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

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 under Section 6(1)(a) and Section 6(1)(d) - Entry 71 (Item 5) - residuary inclusion of 'similar other products' - common parlance / commercial parlance test - technical and scientific meaning of the term 'aerated' - noscitur a sociis - power under Section 94 to issue clarification - relevance of Food Safety and Standards Authority and expert technical certificates - relevance of prior CESTAT adjudication - onus on Revenue to prove classificationClassification under Section 6(1)(a) and Section 6(1)(d) - Entry 71 (Item 5) - residuary inclusion of 'similar other products' - Whether goods taxable under Section 6(1)(d) can include products which fall within the ambit of Section 6(1)(a) and whether 'Appy Fizz' falls under Item No.5 of Entry 71 as amended. - HELD THAT: - The Court held that the State's power to notify goods under Section 6(1)(d) is confined to goods not falling under Section 6(1)(a). The legislative history shows that 'aerated branded soft drinks' have always been within Section 6(1)(a) and that fruit juice based drinks were previously included in Entry 71, indicating they were not treated as falling under Section 6(1)(a). After substitution of Entry 71 by S.R.O. No.119 of 2008 the residuary Item No.5 - 'similar other products not specifically mentioned under any other entry' - is potent to subsume fruit juice based drinks. The character and legislative purpose of Section 6(1)(a) (higher tax on goods harmful to health/environment) further supports treating fruit juice based drinks as distinct and within Entry 71 Item No.5. Applying these principles to the materials on record, the Court concluded that 'Appy Fizz' is covered by Item No.5 of Entry 71 as amended and not by Section 6(1)(a). [Paras 26, 27, 29, 30, 63]Fruit juice based drink 'Appy Fizz' is covered by Item No.5 of Entry 71 as amended by S.R.O. No.119 of 2008 and not by Section 6(1)(a).Common parlance / commercial parlance test - technical and scientific meaning of the term 'aerated' - Whether the common parlance test alone governs interpretation of entries and whether the technical/scientific meaning of 'aerated' must be considered. - HELD THAT: - The Court held that the common parlance or commercial test is not the sole rule of interpretation where entries employ scientific or technical words. The Rules of Interpretation appended to the Schedules apply directly to schedule entries with HSN codes, but commodities outside schedules or entries without HSN codes may require application of technical meaning. Given that 'aerated' is a scientific/technical term used across statutes and HSN nomenclature, the technical/scientific meaning may be decisive. The High Court and the Committee wrongly applied common parlance exclusively and disregarded technical evidence on aeration. [Paras 33, 34, 35, 38, 39]Common parlance is not the exclusive test; technical/scientific meaning of 'aerated' is relevant and should have been applied.Noscitur a sociis - Entry 71 (Item 5) - residuary inclusion of 'similar other products' - Whether the doctrine of noscitur a sociis applies to Item No.5 of Entry 71 in construing 'similar other products'. - HELD THAT: - The Court applied noscitur a sociis to Entry 71, observing that the residuary phrase 'similar other products' must take colour from the specific items in Entry 71 (such as fruit juices, health drinks, and non-aerated soft drinks). Thus, fruit juice based drinks are analogous to the other items in Entry 71 and fall within Item No.5. Both the Committee and the High Court overlooked this rule in their interpretation. [Paras 40, 41, 42]Item No.5 of Entry 71 must be construed by reference to the other items in Entry 71; fruit juice based drinks fall within Item No.5 by noscitur a sociis.Power under Section 94 to issue clarification - Whether a prior revisional judgment in another proceedings (M/s. Trade Lines) ousted the jurisdiction of the clarification authority under Section 94 to decide the appellant's clarification application. - HELD THAT: - The Court affirmed that Section 94 proceedings are independent and the authority vested thereunder must decide the question after considering evidence brought by the applicant. A revisional order in another case does not prevent the clarification authority from adjudicating the issue. Accordingly, the Committee of Joint Commissioners should have independently considered the materials filed by the appellant. The Division Bench of the High Court correctly held that the Single Judge's direction to decide the Section 94 application was proper and that prior revisional orders in other proceedings did not deplete Section 94 jurisdiction. [Paras 43, 44, 64, 65]The clarification authority under Section 94 retains jurisdiction notwithstanding a revisional judgment in another case; the Committee should have decided the application on the appellant's materials.Relevance of Food Safety and Standards Authority and expert technical certificates - relevance of prior CESTAT adjudication - onus on Revenue to prove classification - Whether technical certificates, FSSAI permissions and the CESTAT decision were relevant and whether the authorities erred in discarding them; on whom lay the burden of proof on classification. - HELD THAT: - The Court held that the manufacturing licence, FSSAI Regulations classification, expert technical opinions and the CESTAT adjudication (which classified the product as fruit juice based drink under relevant Central Excise headings) were relevant materials for determining nature and contents of the product. The Committee and High Court erroneously brushed aside these materials and the technical evidence that CO2 was used as preservative/purging rather than carbonation. Further, consistent with precedent, the onus to establish that goods fall within a tariff item rests on the Revenue; no material was placed by the Revenue to discharge that burden. The authorities' dismissal of the technical evidence and relevant regulatory/adjudicatory orders was therefore unsustainable. [Paras 56, 57, 60, 61, 62]FSSAI permissions, expert technical certificates and the CESTAT adjudication were relevant and should have been considered; Revenue bore the burden to prove classification but did not discharge it.Final Conclusion: Civil Appeals by M/s. Parle Agro are allowed: the Committee of Joint Commissioners' order is set aside and 'Appy Fizz' is declared to be classifiable under Item No.5 of Entry 71 as substituted by S.R.O. No.119 of 2008 (i.e., within the Entry of nonalcoholic beverages) and not under Section 6(1)(a). The Revenue's appeal against the Single Judge's direction to decide the Section 94 application is dismissed. Appeals by other dealers are remitted to be decided in conformity with this judgment, with consequential adjustments of interim deposits as appropriate. 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.