2025 (12) TMI 446 - HC - VAT / Sales Tax

Coffee premix taxed as coffee under Entry C-II-3, not general beverage powder Entry C-II-18(2), assessee succeeds

The Commissioner Of Sales Tax Maharashtra State, Mumbai Versus M/s. Nestle India Ltd.

HC held that the product 'coffee premix' is classifiable under Entry C-II-3 (specific entry for coffee/instant coffee) of Schedule C Part II of the Bombay ... True and proper interpretation of entry 18(2) of the Schedule ‘C’ Part II of the Bombay Sales Tax Act, 1959 - Classification of goods - product Coffee and Instant Drinks Nescafe Premix - covered by the Scope of entry 18(2) of Schedule ‘C’ Part II or by the Entry 3 of Schedule ‘C’ Part II? - HELD THAT:- The Tribunal, in this case, was justified in reversing the Commissioner’s view that the product in question would not be classified under Entry C-II-3 because the percentage of soluble coffee powder therein was only 8.5%. Ultimately, in all such matters, we must go by the common parlance test. Admittedly, the product was not only styled as an “Nescafé premix”, but it was also used to prepare a “Nescafé” vended through a vending machine. Such Nescafé was being prepared by simply pouring hot water into the premix. The resultant product, in common parlance, was nothing but Nescafé. Entry C-II-3 includes not just “coffee” but also “instant coffee”. Thus, in common parlance, this was nothing but an “instant coffee” prepared by pouring hot water into the premix. The Tribunal has correctly reasoned that if the soluble coffee powder were to be withdrawn from the Nescafé premix, no matter what its percentage from the premix, then the perception of such a product in common parlance would be entirely different. Therefore, the Tribunal reasoned that once the final product after pouring hot water into the premix, at least, in common parlance was regarded as, “coffee” or “instant coffee”, the product in question was liable to be classified under Entry C-II-3, which was a specific entry and not under Entry C-II-18(2) which was, a general entry in the context of powders from which non-alcoholic beverages are prepared. One of the fundamental tests in the matter of classification is that specific entries would prevail over the general entries. The Hon’ble Supreme Court in the case of Bharat Forge and Press Industries Pvt. Ltd. Vs. Collector of Central Excise, Baroda [1990 (1) TMI 70 - SUPREME COURT], has explained that a general entry can be resorted to only if the goods in question cannot be classified under the specific tariff entries. The Tribunal in this case was justified in holding that the concept of instant coffee must conform to the modern development and modern perceptions. Therefore, if the product “Nescafé premix” by pouring hot water into it results in “coffee” or “instant coffee”, the department cannot insist upon classifying the same under the general Entry C-II-18(2). The question is answered in favour of the respondent assessee and against the sales tax - reference disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether 'Coffee and Instant Drinks Nescafe Premix' is classifiable as 'coffee/instant coffee' under Entry C-II-3 of the Bombay Sales Tax Act, 1959 or as 'powders ... from which non-alcoholic beverages are prepared' under Entry C-II-18(2). 1.2 Whether the relatively low percentage (8.5%) of soluble coffee powder in the premix excludes the product from being treated as 'coffee' or 'instant coffee'. 1.3 Whether, for classification under the competing entries, the common/commercial parlance test and the rule that a specific entry prevails over a general entry are applicable. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Classification of 'Nescafe Premix' under Entry C-II-3 or Entry C-II-18(2) (a) Legal framework discussed 2.1.1 The Court examined Entry C-II-3, which covers 'Coffee, Chicory and tea in instant coffee' taxable at 8%, and Entry C-II-18(2), which covers 'Powders, tablets, cubes, crystals and other solids from which non-alcoholic beverages and soups are prepared' taxable at 16%/13%. 2.1.2 Reference was made to principles laid down by the Supreme Court and this Court on classification in taxing statutes, particularly: - That classification must follow the description of goods in the Schedule, not the heading alone. - That a specific entry prevails over a general entry (Bharat Forge and Press Industries Pvt. Ltd. v. Collector of Central Excise). - That words/entries in taxing statutes are construed in common or commercial parlance unless a contrary legislative intention appears (Commissioner of Central Excise v. Connaught Plaza Restaurant and other precedents). - That modern developments and usage influence the understanding of product descriptions. (b) Interpretation and reasoning 2.1.3 It was undisputed that: - The product 'Nescafe premix' is used in vending machines. - By pouring hot water into the premix, a beverage known and consumed as 'Nescafe' is obtained. - The premix consists of Soluble Coffee Powder 8.5%, Sucrose 54.0%, Partially Skimmed Milk Powder 37.0%, Maltodextrin 0.5%. 2.1.4 The Commissioner had held the product to be a 'powder from which non-alcoholic beverages are prepared' under Entry C-II-18(2), reasoning that it was not 'instant coffee' but only a form from which coffee beverage is prepared. 2.1.5 The Tribunal reversed this view, treating the product as falling under Entry C-II-3, holding that the percentage of coffee content was not decisive, relying on the Supreme Court decision in Forage & Co. v. Municipal Corporation of Greater Bombay, where: - The Court held that the determinative factor is whether the article is enumerated in the Schedule, irrespective of the heading. - The quantity/percentage of an ingredient is not decisive to deny its nature when it is in fact used for that purpose (illustrated by the 'pinch of salt' analogy and the zinc oxide example). 2.1.6 The High Court endorsed the Tribunal's approach, holding that: - In 'all such matters', the 'common parlance test' must be applied. - The product is marketed and styled as 'Nescafe premix'. - In actual use, hot water is poured into the premix and the final beverage is, in common understanding, 'Nescafe' or 'instant coffee'. 2.1.7 The Court emphasized that Entry C-II-3 expressly includes 'instant coffee', and that 'Nescafe premix', when used as intended, results in instant coffee. In common or commercial parlance, therefore, the product is instant coffee in premix form and falls within Entry C-II-3. 2.1.8 The Tribunal's reasoning, accepted by the Court, was that if soluble coffee powder is removed from the premix, the product would be perceived entirely differently in common parlance; hence, the essential character of the premix is 'coffee/instant coffee'. 2.1.9 Applying the rule that a specific entry prevails over a general entry, the Court held: - Entry C-II-3 is a specific entry for 'coffee/instant coffee'. - Entry C-II-18(2) is a general entry for powders etc. from which non-alcoholic beverages are prepared. - A general entry may be resorted to only where the goods cannot be classified under any specific entry (as explained in Bharat Forge and Press Industries Pvt. Ltd.). Since the product clearly falls within the specific coffee/instant coffee entry, classification under the general powders entry is impermissible. 2.1.10 The Court also relied on the broader jurisprudence on common parlance: - Connaught Plaza Restaurant and other decisions reiterate that, absent a statutory definition, terms in taxing entries are construed as understood in popular or trade usage, avoiding strict technical or scientific meanings. - La Bella Products: even if a product (auto-sticking bindies/beauty spots) could be viewed as toilet articles, they remained 'kumkum' in common usage and therefore fell under the specific 'kumkum' entry, not under a broader 'toilet articles' entry. - Ajay Industrial Packing Pvt. Ltd.: advances in science and technology do not displace the rule that commonly used words in taxing statutes must be understood in their ordinary, everyday meaning. 2.1.11 Consistent with these authorities, the Court held that modern perceptions of 'instant coffee' must be considered: a premix that yields coffee instantly on addition of hot water is, in commercial and popular understanding, instant coffee. (c) Conclusions 2.1.12 'Coffee and Instant Drinks Nescafe Premix' is classifiable under Entry C-II-3 of Schedule C Part II as 'coffee/instant coffee' and not under Entry C-II-18(2) as a powder from which non-alcoholic beverages are prepared. 2.1.13 Entry C-II-3 being a specific entry for coffee/instant coffee prevails over the general powders entry in C-II-18(2), and the rate of tax applicable is that under Entry C-II-3. 2.2 Relevance of the Percentage of Coffee Content in the Premix (a) Legal framework discussed 2.2.1 The Court relied on the Supreme Court's reasoning in Forage & Co. v. Municipal Corporation of Greater Bombay, which held that: - The quantity or percentage of a particular ingredient in a product is not decisive for classification where the product is used and understood as falling within a particular item in the Schedule. - The determinative factor is whether the article is enumerated in the Schedule. (b) Interpretation and reasoning 2.2.2 The Commissioner had treated the 8.5% soluble coffee content as 'miniscule' and on that basis concluded that the premix could not be classified as 'coffee' or 'instant coffee'. 2.2.3 The Court held that the Tribunal was right to reject this reasoning, noting that: - Forage & Co. rejected the argument that a low percentage (0.25% zinc oxide in paint) excluded zinc oxide from being treated as an article used in building construction. - The Supreme Court's 'pinch of salt' illustration confirmed that an ingredient used in small quantity does not lose its character in law merely because of its proportion, if in fact it is present and used for that purpose. 2.2.4 Applying this principle, the Court held that a premix that owes its character as 'coffee/instant coffee' to the presence of coffee powder does not cease to be coffee merely because coffee constitutes only 8.5% of the total mixture. (c) Conclusions 2.2.5 The relatively low percentage of soluble coffee powder (8.5%) in the premix is not a valid ground to deny its classification as 'coffee' or 'instant coffee' under Entry C-II-3. 2.2.6 The Commissioner's reliance on percentage content to exclude the product from the 'coffee/instant coffee' entry was erroneous in law and contrary to binding precedent. 2.3 Application of Common/Commercial Parlance Test and Specific-over-General Rule (a) Legal framework discussed 2.3.1 The Court referred to: - Commissioner of Central Excise v. Connaught Plaza Restaurant and other Supreme Court decisions emphasizing: - Use of common or popular meaning of terms in taxing statutes. - Construction according to commercial/trade understanding where no statutory definition exists. - La Bella Products: classification based on how a product is commonly perceived and used ('kumkum'). - Ajay Industrial Packing Pvt. Ltd.: continued application of common parlance despite technological change. - Bharat Forge and Press Industries Pvt. Ltd.: a general entry can be applied only when the goods cannot be fitted into any specific entry. (b) Interpretation and reasoning 2.3.2 The Court held that: - The 'common parlance' or 'popular meaning' test must be applied to determine whether 'Nescafe premix' is understood as coffee/instant coffee. - In ordinary usage, consumers and traders regard the beverage obtained by pouring hot water into the premix through vending machines as 'Nescafe' or instant coffee. - The description, marketing, and actual use of the premix all support its identification as a coffee product, not merely a generic beverage powder. 2.3.3 The Tribunal's approach that the concept of 'instant coffee' must reflect modern developments and consumer perceptions was approved. The Court accepted that a premix which, on addition of hot water, immediately produces coffee, meets the contemporary understanding of 'instant coffee'. 2.3.4 Applying the specific-over-general rule: - Entry C-II-3 specifically describes coffee/instant coffee. - Entry C-II-18(2) broadly covers powders from which non-alcoholic beverages are prepared. - Having found that, in common parlance, the product is coffee/instant coffee, it must be classified under the specific coffee entry and not under the general powders entry. (c) Conclusions 2.3.5 The common/commercial parlance test supports classification of 'Nescafe premix' as 'coffee/instant coffee'. 2.3.6 Given this common parlance characterization, the specific entry for coffee/instant coffee (Entry C-II-3) governs, and the general entry for powders for non-alcoholic beverages (Entry C-II-18(2)) cannot be invoked. 2.3.7 Accordingly, the question referred was answered in favour of the assessee, holding that the product is covered by Entry C-II-3 and not by Entry C-II-18(2).