Dama Seshadri Naidu, J. Brief Facts:
The appellant, proprietrix of a trading concern, having failed in her first essay to successfully assail the orders of assessment for the years 2010-11 and 2011-12, filed the present appeal impugning the judgment dated 27.03.2014 in W.P.(C) No.3850/2014.
2. Briefly stated, the appellant is a registered dealer on the rolls of the third respondent, trading in margarine and other bakery shortenings. On 25.11.2013, the third respondent issued a notice to the appellant under Section 25(1) of the Kerala Value Added Tax Act, 2003 ('the KVAT Act' for brevity) proposing to levy tax on the sales turnover of 'Margarine' for the Assessment Years 2010-11 and 2011-
12. Not satisfied with the explanation submitted by the appellant through her reply dated 11.12.2013, the third respondent issued Exhibits P15 and P16 assessment proceedings. The third respondent, issued the said notices of demand (Exthibits P15 and P16) in Form No.12, requiring the appellant to pay ` 2,41,818/- and ` 2,06,844/- for the assessment years 2010-11 and 2011-12 respectively.
3. Challenging Exhibits P15 and P16 assessment orders issued by the third respondent, the appellant filed W.P.(C) No.3850/2014. In the said writ petition, the appellant also impugned Exhibits P1 and P1(a) 'Clarification Orders' issued by the competent authority under Section 94 of the KVAT Act, declaring that Margarine is liable to attract a higher rate of tax, by virtue of Entry 64(8) of the relevant notification.
4. A learned single Judge of this Court took up the matter along with other connected matters and rendered a judgement dated 27.03.2014, rejecting the challenge of the assessment orders issued by the third respondent. Aggrieved thereby, the appellant has filed the present intra- court appeal.
Submissions of the Petitioner:
5. Mr.Ganesh, the learned Senior Counsel, appearing for the appellant, in his prefatory submissions, has stated that there are two types of margarines: Table Margarine, which is used as a substitute for butter and Industrial Margarine, known as Bakery Margarine, which is used only in bakeries. Bakery Margarine, being an edible oil, falling under Entry 38(19)(d) of the III Schedule, is exigible to tax at the rate of 4%, whereas Margarine in general, with milk ingredient, falling under Entry 64 of SRO 82/2006 is exigible at a higher rate of tax, that is, 12.5%.
6. According to the learned Senior Counsel, once the ratio laid down in Aluva Sugar Agency v. State of Kerala ((2011) 45 VST 1 (SC)) is followed, the impugned assessments would not stand. It is the further contention of the learned Senior Counsel that the ratio in SSD Oil Mills Co. Ltd. v. State of Kerala ((2011) 37 VST 594), is per incurium and ought not to have relied on by the learned single Judge.
7. The learned Senior Counsel has contended that Harmonised System of Nomenclature (HSN) 1517 does not take in wholly or partly hydrogenated, inter–esterified, re- esterified or elaidinised vegetable fats and oils. HSN 1516.20.91 relates to other products, including Vanaspathy, which do not have a specific HSN Code. According to the learned Senior Counsel, the expression 'including Vasnaspathy' assumes importance, for the term 'hydrogenated vegetable oil' has larger scope for taking into its sweep Margarine also. Accordingly, what has been specified, contends the learned Senior Counsel, in the Central Excise tariff is only “Edible Grade” that includes both Vanaspathy and whichever other similar products. As per the learned Senior Counsel, it is deducible from the above scheme of classification that 'industrial margarine' dealt in by the appellant is only hydrogenated vegetable oil falling under Entry 38 of the III Schedule to the KVAT Act, which covers specifically “Others, including vasaspathy” According to the learned Senior Counsel, it is a clear case that calls for the invocation of interpretative aid: ejusdem generis.
8. The learned Senior Counsel has strenuously contended that it is fallacious to assume that all types of margarine are included in HSN 1517, to the exclusion of HSN 1516. According to him, the words 'other than edible fats or oils or their fractions of heading 1516' clearly indicate that certain types of Margarine are excluded from HSN 1517. To fall out of the purview of HSN 1516, industrial margarine does not undergo any further preparation and mere emulsification does not amount to undergoing further process. Emulsification is similar to hydrogenation and by emulsification a product does not undergo a further preparation. Such an eventuality, according to the learned Senior Counsel, comes into picture only when new substance is added and thereby a different product has been obtained.
9. The learned Senior Counsel for the appellant has stressed what is otherwise well established by Cannon of statutory interpretation that taxing statutes are to be strictly construed and that in the event of any ambiguity, it shall be resolved in favour of the assessee. According to him, no tax liability can be imposed by reading into a statutory provision what has not been expressly stated therein. On the strength of the said submission, the learned Senior Counsel has contended that it is entirely untenable for the assessing authorities to conclude that all types of Margarine, except liquid Margarine, stand specifically included under HSN Code 1517.10. According to him, 'Margarine' mentioned under Entry 64(8) of SRO 82/2006 can only mean that type of margarine which has got a milk product in it as its ingredient.
10. The learned Senior Counsel has laid emphasis on his submission that Table Margarine and Bakery Margarine are specifically treated with distinction under the Food Safety and Standards (Food Products Standards and Food Addictives) Regulations Act, 2006. He has also drawn our attention to Rule 25 of the Rules of Interpretation to contend that Entry 38 of III Schedule includes only the edible grade of vegetable oils, and that non–edible grade oils come under Entry 138 of the same schedule.
11. Further, with reference to the products coming under Entry 64(8), the learned Senior Counsel has contended that all products enlisted therein are milk products. On the other hand, edible oils, whether hydrogenated or not, are not intended to be covered under Entry 64(8). Ipso facto, Industrial Margarine will not come under that Entry. He has contended that there is no difference between Margarine and Vanspathy and in fact they are very similar.
12. The assessing authorities, according to the learned Senior Counsel, are blowing hot and cold. Expatiating further, he has submitted that when the assessee challenged Exhibit P1 clarification, the authorities relied on Aluva Sugar Agency's case (supra) to substantiate their plea that Margarine is hydrogenated edible oil and consequently leviable to tax only at the rate applicable to edible oils.
13. Attacking Exhibits P1 and P1(a) as being ultra vires the issuing authority, the learned Senior Counsel has contended that though Exhibit P1(a) is meant to withdraw Exhibit P1, both of them are, in effect, one and the same. According to him, the competent authority under Section 94 has no jurisdiction to issue a further clarification or order recalling an earlier clarification, which vests with the Commissioner under Section 94(7) of the KVAT Act.
Submissions of the Respondents:
14. Per contra, the learned Government Pleader has, with equal vehemence, opposed the claims and contentions of the appellant. Since the learned Senior Counsel for the appellant has placed heavy reliance on Aluva Sugar Agency's case (supra), the learned Government Pleader has submitted that the Apex Court rendered the judgment with reference to the provisions of the KGST Act. In elaboration thereof, he has submitted that the provisions of the KVAT Act are distinct and different from those of KGST Act. According to him, the “HSN Code” given under the Customs Tariff Act has also not fallen for consideration in that judgment. It is the contention of the learned Government Pleader that there is no inconsistency between SSD Oil Mills's case (supra) rendered by a learned Division Bench of this Court and Aluva Sugar Agency's case (supra) rendered by the Hon’ble Supreme Court.
15. Concerning the classification of the product or produce under HSN Code, the learned Government Pleader would contend that once there is a specific Entry prescribed for margarine, with a singular exclusion of liquid margarine, it does not lie in the mouth of the appellantr to contend that margarine of a different description, save liquid margarine, ought to be taken under a residuary provision dealing with Vanaspati or other hydrogenated vegetable oil. In any event, it is the contention of the learned Government Pleader that placing margarine, without finer distinctions, under one particular category for the purpose of tax is essentially a policy decision, which is not liable to be interfered with.
16. Touching upon the manufacturing process of margarine, the learned Government Pleader has submitted that though it is a hydrogenated vegetable oil in general terms, margarine is obtained by mixing, in any definite proportion, sesame oil and groundnut oil through a particular process. According to him, margarine is a distinctively new produce having its own classification. He has further contended that margarine has not been mentioned anywhere in the II or III Schedule, but stands included with a specific HSN Code of 1517.10 only under Entry 64(8) of the relevant notification.
17. The learned Government Pleader would contend that the distinction sought to be made by the appellant between 'Table Margarine' and 'Bakery Margarine' is artificial and of no consequence. According to him, both of them are edible in nature. Placing reliance on Kevi Hardware v. State of Kerala (2003) 11 KT R5 62 (Ker.)), the learned Government Pleader contends that 'User Test' is neither safe nor conclusive in determining the nature and classification of produce for taxing purpose.
18. Eventually, the learned Government Pleader has taken us through the Rules of Interpretation and submitted that they do not leave any room for misconception in the classification of margarine, inasmuch as it is a wholesome, separate Entry. In this regard, he has placed reliance on (2008) 15 VST 10 (SC).
Issues:
19. Whether Industrial Margarine or Bakery Margarine is required to be treated as a produce under the category of edible oil shown under Entry 38(19)(d) of III Schedule, thus being exigible to tax at the rate of 4% or whether it is Margarine per se, shown under Entry 64 of SRO 82/2006, as one of the milk products, exigible at a higher rate of tax, i.e., 12.5%?
DISCUSSION:
Definition:
20. Webster’s Encyclopedic Unabridged Dictionary (Deluxe Edn.) defines Margarine as: “A butter like product made of refined vegetable oils, sometimes blended with animal fats and emulsified, usually emulsified with water or milk”. It is believed that a French Scientist, Michel Eugene Chevreul, discovered in 1813 a new fatty acid, which he called acide margarique, since etymologically in Greek margarites means “pearly”, which it looked like.
21. A Consumer’s Dictionary of Food Additives (7th Edn.) by Ruth Winter, defines it as follows:
“Margarine - a butter substitute made from animal or vegetable facts or oils. If oils are used they are ‘hardened’ into fats by the process of hydrogenation. Skim milk, water, salt, colouring matter, artificial flavours, lecithin, and small amounts of vitamins are usually added. By Federal Regulations [USA] at least 80 percent fat.” (Italics supplied)
22. In the absence of any statutory definition, we will conclude our lexical foray with a reference to Dictionary of Food Science and Technology, (2nd Edn.), published by Wiley-Blackwell, which defines Margarine as follows:
“Margarines. Water in Oil emulsions usually composed of 80% animal fats or hydrogenated vegetable fats and 20% water, together with emulsifiers, colorants, Vitamin A, Vitamin D and flavourings. Usually sold at room temperature. Used as spreads, butter substitutes, in baking or as cooking fats. Low fat products may contain as little as 20% fat.” (Italics supplied)
23. Industrial Margarine is an all-purpose margarine suitable for industrial uses related to baking; as such, it is also called Bakery Margarine. From the lexical definitions nowhere is it discernible that Industrial or Bakery Margarine stands on a different and distinct footing, nor has it been treated as a separate product carving out its own niche in food or food additive sectors. Elementarily, adding of any dairy product, such as milk in itself is optional.
Statutory Scheme:
24. Statutorily speaking, Section 6 of the KVAT Act is the charging provision, wherein it is declared that in the case of goods specified in the II and III Schedules, the levy of tax should be at the rates specified therein. Commodity Classification Code for VAT Tariff is based on the Harmonised System of Nomenclature (HSN) adopted by the Customs Tariff Act, 1975. As such, wherever any doubt arises about the classification of goods, help may be sought from the Customs Tariff Act, 1975.
25. Relevant entries from the Notified List of Goods Taxable for our purpose are as follows:
Entry 64 of S. R. O. No. 82 of 2006.
Relevant entry of the Third Schedule to the KGST Act is as follows:
26. Since the bone of contention is the product categorisation or in other words, whether 'Industrial/Bakery Margarine' falls under HSN Code 1516 or 1517, it is profitable to extract them. As could be seen, Chapter 15 of Section III of the Customs Tariff Act, 1975, has the following relevant entries concerning the animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes.
Types of Margarine:
27. HSN Code 1517 10 expressly specifies Margarine. Yet, it is the contention of the learned Senior Counsel for the appellant that Margarine is not a singular term of reference to a particular food product. Based on the manufacturing process and ingredients that go into the produce, Margarine has, according to the learned Senior Counsel, sub-classifications, though compendiously referred to as Margarine. He has gone to the extent of stating that Bakery Margarine is not at all edible like Table Margarine or Vanaspati. Before proceeding further, it may have to be clarified that all that is eatable need not be readily edible or consumable. An item may be a food ingredient, without it being food itself; thus, it may not be edible, not being palatable, eg., cooking oil, chilli-powder, to name a couple of them. Nevertheless, it does not cease to be a food item.
28. Vanaspati is otherwise called 'Desi Vegetable Ghee'. It is, indeed, a fully or partially hydrogenated vegetable oil, often used as a cheaper substitute for ghee or clarified butter. It is, without our sounding pejorative, a poor man’s ghee. There is, thus, discernible legislative intent in keeping vanaspati and margarine separately for taxing purpose. This conclusion is further fortified given the fact that Liquid Margarine is excluded from the category of Margarine, for Liquid Margarine substantially serves the purpose of a cooking medium, oil, or as a table spread.
29. It is stated that the total fat content of the Liquid Margarine is identical to that of hydrogenated or block margarine. The difference is that the liquid oils used contain around 60% less saturated fat, while the content of monounsaturated and polyunsaturated fats (the supposedly good fats) is significantly higher.
30. The learned Senior Counsel has supplied materials to show how Bakery Margarine on one hand and Table Margarine on the other are produced. Table margarine means an emulsion of edible oils and fats with water. It shall be free from rancidity, mineral oil and animal body fats. It may contain common salt not exceeding 2.5 per cent, skimmed milk powder not exceeding 2 per cent; it may contain permitted food additives.
31. Bakery or Industrial Margarine means an emulsion of vegetable oil product with water. It shall be free from added colour and flavour, rancidity, mineral oil and animal body fats. It may contain common salt not exceeding 2.5 percent. However, it may contain permitted food additives. The learned Senior Counsel has elaborated on the ingredients to stress the point that Bakery Margarine does not contain any milk products. The Ratio of Aluva Sugar Agency:
32. The flagship of the appellant's case is Aluva Sugar Agency (supra). It is the contention of the learned Senior Counsel that the same issue, as has fallen for consideration presently, stands squarely decided by the Hon’ble Supreme Court in that case. Continuing in the same vein, he submits that the SSD Oil Mills case (supra) decided by a learned Division Bench of this Court is per incuriam in the face of the ratio in Aluva Sugar Agency case (supra). Thus, it is necessary to examine Aluva Sugar Agency case (supra).
33. In Aluva Sugar Agency case (supra) the short question that has arisen for consideration is whether sale of margarine is to be taxed at 8% or 4% under the provisions of the Kerala General Sales Tax Act, 1963. Their Lordships have concluded that Margarine is an edible oil available for tax concession, essentially based on a Departmental Circular dated 19.02.1996, explaining the term "edible oil". Having found that it was the intention of the Government to give relief in tax to edible oils, and that, precisely for that purpose, the said circular had stated that edible oils would also include hydrogenated oils, such as ground nut oil, gingelly or til oil, refined oil and vanaspathi oil, it was ruled in favour of the assessee that margarine should be taxed at 4% as it is edible oil.
Stare Decisis:
34. Before appreciating the ratio of Aluva Sugar Agency, it is apt to recall to mind the judicial dictum that it is the ratio decidendi of a judgment and not the final order in the judgment, which forms a precedent. In this regard, a word of caution has to be served. A decision is only an authority for what it actually decides and not what logically follows from it. What is of the essence in a decision is its ratio and not every observation found therein. It is also well settled that a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision. Observations of courts are neither to be read as Euclid’s theorems nor as provisions of a statute and that too taken out of their context. The judicial observations must be read in the context in which they appear to have been stated. To interpret the words, phrases and provisions of a statute, it may become necessary for the Judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret the statutes, they do not interpret the judgments. (Ref: State of Orissa v. Sudhansu Sekhar Misra (AIR 1968 SC 647); Ambica Quarry Works v. State of Gujarat ((1987) 1 SCC 213); Bhavnagar University v. Palitana Sugar Mill (P) Ltd. ((2003) 2 SCC 111); Bharat Petroleum Corpn. Ltd. v.
N.R. Vairamani ((2004) 8 SCC 579)).
35. In Dharappa v. Bijapur Coop. Milk Producers Societies Union Ltd. ((2007) 9 SCC 109), the Supreme Court has discussed the precedential limitations one has to keep in mind while interpreting the provisions of what seem to be similar or analogous statutes. In that context, their Lordships have held thus:
“19. [B]ut before doing so, we have to note that many a time, a principle laid down by this Court with reference to the provisions of a particular State Act is mechanically followed to interpret cognate enactments of other States, without first ascertaining whether the provisions of the two enactments are identical or similar. This frequently happens with reference to the laws relating to rent and accommodation control, cooperative societies and land revenue. Before applying the principles enunciated with reference to another enactment, care should be taken to find out whether the provisions of the Act to which such principles are sought to be applied, are similar to the provisions of the Act with reference to which the principles were evolved.”
Aluva Sugar Agency, SSD Oil Mills & the Present Case:
36. In the light of the above discussion on the principle of precedent or stare decisis, if we examine the statutory scheme governing the issue in Aluva Sugar Agency in contradistinction with the present case, it is evident that the Apex Court rendered the judgment in the former case while interpreting the provisions of the KGST Act, whereas in the latter, it is the provisions of the KVAT Act and Customs Tariff Act, that fall for consideration. Essentially, in the former case, the Rules of Interpretation of Schedules have not been invoked. In the face of the ratio in Khandelwal Metal and Engg. Works (infra), the whole issue shows itself in a different light.
37. Once we examine SSD Oil Mills (decided on 08.06.2010) in the light of the dictum laid down in Aluva Sugar Agency (decided on 07.09.2011), we fail to persuade ourselves to see any repugnancy in the ratio of SSD Oil Mills to brand it per incuriam. As we have already held, they have been decided under two different statutes. Furthermore, the Rules of Interpretation of Schedules give a different perspective to SSD Oil Mills ratio.
A Question of Interpretation:
38. In Oswal Agro Mills Ltd. v. CCE ((1993) Supp.
3 SCC 716 (at p.720)), the Hon’ble Supreme Court has dealt with the General Rules of Interpretation of Taxing Statues in the following words:
“4. The provisions of the tariff do not determine the relevant entity of the goods. They deal whether and under what entry, the identified entity attracts duty. The goods are to be identified and then to find the appropriate heading, sub-heading under which the identified goods/products would be classified. To find the appropriate classification description employed in the tariff nomenclature should be appreciated having regard to the terms of the headings read with the relevant provisions or statutory rules of interpretation put up thereon. For exigibility to excise duty the entity must be specified in positive terms under a particular tariff entry. In its absence it must be deduced from a proper construction of the tariff entry. There is neither intendment nor equity in a taxing statute. Nothing is implied. Neither can we insert nor can we delete anything but it should be interpreted and construed as per the words the legislature has chosen to employ in the Act or rules. There is no room for assumption or presumptions. The object of Parliament has to be gathered from the language used in the statute. … Therefore, one has to gather its meaning in the legal setting to discover the object which the Act seeks to serve and the purpose of the amendment brought about. The task of interpretation of the statute is not a mechanical one. It is more than mere reading of mathematical formula. It is an attempt to discover the intention of the legislature from the language used by it, keeping always in mind, that the language is at best an imperfect instrument for the expression of actual human thoughts. It is also idle to expect that the draftsman drafted it with divine prescience and perfect and unequivocal clarity. Therefore, court would endeavour to eschew literal construction if it produces manifest absurdity or unjust result...” (emphasis supplied)
39. In CCE v. Connaught Place Restaurant, the Supreme Court has undertaken an elaborate exercise of determining the true scope and extent of Notified List of Goods taxable. In that case, the issue is with regard to ice- cream, a product under Schedule I. Briefly stated, the respondent assessee’s case, as has been extracted in the judgment, is that "Soft Serve" is a product distinct and different from "ice-cream" since the world over ice-cream is commonly understood to have milk fat content above 8% whereas 'Soft Serve' does not contain more than 5% of the milk fat. It cannot be considered as "ice-cream" by common parlance understanding since it is marketed by the assessee the world over as 'soft serve'; "ice-cream" should be understood in its scientific and technical sense; and for these reasons, 'soft serve' is to be classified under heading 04.04 as "other dairy produce" and not under heading 21.05. On the other hand, Revenue claims that ice-cream has not been defined under heading 21.05 or in any of the chapter notes of Chapter 21; upon conducting enquiries it was found that 'Soft Serve' is known as "ice-cream" in common parlance; and hence, it must be classified in the category of "ice-cream" under heading 21.05 of the Tariff Act.
40. In fact, Chapter 4 of the Tariff Act deals, inter alia, with dairy produce. Since Heading 04.04 is applicable to "other dairy produce; or edible products of animal origin which are not specified or included elsewhere", the note appended thereto reads to the effect that the Heading applies, inter alia, to butter-milk, curdled milk, cream, yogurt, whey, curd and products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter or flavoured or containing added fruit or cocoa and includes fats and oils derived from milk (e.g. milk fat, butterfat and butter oil), dehydrated butter and ghee.
41. In the above factual backdrop, the issue in Connaught Plaza case can be summarised thus: 'Soft Serve' in its technical sense is to be classified under the heading 04.04 as "other dairy produce" but not under heading 21.05.
In the first place, 'Soft Serve’ is not ice-cream; secondly, if it were to be treated as one, it is more akin to a produce generated with the ingredients and process as has been described under the heading 04.04.
Parallels between Connaught Plaza & Present Case:
42. In our considered view, it is not far to seek the parallels between Connaught Plaza and the present case. In the present instance too, the contention of the learned Senior Counsel is that though Margarine is simply enumerated as a produce or product under the HSN Code 1517 10, it in fact aptly fits within the HSN Code 1516 20 as it is a vegetable fat or oil similar to Vanaspati. To substantiate the said claim, the learned Senior Counsel for the appellant has advanced the argument that Entry 64 includes exclusively all milk products; as such, Margarine (item 8) could come under that only if it contains milk as one of its ingredients. It, therefore, necessitates the further technical analysis of Margarine. According to him, Liquid Margarine contains milk, but not Bakery Margarine. Ipso facto, it shall be excluded from Entry 64. Since it is more akin to Hydrogenated fats or oils, such as Vanaspathi, mentioned in HSN Code 1516 20, it cannot be treated as an item under HSN Code 1517 10.
43. It pays to remember that neither 'ice cream' in Chapter IV, nor 'Margarine' in Chapter XV has been defined. Notwithstanding the specific mentioning of ice- cream and margarine at HSN Code 21.00 and 1517 10 respectively, in both the cases it has been contended that Connaught Plaza, where 'Soft Serve' has not been enumerated, but the Revenue treated it as ice-cream. In the present instance, Margarine has been specified, but the distinction is sought purely on technical grounds. Precisely for that reason, the Supreme Court has adopted 'the Common Parlance Test' in that case. In that back drop, we can appreciate the ratio of Connaught Plaza.
44. Putting the issue in perspective, their Lordships in Connaught Plaza have observed thus:
“15. According to the rules of interpretation for the First Schedule to the Tariff Act, mentioned in Section 2 of the Tariff Act, classification of an excisable good shall be determined according to the terms of the headings and any corresponding chapter or section notes. Where these are not clearly determinative of classification, the same shall be effected according to Rules 3, 4 and 5 of the general rules of interpretation. However, it is also a well known principle that in the absence of any statutory definitions, excisable goods mentioned in tariff entries are construed according to the common parlance understanding of such goods.”
Produce Specifications:
45. On the other hand, if a product is specified, it does not call for any 'Common Parlance Test', as has been held in Dunlop India Ltd. v. Union of India and Others ((1976) 2 SCC 241). While holding that VP Latex was to be classified as "raw rubber" under Item 39 of the Indian Tariff Act, 1934, the Court observed:
“34. We are, however, unable to accept the submission. It is clear that meanings given to articles in a fiscal statute must be as people in trade and commerce, conversant with the subject, generally treat and understand them in the usual course. But once an article is classified and put under a distinct entry, the basis of the classification is not open to question. Technical and scientific tests offer guidance only within limits. Once the articles are in circulation and come to be described and known in common parlance, we then see no difficulty for statutory classification under a particular entry.” (emphasis supplied)
46. It is further instructive to refer to Shree Baidyanath Ayurved Bhavan Ltd. v. Collector of Central Excise, Nagpur ((1996) 9 SCC 402), wherein the appellant's product "Dant Lal Manjan" could not qualify as a medicament. In that context, the Hon’ble Supreme Court has observed as follows:
“The Tribunal rightly points out that in interpreting statutes like the Excise Act the primary object of which is to raise revenue and for which purpose various products are differently classified, resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning, that is to say the meaning attached to them by those using the product. It is for this reason that the Tribunal came to the conclusion that scientific and technical meanings would not advance the case of the Appellants if the same runs counter to how the product is understood in popular parlance.”
47. In Connaught Plaza, after exhaustively examining the case law holding the field, their Lordships have come to a conclusion in the following words in paragraph 35 thereof:
“[N]either the headings nor the chapter notes/section notes explicitly define the entries in a scientific or technical sense. Further, there is no mention of any specifications in respect of either of the entries. Hence, we are unable to accept the argument that since 'soft serve' is distinct from "ice-cream" due to a difference in its milk fat content, the same must be construed in the scientific sense for the purpose of classification. The statutory context of these entries is clear and does not demand a scientific interpretation of any of the headings. Therefore, in the absence of any statutory definition or technical description, we see no reason to deviate from the application of the common parlance principle in construing whether the term "ice-cream" under heading 21.05 is broad enough to include 'soft serve' within its import.”
Rules of Interpretation:
48. Coming to the Rules of Interpretation of Schedules, it is well established that the question of classification of goods under the “Import Tariff” cannot be decided by implications, when there are Rules of Interpretation which are specially framed to aid and assist the classification of goods under appropriate Headings. Those Rules must have precedence over other aids of interpretation. (Ref. Khandelwal Metal and Engg. Works v. Union of India ((1985) 3 SCC 620).
49. If we observe the Rules of Interpretation of Schedules, it is clear that the commodities in the Schedules are allotted with Code Numbers, which are developed by the International Customs Organisation as Harmonised System of Nomenclature (HSN) and adopted by the Customs Tariff Act, 1975. At the very threshold it is mandated:
“However, there are certain entries in the schedules for which HSN Numbers are not given. Those commodities which are given with HSN Number should be given the same meaning as given in the Customs Tariff Act, 1975. Those commodities, which are not given with HSN Number, should be interpreted, as the case may be, in common parlance or commercial parlance. While interpreting a commodity, if any inconsistency is observed between the meaning of a commodity without HSN Number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number.” (emphasis supplied)
50. In Muller & Phipps (India) Ltd. v. CCE ((2004) 4 SCC 787), the issue is whether Johnson’s Prickly Heat Powder and Phipps Processed Talc are patent or proprietary medicines or whether they are cosmetics or toilet preparations. Under the Drugs and Cosmetics Act, 1940 they have been treated as a drug and not a cosmetic by the authorities. What is required to be considered, according to the Apex Court, in matters of that nature, where commodity taxation is taken up by the State authorities, is that the court should be guided by the manner of classification of the goods which are brought to tax rather than the etymological meaning of the product in question or the expert’s opinion thereto.
51. Considering the effect of Harmonised System of Nomenclature (HSN) classification, their Lordships referred with approval the ratio laid down in CCE v. Wood Craft Products Ltd. ((1995) 3 SCC 454) and held that when the Central Excise Tariffs are based on internationally accepted nomenclature found in HSN, any dispute relating to tariff classification must so far as possible be resolved with reference to the nomenclature indicated by HSN unless there be an express different intention indicated by the very Central Excise Tariff Act, 1985. It is also further held that when the Central Excise Tariff Act is enacted on the basis and pattern of HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in HSN when there is no indication in the Indian tariff of a different intention.
52. Eventually, based on the facts of the case, the Supreme Court has held that when throughout the meaning given to the products in question not only by the Department itself but also by other Departments like the Drug Controller and the Central Sales Tax is that the product in question is a medicinal preparation, that view should be accepted. Regrettably, we do not any such situation obtaining here on facts. Accordingly, we hold that Muller may not improve the case of the appellant Ejusdem Generis:
53. Clause (v) of the Rules of Interpretation speaks of taking aid of interpretative device, namely ejusdem generis. Indeed, the learned Senior Counsel for the petitioner, too, has laid much stress on this principle of interpretation.
Ejusdem generis principle is a facet of the principle of noscitur a sociis. The Latin maxim noscitur a sociis contemplates that a statutory term is recognised by its associated words. The Latin word “sociis” means “society”. Therefore, when general words are juxtaposed with specific words, general words cannot be read in isolation. Their colour and their contents are to be derived from their context. But, like all other linguistic canons of construction, the ejusdem generis principle applies only when a contrary intention does not appear (Ref: Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal ((2010) 3 SCC 786).
54. But, Lord Scarman in Quazi v. Quazi ((1980) AC 744) made the following pertinent observation (as quoted in Satchikitsa Prasarak Mandal (supra)):
“If the legislative purpose of a statute is such that a statutory series should be read ejusdem generis, so be it; the rule is helpful. But, if it is not, the rule is more likely to defeat than to fulfil the purpose of the statute. The rule, like many other rules of statutory interpretation, is a useful servant but a bad master.”
55. In fact, in Amar Chandra Chakraborty v.
Collector of Excise ((1972) 2 SCC 442), a Constitution Bench of the Supreme Court has summarised the legal position as follows:
“9. [T]he ejusdem generis rule strives to reconcile the incompatibility between specific and general words. This doctrine applies when (i) the statute contains an enumeration of specific words; (ii) the subjects of the enumeration constitute a class or category; (iii) that class or category is not exhausted by the enumeration; (iv) the general term follows the enumeration; and (v) there is no indication of a different legislative intent.”
56. In terms of the above ratio, it is ineluctable that all the subjects of enumeration should constitute a class or category and that there should be no indication of a different legislative intent. In the present instance, however, it is very clear that HSN Code Nos.1516 and 1517 have their own distinctive enumerations. As it could be seen from the above ratio, the principle of ejusdem generis can be applied to a particular class or category, but not across the classes or categories. No interpretation, however appealing it is, can be permitted by doing violence to the plain language of the statute. The aids of interpretation are meant to steer clear of statutory ambiguities, but not to create one in the place of none. Margarine is shown with HSN Code No.1517 and it has not even remote mention in HSN Code No.1516. Just because supposedly similar products are listed in 1516, we cannot deracinate and transport Margarine from 1517 to 1516.
57. At best the controversy could be confined to one aspect: With the exclusion of 'Liquid Margarine', can we presume that margarine, sans liquid margarine includes every other category, or is there anything left so that it can be classified along with other analogous products, going by their technical analysis of its constituent elements?
58. To answer the above question, without repeating ourselves, we can say that the Hon’ble Supreme Court has already disapproved the technical analysis of products to extricate them from the tax net. Further, it is, again, a well established cannon of statutory interpretation that if a genus comprises many species and only one or a few of the species have been excluded for a particular purpose, the inexorable indication of such an arrangement is that all the rest of species have been included under the genus. Moving from abstract to the concrete, we can say Margarine is a generic produce having sub-classifications, among which Liquid Margarine stands excluded. Essentially what follows is that the rest of varieties are included or at least have not been separately dealt with.
Notified List of Goods Taxable:
59. Another contention of the appellant is that the item falls under Entry 38 (19)(d) of the III Schedule to the KVAT Act. This contention stood rejected in SSD Oil Mills on the ground that none of the items covered by the sub- entry (19) has the same HSN Code for margarine provided in the customs tariff. In fact, it is clear from Entry 38(19) that all four items referred to there are covered under six digit HSN Code 1516.20. The other contention is that margarine referred to in Entry 64(8) of S.R.O.No.82/06 is only margarine made with one of the milk products as an ingredient. This contention too stood answered in SSD Oil Mills. The learned Division Bench has observed that none of the items covered by HSN Code 1517 of the Customs Tariff Act, which covers margarine, is included under Entry 38 of the III Schedule to the KVAT Act. It is, therefore, concluded that the Legislature never intended margarine to be covered along with oils under the III Schedule. On the other hand, margarine in all its forms is covered by Entry 64(8) of the III Schedule to the KVAT Act, which has the same HSN Code for margarine contained in the Customs Tariff Act. We are in respectful agreement with the learned Division Bench on that count. Exhibits P1 and P1(a):
60. In view of the above findings, which have been arrived at without reference to Exbibits P1 and P1(a), said to have been issued as being clarifications under Section 94 of the Act, we do feel that any discussion and consequential rendering of opinion have been obviated.
Conclusion:
In the result, the Writ Appeal is dismissed. No order as to costs.
Antony Dominic, Judge Dama Seshadri Naidu, Judge tkv