The assessee has averred that ‘soft serve’ cannot be regarded as ice- cream since the former is marketed and sold around the world as ‘soft serve’. We do not see any merit in this averment. The manner in which a product may be marketed by a manufacturer, does not necessarily play a decisive role in affecting the commercial understanding of such a product. What matters is the way in which the consumer perceives the product at the end of the day notwithstanding marketing strategies.
Needless to say the common parlance test operates on the standard of an average reasonable person who is not expected to be aware of technical details relating to the goods. It is highly unlikely that such a person who walks into a “McDonalds” outlet with the intention of enjoying an “ice-cream”, ‘softy’ or ‘soft serve’, if at all these are to be construed as distinct products, in the first place, will be aware of intricate details such as the percentage of milk fat content, milk non-solid fats, stabilisers, emulsifiers or the manufacturing process, much less its technical distinction from “ice-cream”.
On the contrary, such a person would enter the outlet with the intention of simply having an “ice-cream” or a ‘softy ice-cream’, oblivious of its technical composition. The true character of a product cannot be veiled behind a charade of terminology which is used to market a product. In other words, mere semantics cannot change the nature of a product in terms of how it is perceived by persons in the market, when the issue at hand is one of excise classification.
Supreme Court of India
Commissioner of Central Excise, New Delhi
Vs.
M/s. Connaught Plaza Restaurant Pvt. Ltd., New Delhi
[Civil Appeal Nos. 5307-5308 of 2003]
D.K. JAIN, J.
1. The short question of law for consideration in these appeals, filed by the revenue, under Section 35L of the Central Excise Act, 1944 (for short “the Act”) is whether ‘soft serve’ served at the restaurants/outlets commonly and popularly known as McDonalds, is 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 (for short “the Tariff Act”).
2. During the relevant period, the respondent-assessee was engaged in the business of selling burgers, nuggets, shakes, soft-serve etc. through its fast food chain of restaurants, named above. In so far as the manufacture and service of ‘soft serve’ is concerned, the assessee used to procure soft serve mix in liquid form from one M/s Amrit Foods, Ghaziabad; at Amrit Foods, raw milk was pasteurised, skimmed milk powder was added (the milk fat content in the said mixture is stated to be 4.9%, not exceeding 6% at any stage); sweetening agent in the form of sugar or glucose syrup and permitted stabilizers were added; the mixture, in liquid form, was then homogenized, packed in polyethylene pouches and stored at 0 to 40C. This material was then transported to the outlets under the same temperature control, where the liquid mix was pumped into a ‘Taylor-make’ vending machine; further cooled along with the infusion of air, and finally, the end product, ‘soft serve’, was drawn through the nozzle into a wafer cone or in a plastic cup and served to the customers at the outlet.
3. For the periods from April 1997 to March 2000, three show cause notices came to be issued to the assessee. These alleged that the ‘soft serve’ ice-cream was classifiable under Chapter 21, relating to “Miscellaneous Edible Preparations” of the Tariff Act, attracting 16% duty under heading 21.05, sub-heading 2105.00 -“Ice-cream and other edible ice, whether or not containing cocoa”. Invoking the proviso to sub-section (1) of Section 11A of the Act, additional duty was also demanded. A proposal for imposing penalty on the assessee and on their Managing Director was also initiated.
4. While adjudicating on the first show cause notice, vide order dated 31st May, 2000, the adjudicating authority held that : ‘soft serve’ was classifiable under heading 04.04. Describing the goods as “other dairy produce; edible products of animal origin, not elsewhere specified or included”, it held that the process undertaken by the assessee amounted to manufacture and the extended period of limitation was not applicable. However, while adjudicating on the second show cause notice, vide order dated 28th September, 2001, the adjudicating authority concluded that: soft serve was classifiable under heading 21.05; the process undertaken by the assessee for conversion of soft serve mix to ‘soft serve’ amounted to manufacture and that the assessee was not entitled to small scale exemption because of use of the brand name “McDonalds”. While adjudicating on the third show cause notice, the adjudicating authority reiterated that : ‘soft serve’ was classifiable under heading 21.05; the process undertaken by the assessee for conversion of soft serve mix to ‘soft serve’ amounted to manufacture and small scale exemption was not available to the assessee because of use of the brand name “McDonalds”. In an appeal filed by the assessee, the Commissioner of Central Excise (Appeals) reversed the above finding and classified ‘soft serve’ under the sub-heading 2108.91.
5. Being aggrieved, cross appeals were filed, both by the revenue as also the assessee, before the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi, as it then existed, (for short “the Tribunal”). The appeals arising from the first two show cause notices were disposed of by the main order, dated 29th January, 2003. The appeal arising from the third show cause notice was disposed of by the Tribunal vide order dated 3rd August, 2004, following its earlier decision in order dated 29th January, 2003. The Tribunal came to the conclusion that the process undertaken by the assessee, namely, conversion of soft serve mix to ‘soft serve’ amounted to manufacture and that ‘soft serve’ was classifiable under sub-heading 2108.91, describing the goods as “Edible preparations, not elsewhere specified or included” – “not bearing a brand name”, attracting nil rate of duty.
The Tribunal held thus :- “In view of the technical literature, ISI Specification and provisions made in Prevention of Food Adulteration Act, 1955 and Rules made thereunder, the impugned product cannot be classified as ice-cream merely on the ground that the consumer understood the same as ice-cream or the ingredients of both the products are same. The statement given by the Managing Director also cannot be a basis for determining the exact classification of the product in the Central Excise Tariff.
The ratio of the decision in the case of Shree Baidyanath Ayurved Bhavan Limited case is not applicable to the facts of the present matter. The dispute in the said case was as to whether the ‘Dant Manjan Lal’ is Ayurvedic medicine or ‘Tooth Powder’. In that context, the Supreme Court observed that resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning, which does not mean that if a particular product is not ice-cream it can be classified as ice-cream because some consumers treated it as ice-cream. Accordingly, the product in question is not classifiable under Heading 21.05 of the Central Excise Tariff.
6. “6. It is manifest that the Tribunal based its conclusion on the technical meaning and specifications of the product “ice-cream”, stipulated in the Prevention of Food Adulteration Act, 1955 (for short “the PFA”) and rejected the common parlance test, viz. the consumers’ understanding of the product. Being aggrieved by the said approach, the revenue is before us in these appeals.
7. Mr. Arijit Prasad, learned counsel appearing for the revenue, submitted that the enquiries conducted by the revenue revealed that in common trade parlance, ‘soft serve’ is known as “ice-cream”; all the ingredients used and the process of manufacture adopted for preparation of ‘soft serve’ is essentially the same as is adopted for manufacture of an “ice-cream”; and therefore, manufacture of ‘soft serve’ cannot be said to be distinct from the manufacture of “ice-cream”. It was urged that the specifications for manufacture of “ice-cream” under the PFA are irrelevant in so far as the question of classification of goods under the Tariff Act is concerned.
It was asserted that the identity of ‘soft serve’ is associated with how the public at large identifies it, and not by the parameters or specifications indicated in other statutes including the PFA in relation to “ice-cream”. According to the learned counsel ‘soft serve ice-cream’, ‘soft ice-cream’ and ‘Softies’ are commonly taken as different kinds of “ice-cream”. Finally, it was submitted that since the product is sold from the outlets of “McDonalds”, the brand is in the customer’s mind when he/she enters the outlet and therefore, it cannot be covered under sub- heading 2108.91, as erroneously held by the Tribunal.
8. Mr. V. Lakshmi Kumaran, learned counsel appearing for the assessee, on the other hand, asserted that but for heading 21.05, “ice-cream” itself was a dairy product and would have been classified under heading 04.04. Therefore, ‘soft serve’ would also be classifiable under heading 04.04. It was argued that ‘soft serve’ cannot be referred to as “ice-cream” even by applying the common parlance test, in as much as ‘soft serve’ is sold throughout the world not as “ice-cream” but only as ‘soft serve’. “Ice- cream”, the world over, is commonly understood to have milk fat content around 10% whereas ‘soft serve’ does not contain milk fat of more than 5%.
9. Referring to the technical meaning of “ice-cream”, given in Kirk-Othmer Encyclopedia of Chemical Technology, Third Edition – Volume 15 and “Outlines of Dairy Technology” by Sukumar De, learned counsel vehemently submitted that all these books describe “ice-cream” as a dessert, which is frozen to a hard stage, whereas, soft serve dispensed through the Taylor machine is served in a semi-solid state, by processing the pre-mix by blowing air into it. ‘Soft serve’ is not as hard as an ice-cream is, and thus, cannot be called as “ice cream” even if tested on the touchstone of the common parlance test.
The main thrust of the submission of the learned counsel was that if the assessee markets ‘soft serve’ as “ice-cream”, they will be liable to prosecution under the PFA, because the milk fat content in ‘soft serve’ is less than 10%, a statutory requirement for manufacture of “ice-cream”. In support of the submission, learned counsel commended us to the decision of this Court in State of Maharashtra Vs. Baburao Ravaji Mharulkar & Ors.[1], wherein it was held that a person selling ice-cream with 5% milk fat content instead of minimum 10% milk fat, was selling adulterated ice-cream and was liable to prosecution. Reliance was also placed on the decision of this Court in Akbar Badrudin Giwani Vs. Collector of Customs, Bombay[2], to contend that in matters pertaining to classification of a commodity, technical and scientific meaning of the product is to prevail over the commercial parlance meaning.
10. Lastly, Mr. V. Lakshmi Kumaran urged that even if we were to hold that ‘soft serve’ is an “ice-cream”, under notification No.16/2003-CE (NT) dated 12th March, 2003, granting exemption to “softy ice-cream” dispensed through a vending machine, issued under Section 11C of the Act, the assessee will not be liable to pay any Excise duty in respect of “softy ice-cream” during the relevant period.
11. In short, the case of the assessee is that “soft serve” is a product distinct and separate 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 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 hence, 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.
12. Before we proceed to evaluate the rival stands, it would be necessary to notice the length and breadth of the relevant tariff entries that have been referred to by both the learned counsel.
