M/S. Parle Agro (P) Ltd V/S Commissioner of Commercial Taxes, Trivandrum

Common Parlance Test must be avoided in the face of requirements of scientific definitions.

Case name:	M/S. Parle Agro (P) Ltd V/S Commissioner of Commercial Taxes, Trivandrum
Case number:	CIVIL APPEAL NOS. 6468-6469 OF 2017
Court:	Supreme Court of India
Bench:	Hon’ble Justice A.K  Sikri Hon’ble Justice Ashok Bhushan
Decided on:	09.05.2017
Relevant Act/Sections:	Kerala Value Added Tax Act, 2003. Sec 6(1)(a), section 94, entry 71

• BRIEF FACTS AND PROCEDURAL HISTORY:
• The appellant M/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.
• On 4^th 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 notice’s 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 which the learned single judge directed vide its order dated 31.08.2015.
• A writ petition filed by the Joint commissioners against the same by dismissed by the division bench vide order dated 05.10.2015 following which clarification was released by the Joint Commissioner Committee on 6^th November, 2015 classifying the drink as aerated branded soft drink 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 was dismissed on 23rd March, 2016.
• Civil Appeals arising out of SLP(C) No.14697-98 of 2016 were filed against the aforesaid order dated 5th February, 2016 and the review order dated 23rd March, 2016 by the appellant.

• ISSUE BEFORE THE COURT:
• What is interrelation between Section 6(1)(a) and Section 6(1)(d) of Act, 2003?
• What is scope and ambit of Item 5 of Entry 71 as amended?
• 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)?
• Whether the Principle of Noscitur a Sociis would apply?
• 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.
• Whether CESTAT decision dated 18.03.2008 has any relevance with regard to the classification of product in question?
• Whether decision and opinion of Food Safety Authorities on the product in question were relevant?
• Whether the Committee of Joint Commissioners as well as the High Court has rightly discarded technical and expert opinion relied by the appellant?

• RATIO OF THE COURT
• While referring to Section 6(1)(a) and Section 6(1)(d) the court 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.
• By S.R.O. No.119 of 2008, residuary entry by Item No.5 was 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 became clear that fruit juice based drinks are subsumed in Item No.5 of Entry 71 after its amendment.
• 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, coca cola etc.
• This court observed that the high court had not taken into account the fact that the Rules of Interpretation of Schedules did not cover the commodities where the HSN codes did not apply.
• The court held that if the lawmakers had intended to cover the items under 6(1)(a), the rules must have been made applicable for them. Since, that was not the case common parlance test between the items of sec 6(1)(a) and Entry 71 could not be applied. The court relied upon, Porritts & Spencer (Asia) Ltd. vs. State of Haryana, 1979(1) SCC 82 and Collector of Akbar Badruddin Jiwani vs. Collector of Customs, 1990(47)ELT 161 to emphasize the same.
• The court also observed that the High Court had failed to take into account the scientific definitions while defining aerated branded drinks. Common Parlance test could not be applied this way.
• Addressing whether the principle of Noscitur a Sociis should be applied, the court observed that Appy Fizz which is a fruit-based drink is more akin to the ‘other items’ included in Entry 71.
• This Court in Pardeep Aggarbatti Vs. State of Punjab, 1997 (96) E.L.T. 219(S.C.), considering Entry 16 of Schedule A of Punjab General Sales Tax Act, 1948, in paragraph 9 has laid down following:

“9. Entries in the Schedules of Sales tax and Excise statutes list some articles separately and some articles are grouped together. When they are grouped together, each word in the Entry draws colour from the other words therein. This is the principle of noscitur a sociis.”

1. Hence, it became clear that clause 5 of Entry 71 would take color from ‘other commodities’ included in entry 71 and the fruit juice-based drink would have to include within the meaning of clause 5.
2. 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.
3. 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.
4. In view of the aforesaid discussion, the court opined that the appellant had 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%).

• DECISION HELD BY COURT:

The court held that the High Court had erred in its decision and the appeal was allowed.