12.5% Vat payable on Appy Fizz a fruit juice based drinks in Kerala: SC

By CA Sandeep Kanoi Goods and Services Tax Judiciary May 20, 2017

TaxGuru Citation: 2017 taxguru.in 547
Case Name: M/S. Parle Agro (P) Ltd. Vs Commissioner of Commercial Taxes (Supreme Court of India)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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While referring to Section 6(1)(a) and Section 6(1)(d) we have already noticed that the power of the State Government to issue notification under Section 6(1)(d) arises “in the case of goods not falling under clause (a) or (c)”.After enactment of Act, 2003 Section 6(1)(a) from the very beginning included ‘aerated branded soft drink’. The inclusion of fruit juice based drinks in Entry 71 clearly proved that fruit juice based drinks were never treated to be included in ‘aerated branded soft drinks’. Had fruit juice based drinks were also included in ‘aerated branded soft drinks’, the State could not have exercised its power under Section 6(1)(d) to include such products in Entry 71. Whether after amendment of Entry 71 by S.R.O. No.119 of 2008 something which was earlier included in Entry 71 shall now stand transferred to Section 6(1)(a) is the question to be answered. Even though Entry 71 has been amended but there is no amendment in Entry 2 of Section 6(1)(a), so as to include something not included in Section 6(1)(a). By S.R.O. No.119 of 2008, residuary entry by Item No.5 is added which is “similar other products not specifically mentioned under any other entry in this list” which is potent enough to include fruit juice based drinks and it is clear that fruit juice based drinks are subsumed in Item No.5 of Entry 71 after its amendment. We 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%).

FULL TEXT OF THE SUPREME COURT JUDGMENT

Leave granted.

2. The issues raised in these appeals being interrelated have been heard together and the appeals are being disposed of by this common judgment.

3.Civil Appeals arising out of SLP(C) Nos. 1469798 of 2016 are 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 2016 and SLP(C) No.9467 of 2016 are between the same parties whereas Civil Appeals arising out of SLP(C) Nos.2446061 of 2016 have been filed by different appellants.

Civil Appeals arising out of SLP(C) Nos. 1469798 of 2016

5.The appellantM/s. Parle 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 Year 200915 proposing 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.

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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 of SLP(C)No.1469798 of 2016 have been filed against the aforesaid order 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 2016

8.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 been dismissed.

Civil Appeals arising out of SLP(C)Nos.2446061 of 2016

9.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 years 201011 to 201314 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% as precondition to 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. Civil Appeals arising out of SLP(C)Nos. 2446061 of 2016 have been filed against the aforesaid judgment and order of the Kerala High Court dated 14th July, 2016.

10. We have heard Shri K.K.Venugopal, learned senior counsel for the assessee.Shri Jaideep Gupta, learned senior counsel has appeared for the Revenue.

11. Shri K.K.Venugopal, learned senior counsel, submits that both High Court and Committee of Commissioners erred in not classifying the product of ‘Appy Fizz’under Entry 71 of S.R.O.No.119 of 2008. Classification of the product as ‘aerated branded soft drinks, excluding soda’under Section 6(1)(a) is not the correct classification. It is submitted that the Revenue itself till 2007 has classified the product under Entry 71 with tax liability of 12.5%. He submits that judgment of Division Bench of Kerala High Court in M/s.Trade Lines cannot be binding precedent since the said judgment was rendered in the revision proceedings in which appellant was not a party and the revision proceedings were confined to the assessment order on the basis of facts on the record of that case. Prior to 2007 the product was covered under Entry 71. When in 2008 Entry 71 was amended, there was no amendment to the schedule under Section 6(1)(a). He submits that had the intention of the legislation was to pick up the certain products earlier covered under Entry 71 and place them in Schedule under Section 6, then entry ‘aerated branded soft drinks, excluding soda’which earlier did not cover the said product, would also have been amended at the same time. He submits that if prior to 2007, ‘Appy Fizz’could not be considered as an ‘aerated branded soft drink’then there is no identifiable logic that the product would be so covered after 2007. Especially, there was no indication that the said product had been removed/ejected from Entry 71 after the amendment in 2007.

12. Further, he submits that common parlance test which has been applied by the High Court is not the correct test to determine the classification to include the product, as entries under the VAT Act are technical or scientific in nature. Soft drinks under Kerala VAT would be those drinks that are synthetic whether or not aerated. The product in question is not a synthetic product. It contains more than 10% fruit juice. It is fruit juice based drink and not covered by Section 6(1)(a). A fruit juice based drink is more akin to fruit juice than soft drink. Subclause (5) of Entry 71 covers similar other products not specifically mentioned under any other entry in this list or any other schedule. The product is fully covered under alone entry. He further submits that Food Safety Authorities have recognized the product as a ‘fruit drink’.

13. Shri Venugopal has placed reliance on the order dated 18.03.2008 of the Customs, Excise and Service Tax Appellate Tribunal where classification of the product was upheld as ‘fruit based drink’and the Revenue’s appeal was dismissed by this Court on 18th July, 2009. Shri Vanugopal further submits that neither the Committee of Commissioners nor the High Court has adverted to the technical evidence and certificate filed by the appellant along with proceedings under Section 94 of Act, 2003. The scientific evidence fully proved that products do 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 certifications fully proved the product as ‘Thermally processed fruit juice based drink’.

14. Learned counsel further submitted that products which are covered under Section 6(1)(a) are all those products which are dangerous to health. They have deliberately been included on higher tax slab of 20% and lower tax slab on the products under Entry 71 was with object to promote the products under Entry 71.

15. Shri Jaideep Gupta, learned senior counsel, appearing for the State of Kerala refuting the submissions of Shri K.K.Venugopal contends that High Court has rightly held that product is an ‘aerated branded soft drink’within the meaning of Section 6(1)(a). He submits that after deletion of Entry 71(4) by S.R.O.No.119 of 2008 which provided “Fruit pulp or fruit based drink”, it was clear indication of the legislation that the ‘fruit based drinks’are out of Entry 71 and have to be covered into ‘aerated branded soft drinks’under Section 6(1)(a).He submits that it is not disputed that ‘Appy Fizz’is a branded drink and further it is aerated by CO2, hence, it is aerated drink.He submits that amendment of Entry 71 by S.R.O.No.119 of 2008 made the legislative intent clear and the High Court has rightly relying on the said amendment has held that product is not covered under Entry 71 and is liable to tax @ 20% under Section 6(1)(a). Learned counsel for the respondent, further, submits that CESTAT ruling has no relevance with regard to the classification under Act, 2003, since, the CESTAT ruling considered the different headings under Central Excise Tariff Act, 1975 which is not relevant. Learned counsel submitted that under the Rules of interpretation as contained in the Act, 2003, the product being not covered with any of HSN number common parlance or commercial parlance test has rightly been applied by the High Court. Under the common parlance even if the product contained more than 10% fruit concentrate it is a soft drink as commonly known and tax liability @ 20% has rightly been imposed.

16. Learned counsel for the parties have placed reliance on various cases which shall be referred to while considering the submissions in detail.

17. We have considered the submissions made by the learned counsel for the parties and perused the records.

18. From the submissions of learned counsel for the parties and the pleadings of the parties following are the main issues which arise for consideration in these appeals:

(1) What is interrelation between Section 6(1) (a) and Section 6(1) (d) of Act, 2003?

(2) What is scope and ambit of Item 5 of Entry 71 as amended ?

(3) Whether common parlance test is the only test to be applied for understanding the different entries under Section 6(1)(a) and Section 6(1)(d)?

(4) Principle of Noscitur a Sociis.

(5) Whether the Division Bench of Kerala High Court in M/s. Trade Lines can preclude the Committee of Joint Commissioners to examine the materials filed by the appellant along with Clarification Application under Section 94.

(6) Whether CESTAT decision dated 18.03 .2008 has any relevance with regard to the classification of product in question ?

(7) Whether decision and opinion of Food Safety Authorities on the product in question were relevant ?

(8) Whether the Committee of Joint Commissioners as well as the High Court has rightly discarded technical and expert opinion relied by the appellant ?

(9) Conclusions.

19. Before we proceed to consider the submissions of the learned counsel for the parties, it is necessary to look into the statutory scheme and the relevant entries prior to amendment by S.R.O.No.119 of 2008.Section 6 of the Kerala Value Added Act, 2003 provides for levy of tax on sale or purchase of goods.Section 6(1)(a) which is relevant for the present case as existed before 1st April, 2007, was as follows:

“6(1)(a) in the case of goods specified in the [Second, and Third Schedules] at the rates specified therein and at all points of sale of such goods within the State (and in the case of goods specified below at the rate of twenty percent, at all points of sale of such goods within the State, namely:-