) does not apply to the facts of the present case.
42. Learned counsel for the assessee had vociferously submitted that the
common parlance understanding of “ice-cream” can be inferred by its
definition as appearing under the PFA. According to Rule A 11.20.08 the
milk fat content of “ice-cream” and “softy ice-cream” shall not be less
than 8% by weight. Hence, according, to the learned counsel, the term
“ice-cream” under heading 21.05 had to be understood in light of the
standards provided in the PFA, more so when selling “Ice-cream” with fat
content of less than 10% would attract criminal action, as held in
Baburao Ravaji Mharulkar (supra).
43. We are unable to persuade ourselves to agree with the submission. It is
a settled principle in excise classification that the definition of one
statute having a different object, purpose and scheme cannot be applied
mechanically to another statute. As aforesaid, the object of the Excise
Act is to raise revenue for which various goods are differently
classified in the Act. The conditions or restrictions contemplated by one
statute having a different object and purpose should not be lightly and
mechanically imported and applied to a fiscal statute for non-levy of
excise duty, thereby causing a loss of revenue. [See: Medley
Pharmaceuticals Limited Vs. Commissioner of Central Excise and Customs,
Daman[15] and Commissioner of Central Excise, Nagpur Vs. Shree Baidyanath
Ayurved Bhavan Limited[16]]. The provisions of PFA, dedicated to food
adulteration, would require a technical and scientific understanding of
“Ice-cream” and thus, may require different standards for a good to be
marketed as “ice-cream”. These provisions are for ensuring quality
control and have nothing to do with the class of goods which are subject
to excise duty under a particular tariff entry under the Tariff Act.
These provisions are not a standard for interpreting goods mentioned in
the Tariff Act, the purpose and object of which is completely different.
44. Learned counsel for the assessee also contended that based on Rule
3(a) of the General Rules of Interpretation which states that a specific
entry shall prevail over a general entry, ‘soft serve’ will fall under
heading 04.04 since it is a specific entry. We do not see any merit in
this contention. The learned counsel for the assessee had himself
contended that “ice-cream” was a dairy product and would have been
classified under heading 04.04 if heading 21.05 had not been inserted
into the Tariff Act. However, in the presence of heading 21.05, “ice-
cream” cannot be classified as a dairy product under heading 04.04.
Hence, it is obvious that in relation to heading 04.04, heading 21.05 is
clearly a specific entry. Therefore, we cannot subscribe to the claim
that heading 04.04 is to be regarded as a specific entry under Rule 3(a)
of the General Rules of Interpretation, since such an interpretation
would be contrary to the statutory context of heading 21.05. In
conclusion, we reject the view taken by the Tribunal and hold that ‘soft
serve’ is to be classified as “ice-cream” under heading 21.05 of the Act.
45. At this stage it may be relevant to refer to Trade Notice No.
45/2001 dated 11th June, 2001 of Mumbai Commissionerate IV which came to
our notice. According to the said notification, “softy ice-cream/soft
serve” dispensed by vending machines, sold and consumed as “ice-cream”,
is classifiable under Entry 21.05 of the Act. The same is reproduced
below:
“Classification of Softy Ice Cream being sold in restaurant etc.
dispensed by vending machine —
[Mumbai Commissionerate IV Trade Notice No.45/2001, dt. 11.6.2001]
Ice Cream dispensed by vending machine falling under chapter 21
has been made liable to nil rate of duty vide Sl. No.8 of Notification
No.3/2001-CE dated 1.3.2001.
Doubts have been raised as regards to the classification of
softy ice cream/soft serve dispensed by vending machine and soft serve
mix used for its manufacture prior to 1.3.2001. A manufacturer was
obtaining soft serve mix and processing it in his restaurant for
manufacture of softy ice cream. The process involved lowering of
temperature so that it changes its form from liquid to semi-solid
state and incorporation of air, which results in production of
overrun, in Tylor Vending Machine.
The product that emerges after this process is a completely
different product and is ready to be consumed immediately. It has all
the ingredients of an ice cream. The product is sold and consumed as
ice cream.
In the circumstances, it is clarified by the Board that softy
ice cream is correctly classifiable under heading 21.05 of Central
Excise Tariff. As per HSN Explanatory Notes, heading 19.01 also cover
mix bases (e.g. powders) for making ice cream. It has been further
clarified that soft serve mix will be correctly classifiable under
heading 19.01.
All the trade associations are requested to bring the contents
of this trade notice to the attention of their member manufacturers in
particular, and trade in general.
Sd/-
(Neelam Rattan Negi)
Commissioner
Central Excise, Mumbai-IV”
While it is true that the trade notice is not binding upon this Court, it
does indicate the commercial understanding of ‘soft-serve’ as ‘softy ice-
cream’. Further, as this trade notice is in no way contrary to the
statutory provisions of the Act, we see no reason to diverge from what is
mentioned therein.
46. In view of the aforegoing discussion, we are of the opinion that the
Tribunal erred in law in classifying ‘soft-serve’ under tariff sub-
heading 2108.91, as “Edible preparations not elsewhere specified or
included”, “not bearing a brand name”. We hold that ‘soft serve’
marketed by the assessee, during the relevant period, is to be classified
under tariff sub-heading 2105.00 as “ice-cream”.
47. Lastly, learned counsel for the assessee had also contended that in the
event ‘soft serve’ was classifiable under heading 21.05, the assessee was
entitled to the benefit under Notification No. 16/2003-CE (NT) dated 12th
March 2003. The notification reads:
“Notification: 16/2003-C.E. (N.T.) dated 12-Mar-2003
Softy ice cream and non-alcoholic beverage dispensed through vending
machine exempted during period 1-3-1997 to 28-2-2001
Whereas the Central Government is satisfied that a practice that
was generally prevalent regarding levy of duty of excise (including
non-levy thereof) under section 3 of the Central Excise Act, 1944 (1
of 1944) (hereinafter referred to as the said Act), on softy ice cream
and non-alcoholic beverages dispensed through vending machines,
falling under Chapters 20, 21 or 22 of the First Schedule to the
Central Excise Tariff Act, 1985 (5 of 1986), and that such softy ice
cream and non-alcoholic beverages dispensed through vending machines
were liable to duty of excise which was not being levied according to
the said practice during the period commencing on and from the 1st day
of March, 1997 and ending with 28th February, 2001.
Now, therefore, in exercise of the powers conferred by section
11C of the said Act, the Central Government hereby directs that the
whole of the duty of excise payable on such softy ice cream and non
alcoholic beverage dispensed through vending machines, but for the
said practice, shall not be required to be paid in respect of such
softy ice cream and non alcoholic beverages on which the said duty of
excise was not being levied during the aforesaid period in accordance
with the said practice.”
48. We are afraid we are unable to take this argument into account since
such a plea was not urged before the Tribunal in the first place. Given
that this is a statutory appeal under Section 35L of the Act, it is not
open to either party, at this stage of the appeal, to raise a new ground
which was never argued before the Tribunal. Our scrutiny of the
arguments advanced has to be limited only to those grounds which were
argued by the parties and addressed by the Tribunal in its impugned
order. Since, the impugned orders at hand do not reflect the argument
raised by the learned counsel for the assessee; we do not find any
justification to entertain this submission. Nonetheless, for the sake of
argument, even if we assume that this ground had been urged before the
Tribunal, in our view, learned counsel’s reliance on this notification is
misplaced. Upon a reading of the notification it is clear that the
exemption in the notification is granted for the whole of excise duty
which was payable on such softy ice cream and non alcoholic beverages
dispensed through vending machines, but was not being levied during the
relevant period, which is not the case here. In the present case, as
aforenoted, three show cause notices had been issued to the assessee
alleging that ‘soft serve’ was classifiable under heading 21.05 and
attracted duty @ 16%. The show cause notices issued by the revenue also
indicated that the assessee was liable to pay additional duty under
Section 11A of the Act. This clearly shows that the excise duty was
payable by the assessee and was being levied by the revenue. Therefore,
the assessee’s case does not fall within the ambit of the said
notification and is not eligible for the exemption granted to “softy ice-
cream”, dispensed through a vending machine for the relevant period.
49. For the view we have taken, it is unnecessary to examine the issue
whether the product in question bears a brand name.
50. Resultantly, the appeals are allowed and the impugned orders of the
Tribunal are set aside, leaving the parties to bear their own costs.
| |……..…………………………………. |
| |(D.K. JAIN, J.) |
| | |
| | |
| |……..…………………………………. |
| |(JAGDISH SINGH KHEHAR, J.) |
| |
|NEW DELHI, | |
|NOVEMBER 27, 2012 | |
RS
-----------------------
[1] (1984) 4 SCC 540
[2] (1990) 2 SCC 203
[3] 1993 Supp (3) SCC 716 at page 720
[4] (1951) C.L.R. (Ex. Court) 122
[5] (1962) 1 SCR 279
[6] (1967) 2 SCR 720
[7] (1976) 2 SCC 241
[8] 1992 Suppl.(1) SCC 298
[9] (1985) 3 SCC 284
[10] (1989) 1 SCC 150
[11] (1997) 6 SCC 464
[12] (1996) 9 SCC 402
[13] (2004) 9 SCC 136
[14] (1995) Suppl. 3 SCC 1
[15] (2011) 2 SCC 601
[16] (2009) 12 SCC 419
