Case: M/S. Parle Agro (P) Ltd Vs. Commissioner Of Commercial Taxes, Trivandrum

3. Civil Appeals arising out of SLP(C) Nos.1469798 of 2016are being treated as leading case, the facts of which case shall be noted in detail for deciding these cases.4. Civil Appeals arising out of SLP(C) Nos.1469798 of 2016and SLP(C) No.9467 of 2016 are between the same parties whereas Civil Appeals arising out of SLP(C)of 2016 have been filed by different appellants.Civil Appeals arising out of SLP(C) Nos.of 20165. TheParle Agro (P) Ltd. is a dealer engaged in fruit juice based drink known as `Appy Fizz which has obtained certificate of registration under Kerala Value Added Tax Act, 2003 (hereinafter referred to as "Act, 2003"). 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. One M/s. Trade Lines (a distributor of appellant Company) was assessed by the authorities under the Act, 2003 holding that M/s. Trade Lines is liable to pay tax @ 20% on the product. M/s. Trade Lines filed OT Revision No.114/2013 in the High Court of Kerala against the order passed by Kerala Value Added Appellate Tribunal dismissing the appeal. The High Court vide its judgment and order dated 17th November, 2014 dismissed the revision upholding the order passed by the Assessment Officer and the First Appellate Authority. Special Leave Petition was filed by M/s. Trade Lines against the judgment of Kerala High Court which was, however, permitted to be withdrawn by order dated 19th January, 2015 of this Court. On 4th August, 2015 the assessment notices were issued to the appellant for Assessment Yearproposing classification of `Appy Fizz under Section 6(1)(a)of the Act, 2003 as "aerated branded soft drink" and tax liability @ 20% . After receipt of the notices appellant filed an application dated 24th August, 2014 under Section 94 of the Act, 2003 seeking clarification of product `Appy Fizz. In the clarification application the appellant claimed that product `Appy Fizz had rightly been clarified as `fruit juice based drink and which has tax liability of 12.5%. Along with the clarification application appellant has filed certificates and expert opinions. Writ Petition No.26279/2015 was filed by the appellant before Kerala High Court seeking direction to the Commissioner of Commercial Taxes to consider and pass order on the application for clarification within a specified time and the proceedings initiated by the Commissioner of Commercial Taxes by different notices be kept in abeyance. Learned Single Judge by its judgment and order dated 31st August, 2015 disposed of the writ petition directing the Commissioner of Commercial Taxes to consider and pass orders on the clarification application within a period of one month from the date of receipt of the judgment and liberty was given to the appellant to produce all material on which it intends to place reliance to substantiate its clarification with regard to the classification of the product, further proceedings in various notices were kept in abeyance. The Assistant Commissioner and Commissioner of Commercial Taxes filed a writ appeal against the judgment of the learned Single Judge before Division Bench of the Kerala High Court. The Division Bench of Kerala High Court vide its judgment dated 5th October, 2015 dismissed the writ appeal by affirming the decision of the learned Single Judge.6. After the above judgment of the Division Bench dated 5th October, 2015, 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%. Against the order passed under Section 94 of Act, 2003, the appellant filed O.T. Appeal No.7 of 2015 in the Kerala High Court. The Division Bench by its judgment and order dated 5th February, 2016 dismissed the appeal filed by the appellant upholding the order dated 6th November, 2015. A review application was also filed by the appellant to review the judgment dated 5th February, 2016 which has been dismissed on 23rd March, 2016.7. Civil Appeals arising out ofof 2016 have been filed against the aforesaidorder dated 5th February, 2016 and the review order dated 23rd March, 2016 by the appellant.Civil Appeal arising out of SLP(C)No.9467 of 20168. The Assistant Commissioner (Assessment) and the Commissioner of Commercial Taxes have filed this appeal challenging the judgment dated 5th October, 2015 by which writ appeal filed by the Assistant Commissioner(Assessment) and another against the direction of the learned Single Judge dated 31st August, 2015 has beenAppeals arising out ofof 20169. M/s. We Six Traders Etc.Etc. is a dealer in fruit juices and other drinks manufactured by M/s. Parle Agro (P) Ltd. Assessment Commissioner has issued notices for assessment years14 and April to June 2015 proposing to classify the product `Appy Fizz as `aerated branded soft drink @ 20% VAT. After the judgment of the High Court dated 5th February, 2016 in the case of M/s. Parle Agro (P) Ltd. order of assessment was issued against which the assessee filed appeal before Kerala Value Added Tribunal in which appeal the Tribunal directed the assessee to deposit 30% asto hear the matter on merits. The assessee filed writ petition in the High Court challenging the aforesaid order passed by the Tribunal on the stay petition. The assessee submitted before the High Court that against the judgment of the High court dated 5th February, 2016 in the case of M/s. Parle Agro (P) Ltd. SLP has already been filed, hence, the assessee should not have been called to remit the entire amount. The High Court vide its judgment and order dated 14th July, 2016 disposed of the writ petition directing the demand made in the above cases shall remain stayed till disposal of the appeals on condition of assessee depositing 50% of the amount involved. CivilAppeals arising out of1 of 2016have been filed against the aforesaidjudgment and order of the Kerala High Court dated 14th July, 2016.

Court's reasoning:
Issue Nos.1 andThe aerated branded soft drinks, excluding soda were always covered under Section 6(1)(a)and prior to 1st April, 2007 it bears HSN Code 2201.10.10. Entry 71 Item 4 also reads as "fruit pulp or fruit juice based drinks with HSN Code 2202.90.20". When fruit juice based drinks were covered under Entry 71 the State Government knew that fruit juice based drinks were not covered by Section 6(1)(a). 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).A bare perusal of Entry 71 as above indicates that the Entry covers nonalcoholic beverages and their powders, concentrates and tablets in any form includingItem No.2 contains fruit juice, fruit concentrates, fruit squash, fruit syrup and pulp and fruit cordial. Soft drinks other than aerated branded soft drinks are included in Item No.3. Health drinks of all varieties are included in Item No.4 and similar other products not specifically mentioned under any other entry in this list or in any other Schedules were included in Item No.5. 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.Issue No.Although the above Explanation applies the Rules of Interpretation of the Schedules to the interpretation of the HSN codes mentioned in Section 6(1)(a) but Explanation does not say anything about the items where HSN code is not there. The Rules of Interpretation of the Schedules, thus, directly are not attracted with regard to the interpretation of the entry which does not mention with HSN code in Section 6(1)(a) although principle contained in such Rules of Interpretation may apply. Had the legislation intended the Rules of Interpretation of the Schedules should be made applicable both to the interpretation of the Schedules or those commodities which are not given with HSN code, the Rules of Interpretation of Schedules should have been in toto made applicable for interpretation of clause (a) of Section 6(1). Thus, common parlance test or commercial test which are to be applied on the commodities in the Schedules which are not given with HSN code is directly not applicable under Item 6(1)(a), hence, applicability of other Rules of Interpretation which were required to be applied is not ruled out. Hence, in the appropriate case apart from common parlance test or commercial test any other test can be applied for interpretation of the commodities included in Section 6(1)(a) apart from those which are given HSN code.In the present case, 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.39. In view of the above, we are of the opinion that 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.Issue No.4: Principle of Noscitur aApplying the aforesaid 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.Issue No.The order passed by the Division Bench in M/s. Trade Lines was a case of assessment of another assessee which decision was based on the materials brought on the record by the said assessee and could not have precluded the appellant from filing the application under Section 94 and when the Division Bench by its judgment of 5th October, 2015 dismissed the appeal of the Revenue, the Committee of Commissioners ought to have followed the observation given by the Division Bench in paragraph 4 quoted above. Thus, we are of the view 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.Issue No.6.The judgment of CESTAT and the order of the Supreme Court were specifically relied by the appellant before the High Court. The High Court without giving cogent reason has refused to rely on the said adjudication. It may be said that the adjudication by the CESTAT was with regard to the HSN Code which found place in Central Excise Tariff Act. The competent entry under which CESTAT authorities were to adjudicate regarding the product has already been extracted "Fruit pulp or Fruit juice based drink" on which CESTAT had ruled that product is not included in aerated water and was included in entry as fruit juice based drink. The product was not held to be aerated water was a relevant fact to be considered even though in the entries under the Act, 2003, now there are no HSN Codes mentioned.50. Even though the order of CESTAT did not conclude the controversy in favour of the appellant but fact 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.Issue Nos.7 &What is the process for manufacture in accordance with the Food Safety and Standards Act, 2011 and the Regulations framed therein and what is the nature and characteristic of the product which has been licensed to be manufactured to the appellant cannot be said to be an irrelevant factor while examining the nature and contents of the product. Whether the product is an aerated branded soft drink or can be covered by residuary of clause (5) of Entry 71 is a question on which the manufacture licence, orders issued by Food Safety and Standards Authority of India were relevant facts which were although cited before the Committee of Joint Commissioners but were brushed aside relying on the Kerala High Courts order in M/s. Trade Lines. We, thus, are of the opinion that the manufacture licence dated 19th August, 2015 granted to appellant and the opinion of the Government of India, Ministry of Food Processing Industries dated 28.03.2005 were relevant for finding the nature of the product of the appellant for the purpose of classification and the Committee of Joint Commissioners as well as High Court erred in not adverting to and considering the aforesaiddioxide(INS 290/E 290) is mentioned as a Packing gas/propellant/carbonating agent/preservative/foaming agent by CODEX ALIMENTATIRUs and its use is allowed as per GMP.Carbon dioxide along with other preservatives help in extending the shelf life of the product as the product is filed in PET bottles/cans and is not filledview of the above mentioned points, I am of the opinion that the APPY FIZZ is a THERMALLY PROCESSED FRUIT BEVERAGE/READY TO SERVE FRUIT BEVERAGE complying with category 2.3.10 as per FSSAI Regulations, 2011 despite having carbon dioxide as an ingredient which is used for preservation purpose only. This opinion is purely based on scientific and technical information however ICT will not be part of any court conflicts.The above technical opinion clearly mentioned that carbon dioxide is used for preservation purpose only. 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.The above materials which were filed by the appellant before the Clarification Authority were relevant materials for understanding the manufacture process and the nature and contents of ultimate product. The expert authority and its opinion which were relied by the appellant were required to be adverted to both by the Clarification Authority as well as by the High Court and we are of the opinion that expert opinion and materials have been erroneously discarded.61. It is further relevant to note that 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.We, thus, conclude 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.Issue No.9 :have already observed that items which have been grouped under Section 6(1)(a) are all those items where higher tax slab has been fixed looking into the nature of the goods. It is well settled that all tobacco based goods which are now included in Item No.6(1)(a) are dangerous to health, the use of the plastic, polythene etc. which have also adverse effect on the health and environment. In contrast to aerated branded soft drinks which are included in Section 6(1)(a), health drinks of all varieties are included in Entry 71 as amended. Aerated branded soft drinks which are referred to in Section 6(1)(a) cannot be drinks which are health drinks. Fruit juice based drinks can be regarded as health drinks as compared to other aerated branded soft drinks like pepsi cola, coka cola, etc. We are, thus, of the opinion that the appellant has successfully proved by relevant scientific and technical materials that the product in question that is Appy Fizz is a commodity which is fully covered by Item No.5 of Entry 71 as amended by S.R.O. No.119 of 2008. The High Court discarded scientific and expert opinion with regard to manufacturing process and contents of the product. The orders of Food Safety Authority were also discarded which were relevant for considering the nature and contents of product. The adjudication by CESTAT was relevant at least on the aspect that the Appy Fizz is not aerated which was also discarded by the High Court as well as by the Committee of the Commissioners. In view of the aforesaid discussion, we are of the considered opinion that the appellant has successfully proved from the materials brought on the record that the product Appy Fizz was required to be classified under Item No.5 of the Entry 71 as amended with tax liability at 12.5% after amendment by S.R.O. No.119 of 2008 (now at the rate of 14.5%).The Division Bench did not commit any error in dismissing the appeal and observing that no revisional order of this Court in an earlier proceedings could conclude the issues which could be considered in an application for clarification by the competent authority under Section 94 of Act, 2003. We do not find any error in the judgment of the learned Single Judge as well as of Division Bench and this appeal deserves to be dismissed.The learned Single Judge has noted about the pendency of2016 in this Court where classification of the product was under challenge. By this judgment we are also disposing of the CivilAppeals arising out ofof 2016. Further proceedings in case of the assessee that is M/s. We Six Traders Etc.Etc. has to be, thus, concluded in accordance with our decision in CivilAppeals arising out ofof 2016. Any amount deposited in pursuance of the interim order of the High Court dated 14th July, 2016 shall abide by the consequential orders to be passed in the proceedings against the assessee. We, thus, do not find it necessary to interfere with the order dated 14th July, 2016 of the learned Single Judge and the Civil Appeals are disposed of with direction that in proceedings against the assessee consequential orders shall be passed including an adjustment of the amount deposited, if necessary, as per our judgment in Civil Appeals arising out