2017 (5) TMI 592 - SC - VAT / Sales Tax

Fruit juice drink classified under Entry 71 at 12.5% VAT, not aerated soft drink at 20% VAT

M/s. PARLE AGRO (P) LTD. Versus COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM, M/s. WE SIX TRADERS ETC. ETC. Versus COMMERCIAL TAX OFFICER & ANR. AND ASSISTANT COMMISSIONER (ASSESSMENT) & ANR. Versus M/s. PARLE AGRO (P) LTD.

The SC held that the appellant's fruit juice based drink was correctly classified under Entry 71 of Section 6(1)(d) notification at 12.5% VAT, not as ... Classification - fruit juice based drink known as ‘Appy Fizz’ - Principle of 'Noscitur a Sociis' - The appellant was classifying the product as fruit juice based drink under Entry 71 of the notification issued under Section 6(1)(d) of Act, 2003 till 2007 and was paying @ 12.5% VAT - the Committee of Joint Commissioner passed the clarification order dated 6th November, 2015 classifying the product as ‘aerated branded soft drinks', at the rate of 20% - What is interrelation between Section 6(1)(a) and Section 6(1)(d) of Act, 2003? - Held that: - Applicability of the power of State to issue notification under Section 6(1)(d) arises only when goods were not covered by Section 6(1)(a). Fruit juice based drinks, thus, were never treated as 'aerated branded soft drinks' which was the understanding of State of Kerala while issuing notification under Section 6(1(d). Had fruit juice based drinks were also to be covered by aerated branded soft drinks, there was no occasion for subordinate legislative authority, i.e., the State Government, to include such products in notification under Section 6(1)(d). What is scope and ambit of Item 5 of Entry 71 as amended? - Held that: - A bare perusal of Entry 71 as above indicates that the Entry covers nonalcoholic beverages and their powders, concentrates and tablets in any form including Item No.2 contains fruit juice, fruit concentrates, fruit squash, fruit syrup and pulp and fruit cordial - the Entry of fruit juice based drinks got subsumed in the residuary entry and the amendment by S.R.O. No.119 of 2008 did not change or affect the character and content of the products which were included in Entry 71. Whether common parlance test is the only test to be applied for understanding the different entries under Section 6(1)(a) and Section 6(1)(d)? - Held that: - the Entry 2 under Section 6(1)(a) uses the word 'aerated'. This is scientific term and has been repeatedly used in different statutes including the Central Excise Tariff and different HSN codes also uses the term 'aerated'. The word 'aerated' is scientific and technical word used under different statutes and the scientific and technical meaning of the word 'aerated' can be looked into for finding out the real import of the Entry - common parlance and commercial parlance test was not the only test which could have been applied for interpreting the entries in items mentioned in Section 6(1)(a) and the entries which contain scientific and technical word were also to be looked into in technical and scientific meaning. Both the High Court and the Committee of Joint Commissioners discarded the evidence of technical and scientific meaning of word - The appellant has rightly relied on the technical evidence brought on the record which indicate that use of carbon dioxide to the extent of 0.6 per cent was only for the purpose of preservative in packaging the commodities and the product was thermally processed and carbon dioxide was added to as the preservative. Principle of 'Noscitur a Sociis' - Held that: - Applying the principle of construction of 'noscitur a sociis' on Entry 71, it is clear that clause 5 of Entry 71 has to take colour and meaning from the other items included in Entry 71. Item 5 of Entry 71 uses the words “similar other products not specifically mentioned under any other entry in this list or any other schedule”. Thus, the products which are to be covered under Item No.5 are similar other products - When Item No.2 of the Entry 71 that is fruit juice, fruit concentrates, fruit squash, fruit syrup and pulp, and fruit cordial and item No.4 that is health drinks of all varieties, are kept in mind the fruit juice based drink shall fall in Item No.5. Both High Court and Committee of Commissioners overlooked this principle while interpreting item No.5 of Entry 71. Whether the Division Bench of Kerala High Court in M/s. Trade Lines [2014 (11) TMI 1045 - KERALA HIGH COURT] can preclude the Committee of Joint Commissioners to examine the materials filed by the appellant along with Clarification Application under Section 94? - Held that: - the judgment of the Division Bench of Kerala High Court in M/s. Trade Lines did not conclude the issue and the Committee of Commissioners was not absolved from its duty of deciding the same in accordance with the materials brought on the record by the appellant and although the Committee noticed all the pleadings and contentions but mainly relying on the ruling of M/s. Trade Lines dismissed the clarification application which cannot be sustained. Whether CESTAT decision in the case of COMMISSIONER OF C. EX., BHOPAL Versus PARLE AGRO PVT. LTD. [2008 (3) TMI 67 - CESTAT NEW DELHI], has any relevance with regard to the classification of product in question? - Held that: - the CESTAT did not hold the product to be under the “aerated water” was a factor which necessitated a more deeper consideration by the High Court to find out as to whether the product is 'aerated branded soft drink' or not. The High Court in its judgment found that since the product charged with air or carbon dioxide was an aerated drink. From the manufacturing process which was on the record, it is clear that carbon dioxide to the extent of 0.6 percent was added as preservative. Technical note submitted on behalf of the appellant clearly mentioned that use of carbon dioxide was only as a preservative of 'Appy Fizz'. Whether decision and opinion of Food Safety Authorities on the product in question were relevant? - Whether the Committee of Joint Commissioners as well as the High Court has rightly discarded technical and expert opinion relied by the appellant? - Held that: - Before the Committee of Commissioners the entire process of manufacture of the product was explained along with all relevant orders and certificates of Food Safety Authorities. It was stated that the Experts in their opinions and certifications have mentioned that product is commercially and technically distinct from products which have classified as 'aerated branded soft drinks'. The certifications which were relied by the appellant indicate that in the case of 'Appy Fizz' the product does not undergo aeration or carbonation; the product is thermally processed with CO2 which help in preserving the Apple Juice concentrate which is otherwise perishable in nature - Revenue has not filed any material on the record either before the Clarification Authority or before the High Court in support of its view that product is covered under Section 6(1)(a) that is 'aerated branded soft drink'. This Court in several cases has observed that onus to prove that particular goods fall in particular tariff item is on the Revenue. - It is thus concluded that orders of Food Safety Authority and expert opinion regarding process of manufacture relied by the appellant were relevant materials and Clarification Authority and High Court erred in law in discarding these materials. Appeal disposed off - decided partly in favor of appellant. Issues Involved:1. Interrelation between Section 6(1)(a) and Section 6(1)(d) of the Kerala Value Added Tax Act, 2003.2. Scope and ambit of Item 5 of Entry 71 as amended.3. Applicability of the common parlance test for classification under Section 6(1)(a) and Section 6(1)(d).4. Principle of Noscitur a Sociis.5. Effect of the Division Bench of Kerala High Court judgment in M/s. Trade Lines on the Committee of Joint Commissioners.6. Relevance of the CESTAT decision dated 18.03.2008.7. Relevance of the decision and opinion of Food Safety Authorities.8. Evaluation of technical and expert opinions by the Committee of Joint Commissioners and the High Court.9. Conclusions.Detailed Analysis:Issue 1: Interrelation between Section 6(1)(a) and Section 6(1)(d) of the Kerala Value Added Tax Act, 2003Section 6(1)(a) specifies a higher tax rate for certain goods, including 'aerated branded soft drinks, excluding soda,' which are considered harmful to health and the environment. Section 6(1)(d) allows the State to notify goods taxable at 12.5% (now 14.5%) that do not fall under Section 6(1)(a) or (c). The legislative history shows that fruit juice-based drinks were never treated as 'aerated branded soft drinks' under Section 6(1)(a).Issue 2: Scope and Ambit of Item 5 of Entry 71 as AmendedEntry 71, after amendment by S.R.O. No.119 of 2008, includes non-alcoholic beverages, fruit juices, and health drinks, among others. The amendment did not change the character of the products included in Entry 71, and fruit juice-based drinks were subsumed under the residuary clause of Item 5.Issue 3: Applicability of the Common Parlance TestThe High Court applied the common parlance test based on the Rules of Interpretation in the Act. However, the Supreme Court held that technical and scientific meanings should also be considered, especially for terms like 'aerated,' which is a scientific term. The technical evidence indicated that carbon dioxide was used as a preservative, not for aeration.Issue 4: Principle of Noscitur a SociisThe principle of Noscitur a Sociis means that the meaning of a word is influenced by the words surrounding it. This principle applies to Item 5 of Entry 71, which should be interpreted in the context of other items in Entry 71, like fruit juices and health drinks. Thus, 'Appy Fizz' should be classified under Item 5.Issue 5: Effect of the Division Bench Judgment in M/s. Trade LinesThe Division Bench's judgment in M/s. Trade Lines did not preclude the Committee of Joint Commissioners from examining the materials submitted by the appellant in the clarification application. The Committee should have independently assessed the evidence rather than relying solely on the previous judgment.Issue 6: Relevance of the CESTAT Decision Dated 18.03.2008The CESTAT decision classified 'Appy Fizz' as a fruit juice-based drink, not an aerated water, under the Central Excise Tariff. Although not conclusive, this decision was relevant and should have been considered by the High Court and the Committee.Issue 7: Relevance of the Decision and Opinion of Food Safety AuthoritiesThe Food Safety and Standards Authority of India and the Ministry of Food Processing Industries classified 'Appy Fizz' as a fruit drink. These opinions were relevant for determining the nature of the product and should have been considered by the High Court and the Committee.Issue 8: Evaluation of Technical and Expert OpinionsThe technical opinions and certifications indicated that 'Appy Fizz' was a thermally processed fruit juice-based drink, with carbon dioxide used as a preservative. These materials were relevant and should have been considered by the High Court and the Committee.Issue 9: ConclusionsThe Supreme Court concluded that 'Appy Fizz' should be classified under Item 5 of Entry 71 as amended by S.R.O. No.119 of 2008, with a tax liability of 12.5% (now 14.5%). The High Court's judgment and the Committee's order were set aside.Judgment:1. Civil Appeals arising out of SLP(C) Nos. 14697-14698 of 2016 are allowed. The product 'Appy Fizz' is classified under Item No. 5 of Entry 71 as amended by S.R.O. No.119 of 2008.2. Civil Appeal arising out of SLP(C) No. 9467 of 2016 is dismissed.3. Civil Appeals arising out of SLP(C) Nos. 24460-61 of 2016 are disposed of with directions to decide the proceedings in light of the judgment in Civil Appeals arising out of SLP(C) Nos. 14697-14698 of 2016.