Parle Agro (P) Ltd. vs Commissioner Of Commercial Taxes, Trivandrum

Headnote:(A) Value Added Tax Act - Sections 6(1)(a), 6(1)(d), and 94 - Classification of goods - Interpretation of scientific terms in taxing statutes - Tax liability determination.

(B) Technical vs. Common Parlance Test - Where a word in a taxing statute has both a scientific/technical meaning and an ordinary meaning, the technical meaning must be adopted if the statutory context requires a departure from commercial nomenclature. For terms such as 'aerated', which are scientific in nature and used across various statutes, the technical meaning prevails over the common parlance test. (Paras 34-39)

(C) Principle of Noscitur a Sociis - The meaning of a word is judged by the company it keeps. A residuary entry intended to cover 'similar other products' must be interpreted in light of the other items grouped within that specific entry. If an entry groups fruit juices and health drinks, a fruit-based drink is more akin to those items than to products in a separate, high-tax category. (Paras 40-42)

(D) Power to issue clarification - Proceedings for classification clarification under the Act are distinct from individual assessment proceedings. A judgment in the assessment of one dealer does not preclude the clarification authority from examining the specific materials and technical evidence filed by another dealer. (Paras 43-44)

Facts of the case:
A dealer engaged in manufacturing a fruit juice based drink was paying tax at a lower rate. Tax authorities later proposed to reclassify the product as an 'aerated branded soft drink', increasing the tax rate from 12.5% to 20%. The dealer sought a clarification under the Act, providing technical certifications and opinions from food safety authorities stating that the product contained more than 10% fruit juice and that carbon dioxide was used solely as a preservative during thermal processing. The authorities and the High Court rejected this evidence, relying on the common parlance test and a prior judgment concerning a different dealer.

Findings of Court:
The product is a thermally processed fruit beverage containing over 10% fruit juice, meeting the requirements of the Food Safety and Standards Regulations. The use of carbon dioxide for preservation does not make it an 'aerated branded soft drink' in the scientific sense. The high tax slab under Section 6(1)(a) is reserved for products harmful to health and environment, whereas the product in question is a fruit-based health drink.

Issues: 1) Whether the common parlance test is the sole criterion for interpreting entries under the Act. 2) Whether the doctrine of noscitur a sociis applies to the residuary entry of fruit-based drinks. 3) Whether the clarification authority was bound by a previous assessment order of another dealer. 4) Whether technical evidence and food safety certifications are relevant for classification.

Ratio Decidendi: The court ruled that scientific terms must be interpreted technically rather than commercially. Under the doctrine of noscitur a sociis, the product's characteristics as a fruit-based drink naturally align it with the lower-tax category of non-alcoholic beverages and health drinks. Technical evidence regarding the manufacturing process and contents of the product outweighs the common parlance interpretation when the term used is scientific.

Result: Civil Appeals arising out of SLP(C)Nos.14697-14698 of 2016 are allowed, judgment of the Division Bench as well as order passed in the Review Application are set aside; it is declared that the product is required to be classified under Item No.5 of Entry 71. Civil Appeal arising out of SLP(C)No.9467 of 2016 is dismissed. Civil Appeals arising out of SLP(C)Nos.24460-61 of 2016 are disposed of.

Legal Category Hierarchy

1. Classification of 'Appy Fizz' as fruit juice based drink or aerated branded soft drink under Kerala Value Added Tax Act, 2003. (Para 5 , 6 , 7 , 8 , 9 )

2. Assessee claimed product is fruit juice based drink under Entry 71; Revenue argued it is aerated branded soft drink under Section 6(1)(a). (Para 11 , 12 , 13 , 14 , 15 )

3. Court held common parlance test not sole criterion; scientific and technical meaning relevant; principle of noscitur a sociis applied. (Para 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 )

4. Product 'Appy Fizz' falls under Item 5 of Entry 71 as similar other product, taxable at 12.5% (now 14.5%). (Para 63 )

5. Appeals allowed; classification under Entry 71 declared; Revenue's appeal dismissed; related appeals disposed of accordingly. (Para 64 , 65 , 66 , 67 )

6. What is the inter-relation between Section 6(1)(a) and Section 6(1)(d) of the KVAT Act?

Section 6(1)(d) empowers the State to notify goods only if they do not fall under Section 6(1)(a) or (c). (Para 27 , 28 , 29 )

7. What is the scope and ambit of Item 5 of Entry 71 as amended?

Item 5 is a residuary entry covering similar other products not specifically mentioned elsewhere; fruit juice based drinks are subsumed under it. (Para 30 , 31 , 42 )

8. Is the common parlance test the only test for interpreting taxing entries?

No; scientific and technical meaning can be applied when entries contain technical terms, and common parlance test is not exclusive. (Para 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 )

9. How does the principle of noscitur a sociis apply to Entry 71?

Item 5 of Entry 71 must take colour from other items in the entry; fruit juice based drink is similar to items like fruit juice and health drinks. (Para 40 , 41 , 42 )

10. Are expert opinions and food safety authority classifications relevant for VAT classification?

Yes; such materials are relevant to determine the nature and contents of the product and cannot be discarded without proper consideration. (Para 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 )

JUDGMENT :

Ashok Bhushan, J.

Leave granted.

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

3. Civil Appeals arising out of SLP(C) Nos. 14697-98 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. 14697-98 of 2016 and SLP(C) No.9467 of 2016 are between the same parties whereas Civil Appeals arising out of SLP(C) Nos.24460-61 of 2016 have been filed by different appellants.

Civil Appeals arising out of SLP(C) Nos. 14697-98 of 2016

5. 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. 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 2009-15 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.

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 t

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2017 Supreme(SC) 887

In taxing statutes, scientific terms must be interpreted based on technical meaning rather than common parlance. Additionally, the doctrine of noscitur a sociis requires that residuary entries be interpreted in light of associated goods in the same category.

Legal Category Hierarchy

Table of Contents

6. What is the inter-relation between Section 6(1)(a) and Section 6(1)(d) of the KVAT Act?

7. What is the scope and ambit of Item 5 of Entry 71 as amended?

8. Is the common parlance test the only test for interpreting taxing entries?

9. How does the principle of noscitur a sociis apply to Entry 71?

10. Are expert opinions and food safety authority classifications relevant for VAT classification?

Judicial Analysis

2017 Supreme(SC) 887

In taxing statutes, scientific terms must be interpreted based on technical meaning rather than common parlance. Additionally, the doctrine of noscitur a sociis requires that residuary entries be interpreted in light of associated goods in the same category.

Legal Category Hierarchy

Table of Contents

6. What is the inter-relation between Section 6(1)(a) and Section 6(1)(d) of the KVAT Act?

7. What is the scope and ambit of Item 5 of Entry 71 as amended?

8. Is the common parlance test the only test for interpreting taxing entries?

9. How does the principle of noscitur a sociis apply to Entry 71?

10. Are expert opinions and food safety authority classifications relevant for VAT classification?

Cases Referred (4)

Judicial Analysis