IMPORTANT POINT
Soft serve is to be classified under heading 21.05 as ice cream.

JUDGMENT

D.K. Jain, J.-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 earli