2012 (12) TMI 149 - SC - Central Excise

Classification of soft serve - Common Parlance Test - Whether classifiable under heading 21.05 (as claimed by the revenue) or under heading 04.04 or 2108.91 (as claimed by the assessee) of the Central Excise and Tariff Act, 1985 - held that - in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it. Resort to rigid interpretation in terms of scientific and technical meanings should be avoided in such circumstances. This, however, is by no means an absolute rule. When the legislature has expressed a contrary intention, such as by providing a statutory definition of the particular entry, word or item in specific, scientific or technical terms, then, interpretation ought to be in accordance with the scientific and technical meaning and not according to common parlance understanding. Tribunal erred in law in classifying soft-serve under tariff sub-heading 2108.91, as Edible preparations not elsewhere specified or included , not bearing a brand name . We hold that soft serve marketed by the assessee, during the relevant period, is to be classified under tariff sub-heading 2105.00 as ice-cream . Regarding alternate plea - assessee contended that in the event soft serve was classifiable under heading 21.05, the assessee was entitled to the benefit under Notification No. 16/2003-CE (NT) dated 12th March 2003. - held that - We are afraid we are unable to take this argument into account since such a plea was not urged before the Tribunal in the first place. Given that this is a statutory appeal under Section 35L of the Act, it is not open to either party, at this stage of the appeal, to raise a new ground which was never argued before the Tribunal. Even if we assume that this ground had been urged before the Tribunal, in our view, learned counsel s reliance on this notification is misplaced. Upon a reading of the notification it is clear that the exemption in the notification is granted for the whole of excise duty which was payable on such softy ice cream and non alcoholic beverages dispensed through vending machines, but was not being levied during the relevant period, which is not the case here. In the present case, as aforenoted, three show cause notices had been issued to the assessee alleging that soft serve was classifiable under heading 21.05 and attracted duty @ 16%. The show cause notices issued by the revenue also indicated that the assessee was liable to pay additional duty under Section 11A of the Act. - This clearly shows that the excise duty was payable by the assessee and was being levied by the revenue. - Decided against the assessee.

Summary

Issues Involved:
1. Classification of 'soft serve' under the Central Excise and Tariff Act, 1985.
2. Applicability of the common parlance test versus scientific/technical definitions for classification.
3. Eligibility for small scale exemption due to the use of the brand name "McDonalds".
4. Applicability of Notification No. 16/2003-CE (NT) dated 12th March 2003 for exemption.

Detailed Analysis:

1. Classification of 'Soft Serve':
The primary issue was whether 'soft serve' served at McDonald's outlets should be classified under heading 21.05 (as claimed by the revenue) or under heading 04.04 or 2108.91 (as claimed by the assessee) of the Central Excise and Tariff Act, 1985. The revenue argued that 'soft serve' is known as "ice-cream" in common parlance and should be classified under heading 21.05, which pertains to "Ice-cream and other edible ice, whether or not containing cocoa". The assessee contended that 'soft serve' is distinct from "ice-cream" due to its lower milk fat content and should be classified under heading 04.04 or 2108.91.

2. Applicability of the Common Parlance Test:
The Tribunal initially based its decision on the technical meaning and specifications of "ice-cream" stipulated in the Prevention of Food Adulteration Act, 1955 (PFA), rejecting the common parlance test. The Supreme Court, however, emphasized the importance of the common parlance test in the absence of statutory definitions. It was noted that terms in the Tariff Act should be construed according to their popular meaning unless the statutory context demands a scientific interpretation. The Court held that the common consumer perceives 'soft serve' as a type of "ice-cream" and thus should be classified under heading 21.05.

3. Eligibility for Small Scale Exemption:
The adjudicating authority, in its second and third show cause notices, concluded that 'soft serve' was classifiable under heading 21.05 and that the assessee was not entitled to small scale exemption due to the use of the brand name "McDonalds". This was upheld by the Supreme Court, which noted that the product is sold and consumed as "ice-cream" and thus falls under heading 21.05, making the assessee ineligible for the small scale exemption.

4. Applicability of Notification No. 16/2003-CE (NT):
The assessee argued that even if 'soft serve' was classified under heading 21.05, they were entitled to the benefit of Notification No. 16/2003-CE (NT) dated 12th March 2003, which exempted "softy ice-cream" dispensed through vending machines from excise duty during the period 1st March 1997 to 28th February 2001. The Supreme Court rejected this argument, noting that the plea was not raised before the Tribunal and that the notification did not apply as the excise duty was being levied by the revenue during the relevant period.

Conclusion:
The Supreme Court concluded that 'soft serve' should be classified as "ice-cream" under heading 21.05 of the Central Excise and Tariff Act, 1985. The Tribunal's decision to classify 'soft serve' under sub-heading 2108.91 was set aside. The appeals were allowed, and the assessee was not entitled to the small scale exemption or the benefit of Notification No. 16/2003-CE (NT). The Court emphasized the application of the common parlance test in the absence of statutory definitions and rejected the reliance on technical definitions from other statutes like the PFA.