2012 (12) TMI 149 - SC - Central Excise

Soft Serve Classified as Ice Cream Under Tariff Heading 2105.00 Using Common Parlance Test, Appeal Dismissed

COMMISSIONER OF CENTRAL EXCISE, NEW DELHI Versus M/s CONNAUGHT PLAZA RESTAURANT (P) LTD., NEW DELHI

The SC held that soft serve is classifiable under tariff heading 2105.00 as ice-cream, rejecting the assessee's classification under heading 2108.91. The ... Classification of ‘soft serve' - Common Parlance Test - Whether 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 - held 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. 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”. Regarding alternate plea - assessee 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. - held that:- 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. 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. - Decided against the assessee. ISSUES: Whether 'soft serve' served at fast food outlets is classifiable under heading 21.05 ('Ice cream and other edible ice') or under heading 04.04 ('Other dairy produce; edible products of animal origin, not elsewhere specified or included') or under heading 2108.91 ('Edible preparations, not elsewhere specified or included') of the Central Excise and Tariff Act, 1985.Whether the term 'ice-cream' in heading 21.05 is to be interpreted according to its scientific and technical meaning or its meaning in common parlance for the purpose of classification under the Tariff Act.Whether the technical specifications and standards prescribed under the Prevention of Food Adulteration Act, 1955 (PFA) govern the classification of 'soft serve' under the Tariff Act.Whether the exemption notification for 'softy ice cream' dispensed through vending machines applies to the assessee for the relevant period.Whether the presence or absence of a brand name affects the classification of 'soft serve' under the Tariff Act. RULINGS / HOLDINGS: The Court held that 'soft serve' is classifiable under tariff sub-heading 2105.00 as 'ice-cream' and not under headings 04.04 or 2108.91. The Tribunal erred in classifying 'soft serve' under 2108.91 as 'Edible preparations not elsewhere specified or included.'The term 'ice-cream' in heading 21.05, in the absence of any statutory definition or technical description in the Tariff Act, must be construed according to its meaning in common parlance and commercial understanding rather than its scientific or technical meaning.The technical standards and definitions under the PFA, which regulate quality and composition for food safety and adulteration control, are irrelevant for the purpose of classification under the Tariff Act. The Excise Act's object to raise revenue requires classification based on commercial understanding, not technical standards of other statutes.The exemption notification No. 16/2003-CE (NT) dated 12th March 2003, granting exemption for 'softy ice cream' dispensed through vending machines, does not apply to the assessee for the relevant period since the plea was not raised before the Tribunal and the assessee was liable to pay excise duty as per show cause notices.The question of whether the product bears a brand name is unnecessary to decide given the Court's classification under heading 21.05. RATIONALE: The Court applied the general rules of interpretation for tariff entries under the Tariff Act, which require classification to be determined according to the terms of the headings and chapter or section notes, and where these are not determinative, according to the common parlance understanding of the goods.Precedents confirm that in taxing statutes, words must be construed in their ordinary or popular sense, i.e., how the common man, consumers, and persons dealing with the product understand them, unless a contrary legislative intent or statutory definition exists.The Court distinguished the present case from precedents where technical or scientific meanings prevailed due to explicit statutory definitions or conflicting entries, noting that heading 21.05 contains no such technical definition of 'ice-cream.'The Court rejected reliance on the PFA standards for classification, emphasizing that the PFA's object is food safety regulation, which is distinct from the fiscal purpose of excise classification and duty levy.Trade notices issued by the revenue recognizing 'softy ice cream/soft serve' as classifiable under heading 21.05 support the commercial understanding and classification adopted by the Court.The Court reaffirmed the principle that fiscal statutes cannot be interpreted rigidly by technical or scientific standards when the statute itself uses ordinary language without definitions, and that the common parlance test is appropriate for classification in such contexts.The Court declined to consider new grounds not raised before the Tribunal, such as the applicability of the exemption notification, consistent with principles limiting appellate review to grounds argued below.