Gauhati High Court
WP(C)/5341/2022 on 4 March, 2025
Author: Soumitra Saikia
Bench: Soumitra Saikia
GAHC010162962022
IN THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH)
PRINCIPAL SEAT
W.P(C) NO. 5347/2022
X'SS BEVERAGE CO.,
Dag No.127, Mouza -
Panbari, Patta No. 12,
Chandrapur Road,
Khankar Gaon, District
- Kamrup (Metro),
Assam, PIN - 781026
and represented by its
Managing Partner Shri
Nitesh Bharech.
........Petitioner
-Versus-
1. The State of Assam,
Represented by the Secretary to the
Government of Assam, Finance &
Taxation Department, Assam
Secretariat, Dispur, Guwahati-781006.
2. The Commissioner of State Taxes,
Assam,
Kar Bhawan, Dispur, Guwahati -
781006.
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3. The Joint Commissioner of State Tax,
Guwahati Zone - A, Assam, Kar
Bhawan, Dispur, Guwahati - 781006.
........RESPONDENTS
W.P(C) NO. 5340/2022
X’SS BEVERAGE CO.,
Dag No.127, Mouza –
Panbari, Patta No. 12,
Chandrapur Road,
Khankar Gaon, District
- Kamrup (Metro),
Assam, PIN - 781026
and represented by its
Managing Partner Shri
Nitesh Bharech.
........Petitioner
-Versus-
1. The State of Assam,
Represented by the Secretary to the
Government of Assam, Finance &
Taxation Department, Assam
Secretariat, Dispur, Guwahati-781006.
2. The Commissioner of State Taxes,
Assam,
Kar Bhawan, Dispur, Guwahati –
781006.
3. The Joint Commissioner of State
Tax,
Guwahati Zone – A, Assam, Kar
Bhawan, Dispur, Guwahati – 781006.
……..RESPONDENTS
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W.P(C) NO. 5341/2022
X’SS BEVERAGE CO.,
Dag No.127, Mouza –
Panbari, Patta No. 12,
Chandrapur Road,
Khankar Gaon, District
- Kamrup (Metro),
Assam, PIN - 781026
and represented by its
Managing Partner Shri
Nitesh Bharech.
........Petitioner
-Versus-
1. The State of Assam,
Represented by the Secretary to the
Government of Assam, Finance &
Taxation Department, Assam
Secretariat, Dispur, Guwahati-781006.
2. The Commissioner of State Taxes,
Assam,
Kar Bhawan, Dispur, Guwahati –
781006.
3. The Joint Commissioner of State
Tax,
Guwahati Zone – A, Assam, Kar
Bhawan, Dispur, Guwahati – 781006.
……..RESPONDENTS
W.P(C) NO. 5342/2022
X’SS BEVERAGE CO.,
Dag No.127, Mouza –
Panbari, Patta No. 12,
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Chandrapur Road,
Khankar Gaon, District
- Kamrup (Metro),
Assam, PIN - 781026
and represented by its
Managing Partner Shri
Nitesh Bharech.
........Petitioner
-Versus-
1. The State of Assam,
Represented by the Secretary to the
Government of Assam, Finance &
Taxation Department, Assam
Secretariat, Dispur, Guwahati-781006.
2. The Commissioner of State Taxes,
Assam,
Kar Bhawan, Dispur, Guwahati –
781006.
3. The Joint Commissioner of State
Tax,
Guwahati Zone – A, Assam, Kar
Bhawan, Dispur, Guwahati – 781006.
……..Respondents
W.P(C) NO. 5346/2022
X’SS BEVERAGE CO.,
Dag No.127, Mouza –
Panbari, Patta No. 12,
Chandrapur Road,
Khankar Gaon, District
- Kamrup (Metro),
Assam, PIN - 781026
and represented by its
Managing Partner Shri
Nitesh Bharech.
4|P a g e
........Petitioner
-Versus-
1. The State of Assam,
Represented by the Secretary to the
Government of Assam, Finance &
Taxation Department, Assam
Secretariat, Dispur, Guwahati-781006.
2. The Commissioner of State Taxes,
Assam,
Kar Bhawan, Dispur, Guwahati –
781006.
3. The Joint Commissioner of State
Tax,
Guwahati Zone – A, Assam, Kar
Bhawan, Dispur, Guwahati – 781006.
……..RESPONDENTS
-BEFORE-
HON’BLE MR. JUSTICE SOUMITRA SAIKIA
Advocate for the petitioners : Mr. A. Saraf, Sr. Counsel assisted by
Mr. P.K. Bora.
Advocate for the respondents : Mr. B. Gogoi, SC, Finance &
. Taxation.
Date of hearing : 30.08.2024, 12.09.2024,
30.09.2024, 19.11.2024,
28.11.2024
Date of Judgment & Order : 04.03.2025
JUDGMENT AND ORDER(CAV)
These writ petitions are filed by the petitioners
unit assailing the Show Cause Notice dated
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17.02.2022 and impugned order dated 14.07.2022
passed by the Joint Commissioner of State Tax,
classifying the products manufactured by the writ
petitioners under Customs Tariff Head 2202 10 90
rejecting the claims of the petitioners that the
products are to be classified under Customs Tariff
Head 2202 99 20. Since separate proceedings were
initiated and orders passed for different financial
years, the same are being assailed by separate writ
petitions. Since the issues raised in all these writ
petitions are same, these writ petitions are taken up
together for hearing and disposal.
2. The petitioner is in the business of
manufacture and sale of carbonated fruit drinks and
ready to serve fruit drinks. The petitioner is a
partnership firm and is represented in the present
proceedings by the Managing partner. It
manufactures and sells as many as 10 different
products which are described as under:
Product 1 – XSS Orange Product 6 – Thirst Cola
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Product 2 – Thirst clear lemon Product 7 – Thirst OrangeProduct 3 – XSS Cola Product 8 – XSS Clear Lemon
Product 4 – XSS Nimboo Product 9 – Thirst Nimboo Paani
PaaniProduct 5 – Thirst Mango Produce 10- XSS Mango Drink
3. According to the contentions of the writ petitioner,
these products are classifiable under Tariff Item 2202 99
20 of the Customs Tariff Act, 1975 and are specified as
serial No.48 under Schedule-II as “fruit pulp or fruit juice
based drinks” in notification No.1 of 2017 – Integrated Tax
(Rate) dated 28.06.2017 and are taxable at the rate of
12%.
4. According to the petitioner, carbonated beverages
with fruit drinks should not have less than 10% fruit juice
(5% in case of lime or lemon) and total soluble solids not
less than 10% as per Regulation 2.3.30 of Food Safety and
Standards (Food Products Standards and Food Additives)
Regulation, 2011. According to the petitioner, these
carbonated fruit drinks qualify as fruit beverages or fruit
drinks. It is the case of the petitioner that the products
manufactured by the petitioner are regularly tested at the
State Public Health Laboratory, Government of Assam
where sample products are sent for testing. From the
report of analysis of food sample, it is clear that goods
supplied by the petitioner comprises of fruit juice content
more than 10% solids, sugar (sucrose) acidity regulators
and synthetic food colors and it confirms to the
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specifications stipulated in Regulation 2.3.30 of FSSAI for
carbonated beverage with fruit juice. That apart, all
particulars including the details of the fruit concentrate are
described on the label of the respective products.
5. On the basis of the classification adopted by the
petitioner, it filed the GST returns regularly upon payment
of appropriate taxes at the rate of 12%. The classifications
of the products were duly described in the invoices raised
and the returns filed by the petitioner.
6. In the month of September, 2021, the department
initiated an investigation in respect of the classification
adopted by the petitioner in respect of the goods
manufactured and sold by the petitioner. On the
03.09.2021 inspection was undertaken by a team of
Officers of the State Tax, Zone-A, Guwahati at the place of
business of the petitioner. Such inspection was undertaken
by invoking powers under Section 67 of the Assam Goods
and Service Act, 2017. During such investigations, several
documents including sales registers, purchase registers,
purchase files, loose slips files, long registers, sales bills
files, loose slips folders, miscellaneous files were all seized.
That part, the CPU-cum-monitor, pen drives, mobile phone
and CCTV DVR were seized. The department served on the
petitioner the seizure list in form of GST INS-02. During the
search and seizure operation, sample products from the
petitioner’s units were also taken away by the department
purportedly for analysis in the laboratory. However, no
such test reports were ever furnished to the petitioner.
Pursuant to the search and seizure conducted by the
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respondent authorities, impugned order dated 14.07.2022
was issued to the petitioner alleging that the department
was of the view that the goods manufactured and supplied
by the petitioner contains carbonated water as an
ingredient and as such these items were classifiable under
Tariff Sub-Heading 2202 10 90 and it attracts GST at the
rate of 28% and compensation cess at the rate of 12%. In
the said impugned order it was stated that from the label
available on the goods manufactured and sold by the
petitioner and that it transpires that carbonated water “was
an essential ingredient in the manufacture of these goods”
and from the report of the analysis of food samples
conducted by the State Public Health Laboratory, it appears
that carbonated water was used in thirst clear lemon, thirst
Orange and thirst Cola. The impugned order also contained
the minimum and maximum consumption of apple
concentrate, lemon concentrate, orange juice concentrate,
mango pulp (neelam) and mango concentrate as per the
data extracted from the Tally Accounting System
maintained by the petitioner.
7. By the said order, the petitioner was asked to explain
the reasons for the mismatch between the declaration
made in the label as compared to the actual products as
significant difference in consumption of concentrates in
manufacturing the products was noticed by the
Department. It was further stated in the said order that
since the products manufactured and sold by the petitioner
contains carbonated water along with added sugar or
sweetening matter or flavor, the goods are to be covered
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under HSN 2202 10 90 and are liable to be taxed at 28%
GST along with cess at the rate of 12%. The department
concluded that the petitioner had misclassified the product
with the intent to minimize tax and which consequently led
to short payment of tax and thereby had committed
offense under section 122 of the Assam GST Act, 2017.
The department therefore, had proceeded to adjudicate
the issue under Section 74 of the Assam GST Act and a
further interest under Section 50(1) of the Assam GST Act
is levied.
8. Based on the conclusions arrived at by the
department, the show cause notice dated 17.02.2022
under section 74 was issued, whereby the petitioner was
directed to show cause along with supporting documents
as evidence in support of its claim. The petitioner was
asked to show cause as to why the petitioner should not be
liable to pay interest and penalty in accordance with the
provisions of the Act. It was also mentioned in the show
notice that if the petitioner makes payment of tax stated in
the notice along with interest and penalty at the rate of
25% of tax within 30 days of communication of notice,
then proceedings shall be deemed to have been concluded.
The show cause notice was accompanied by a summary of
the demand in form GST DRC-01 which was issued by the
respondent No.3.
9. In response to the show notice dated 17.02.2022
issued to the petitioner, the petitioner submitted its show
cause reply dated 18.03.2022. In its reply the petitioner
stated that the products in question were fruit juice based10 | P a g e
drink and are therefore classifiable under Tariff 2202 99 20
of Schedule II of the IGST Notification. The petitioner
stated that fruit pulp or fruit based drinks falling under the
said tariff heading essentially means a drink based on fruit
pulp or fruit juice (with or without additional flavors and
sweeteners), where fruit pulp/fruit juice gives overall
essential character to the drink. In support of its
contention, the petitioner relied upon the judgment of the
Tribunal’s decision rendered in the case of CCE
Bhopal vs. Parley Agro Pvt. Ltd. as well as the decision of
the Apex Court rendered in Parley Agro (P.) Ltd. Vs.
Commissioner of Commercial Taxes, Trivandrum. It was
submitted that the judgments rendered in these cases
squarely cover the case projected by the petitioner and are
applicable to the factual matrix and therefore the subject
drinks are liable to be classified as fruit juice based drinks
as had been done by the petitioner. Pursuant to the reply
submitted a personal hearing was granted to the petitioner
where the petitioner reiterated its submissions made in the
reply. It was also brought to the notice of the respondent
authorities that by notification issued by the Government of
India, Ministry of Finance, Department of Revenue being
Notification No.8 of 2021 – Central Tax (Rate) dated
30.09.2021 whereby a new entry was inserted as serial
12A in Schedule-IV making carbonated beverages of fruit
drinks or carbonated drinks with fruit juice to be taxable at
the rate of 14%. The said notification was brought in force
from 01.10.2021. It was also submitted that by Notification
No.1 of 2021 – Compensation Cess (Rate) dated11 | P a g e
30.09.2021 issued by the Government of India, Ministry of
Finance, Department of Revenue, in the schedule to the
Goods and Services Tax (Compensation to States) Act,
2017, a new entry namely Entry 4B was inserted levying
12% cess on carbonated beverages of fruit drinks or
carbonated beverages with fruit juice and the same was
made effective from 01.10.2021. It was submitted that in
view of these notifications the show cause issued proposing
to levy GST and cess on the said items at the rate of 14%
GST and 10% cess prior to 01.10.2021 is illegal and the
proceedings are liable to be dropped. The Joint
Commissioner of Taxes by order dated 14.07.2022,
however rejected the submissions of the petitioner and
imposed tax interest and penalty classifying the item to be
under HNS 2202 10 90 under the Custom Tariff Act. As it
was held that water with added carbon-dioxide
(carbonated water) containing added sugar or rather
sweetening matter or flavored are separately classified
under the HNS Code 2202 10. Being aggrieved the present
writ petition has been filed.
10. It is submitted that the learned Senior Counsel
submits that the products in question manufactured by the
petitioner are “fruit juice based drink” classifiable under
tariff item 2202 99 90 of Schedule II of the CGST, IGST
rate notification.
11. The Tariff Item 2202 contains two parts, one is 2202
10 which is meant for waters including mineral waters and
aerated waters containing added sugar or other
sweetening matter or flavors. Whereas 2202 99 is for items12 | P a g e
other than those classifiable under 2202 10. Therefore, the
products manufactured by the petitioner are correctly
classifiable under Item 2202 99 20 which is for fruit pulp or
fruit juice based drinks. It is therefore, submitted that
Tariff Sub-Heading No.2202 10 covers drinks which are
predominantly made up of water, including mineral water
and aerated water, and are either sweetened or flavored or
both. Likewise, 2202 99 is for items other than those falling
under 2202 10 and under Sub-Heading 2202 99 20 covers
fruit pulp or fruit based drinks. It is submitted that a mere
perusal of the nomenclature of Tariff Item No.2202 99 10
up to 2202 99 30 will reveal that is covers drinks which are
identified by the dominant ingredient present therein like
soya milk, fruit pulp, fruit juice, milk etc. These drinks
would be characterized by the strong presence of such
ingredients, rather than only as flavoring agent. It is
submitted that the expression “fruit pulp or fruit juice
based drinks” falling under 2202 99 20 essentially means a
drink based on fruit pulp or fruit juice (with or without
additional flavors or sweeteners). It is further submitted
that the products in question in present factual matrix of
Petitioner, are prepared with base such as apple concentrate,
lemon concentrate, orange concentrate, as its base, which
will be added to the syrupy liquid consisting of water, sugar
and other constituents. For instance, in the product XSS Cola,
percentage of apple juice constitutes 5% of the total
beverage. Similarly, in case of Thirst Cola, percentage of
apple juice constitutes 10% of total beverage. This is also
evident from the sample labels. Thus, apple juice is the active13 | P a g e
ingredient of the products in question, and imparts the basic
attribute to the drink, including its taste and characteristics.
However, carbonated water is added as a filler as well as
preservative and the other substances are either flavours or
regulators or preservatives etc. These products do not impart
essential characteristic to the product. Similar is the situation
in the other variants of the fruit drinks being sold by the
Petitioner as well, wherein the fruit juice content is at least
5% in case of lemon and varies from 5% to 12% in case of
other fruits. Therefore, the products in question are ‘fruit
juice-based drink’, classifiable under the Tariff Item No. 2202
99 20.
12. The learned Senior Counsel refers to meanings
ascribed in dictionaries and other authorities in support of
the contentions raised. In support of the above
interpretation, reliance is also placed upon D. Hicks (ed.),
Production and Packaging of Non-carbonated Fruit
Juices and Fruit Beverages, 1990, Van Nostrand
Reinhold, New York, wherein it is stated that the most
significant feature of a fruit beverage is not its fruit content
but the function for which it is designed and marketed. The
fruit is often a dominant ingredient providing its overall
character to the drink which cannot be achieved in any other
way.
13. In support of the above contention, the Petitioner also
relies upon the US Customs Ruling No. N122815 in the
matter of Ms. Michele Peplinski Parker’s Organic Fruit
Juice, which deals with the issue regarding the classification14 | P a g e
of certain beverages containing concentrates of fruit juices as
well as other ingredients. The ruling entailed classification of
four such products, which could be summarised in the
following table:
Sl. Product Name Ingredients Classification
1. Parkers Organic 50 percent organic 2202.90.9090
Sparkling Apple apple, 5 percent
with a Twist of organic grape and (Others)
Lime organic lime juices
from concentrate.
Carbonated water
has been added to
bring the final Brix
value of this product
to a Brix of 13.
2. Parkers Organic 9 percent grape juice 2202.90.0040
Sparkling Pink concentrate, 7
Lemonade percent apple juice
concentrate, 1
percent lemon juice
concentrate, 0.5
percent strawberry
juice concentrate
and 83 percent
water.
3. Parkers Organic Carbonated water, 2202.10.0040
Ginger Beer organic cane sugar, (Carbonated
and Australian Soft drink-
organic ginger. others)
4. Parkers Organic Carbonated water, 2202.10.0040
Lemonade organic cane sugar (Carbonated
organic lemon juice Soft drink-
and natural flavour others)
15 | P a g e
14. It is contended that the aforesaid clearly points to the
fact that a beverage could be a fruit juice – based drink (e.g.
SI. 1 & 2 above) or it could be flavoured water (e.g. Sl No. 3
& 4 above). The classification, however, is determined by the
nature of the beverage, particularly the presence of the fruit
juice to an extent that it attributes the essential character to
the beverage, not merely as a flavouring agent. It is the
dominant nature of the product which determines the
classification under the Sub-heading No. 2202 10 or 2202 99.
15. It is submitted that the distinction drawn above
between fruit pulp or fruit juice based drinks’ and mere
‘flavoured beverages’ is evident from the scheme of Chapter
Heading 2202. If this distinction is ignored, it would render
the specific Tariff Item No. 2202 99 20 redundant and otiose.
Although Sub-heading 2202 99 is provided as a residuary
entry, it has to be examined in the broader scheme of
heading 2202. If Tariff Item 2202 10 90 is treated to include
an apple juice-based drink, orange juice-based drink or
lemon juice based drink, it would mean that any fruit juice-
based drink would be susceptible to classification under Tariff
Item No. 2202 10 90, as being flavoured water, irrespective
of the composition, nature and common understanding of the
market regarding the nature of the product. This is so
because in a broader sense, juice or essence is a flavouring
agent, and any beverage based on fruit juice would be
classifiable as flavoured water. However, this is evidently not
the intention of the scheme of classification under Chapter
Heading No. 2202 of the Customs Tariff Act, 1975, which
16 | P a g e
provides a separate entry for classification of fruit juice-based
drinks.
16. Further, it is submitted that upon a closer examination
of the Chapter Heading No. 2202, it can be seen that Tariff
Item 2202 99 20 covers ‘Fruit pulp or fruit juice based drinks’
within its ambit whereas, Tariff Item 2202 99 30 covers
‘Beverages containing milk’. Therefore, it is evident that the
intention of the Legislature is to include those beverages
under Tariff Item 2202 99 20, wherein the fruit imparts the
essential character of the beverage. Unlike, Tariff Item 2202
99 30 which used the word ‘containing’ instead of ‘based,
which would mean that beverages with any quantity of milk
would be covered under Tariff Item No. 2202 99 30.
17. The learned Senior Counsel for the petitioner further
submits that the Tariff Item 2202 90 20 under the
Erstwhile Central Excise Tariff Act, 1985 is pari materia to
the tariff scheme under the Customs Tariff Act, 1975. In
support of his contentions he has placed reliance on the
following decisions
1. Commissioner of C.Ex., Bhopal v. Parle Agro
Pvt. Ltd., (2008) ELT 194.
2. Parle Agro (P) Ltd. v. Commissioner of
Commercial Taxes, Trivandrum (2017) 7 SCC
540.
3. Commissioner of Customs (Prev.) Vs. Anutham
Exim Pvt. Ltd., 2021 SCC Online CESTAT 5727.
4. Godrej Foods Ltd. v. CCE, Indore (2000) 121
ELT 231.
17 | P a g e
5. Hamdard (Wakf) Laboratories Vs. Collector of
Central Excise, Meerut (1999) 6 SCC 617.
6. Katrala Products Ltd. v. CCE, Meerut, (1999)
113 ELT 981 SCC.
7. Brindavan Beverages Pvt. Ltd. v. Commr. Of
Cus., CX & ST 2019 SCC Online CESTAT 9229.
8. Union of India v. Kamlakshi Finance
Corporation Limited 1992 Supp (1) SCC 443.
9. Viacom 18 Media Pvt. Ltd. v. State of
Maharashtra (2018) SCC Online Bom 18633.
10. Industrial Mineral Company (IMC) v.
Commissioner of Customs, Tuticorin 2018 SCC
Online Mad 13636.
11. Hindustan Poles Corporation v. CCE,
Calcutta, (2006) 4 SCC 85.
12. Commissioner of Cus., Chennai v.
Associated Cement Companies Ltd., (2001) 133
ELT 400.
13. CCE, Bhubaneswar-I v. Champdany
Industries Ltd. (2009) 9 SCC 466.
14. CCE V Connaught Plaza Restaurant (P)
Ltd. (2013) 18 GSTR 1 SC.
15. Delhi Cloth & General Mills Co. Ltd. V.
State of Rajasthan (1980) 4 SCC 71.
16. HPL Chemicals Ltd. v. Commissioner of
Central Excise, Chandigarh (2006) 5 SCC 208.
17. Hindustan Ferodo Ltd. v. CCE, Bombay
(1997) 2 SCC 677.
18 | P a g e
18. Colgate Palmolive (India) Ltd. v. UOI
1980 SCC Online Bom 384.
19. CCE V. Chemphar Drugs & Liniments,
Hyderabad (1989) 2 SCC 127.
20. Anand Nishikawa Co. Ltd. v.
Commissioner of Central Excise, Meerut (2005)
7 SCC 749.
21. Hindustan Steel Ltd. v. State of Orissa
(1962) 2 SCC 627.
22. CCE Vs. H.M.M. LIMITED 1995 Supp (3)
SCC 322.
23. CCE, Aurangabad v. Balakrishna
Industries, Civil Appeal No. 3389-3390 of 2001,
SC.
24. Goyal Tobacco Co Pvt. Ltd. v. CCE & ST,
Jaipur-1, 2015 SCC Online CESTAT 979.
25. Commissioner of Central Excise,
Bangalore Vs. Mysore Electricals Industries Ltd.
(2006) 12 SCC 448.
18. It is submitted by the learned Senior Counsel for the
petitioner that the impugned decision of the respondent
authority is violative of judicial discipline. It is submitted
that where the Tribunal had already decided the similar
issue in favor of the SSE and the said decision was relied
upon by the petitioner before the respondent authority, the
said authority could not have ignored the said decision and
proceeded to render the impugned order ignoring the
findings rendered by Tribunal. There is no dispute that the
19 | P a g e
adjudicatory authority in the present proceedings is
subordinate to the Tribunal and therefore an order of the
Tribunal is binding on the subordinate adjudicatory
authority like the present respondents and therefore the
respondent adjudicatory authority was duty bound to
accept the findings of the Tribunal and could not have
rendered the impugned order contrary to the findings
arrived at by the Tribunal. He places reliance on the
judgment of the Tribunal rendered in CCE, Bhopal vs Parle
Agro Pvt. Ltd. reported in 2008 (226) ELT 194 (TRI).
Referring to the said matter, it is submitted that the issue
involved therein was regarding classification of the product
APPY FIZZ, in that matter the Revenue wanted to classify it
under Tariff Item 2202 10 10 because it was aerated. The
Revenue had classified the item under Tariff Head 2202 90
20 as it is a juice based drink because the product
contained 23% apple juice. The assessee relied upon the
Prevention of Food Adulteration Rules, 1955 to submit that
fruit beverage or fruit drink must contain soluble solids not
less than 10% whereas their product contains 13.7%
soluble solids. Rejecting the contention of the Revenue, the
Tribunal held that the product was classifiable under Tariff
Head 2202 90 20. The said decision of the Tribunal was
subsequently affirmed by the Apex Court by dismissing the
appeal filed by the Revenue which is reported in 2010
(254) ELT A13 (SC). He has also referred to the judgments
rendered in Parle Agro (P) Ltd. vs Commissioner of
Commercial Taxes, Trivandrum, reported in 2017 7 SCC
740 to submit that this judgment is squarely applicable to
20 | P a g e
the present proceedings for the reason that the Apex Court
held in that matter that APPY FIZZ containing more than
10% fruit juice (mainly 12.7%) was a fruit juice based
drink in terms of the provisions of Kerala VAT Act, 2003.
Similarly, he has referred to the judgment of Parle Agro
(P.) Ltd. Vs. Commissioner of Commercial Taxes
Trivandrum, reported in 2017 7 SCC 540, where the Apex
Court held on the facts of the case that the food based
drinks were always covered under section 6(1)(a) of the
Kerala Value Added Tax Act, 2003 and therefore the claim
of the State Government that they were included in a
subsequent notification issued under section 6(1)(d) was
rejected. The Apex Court held that fruit based drinks were
always covered under section 6(1)(a) and were never
treated as “aerated branded soft drinks” as was sought to
be done by the State while issuing notifications under
section 6(1)(d). In support of his contentions he has
further referred to the following judgments Godrej Foods
Ltd. vs. CCE Indore reported in 2000 (121) ELT 231 (TRI)
and Hamdard (Wakf) Laboratories vs. Collector of Central
Excise, Meerut reported in 1999 6 SCC 617, Katrala
Products Ltd. V. CCE, Meerut reported in (1999) SCC
Online SC 701. It is submitted that any orders passed by
higher authorities are required to be rigorously followed
until and unless such order is stayed or set aside. It is
submitted that the Tribunal in Parle Foods Pvt. Ltd. had
rendered a finding rejecting the similar stand of the
Revenue in favor of the SSE. This judgment ultimately
came to be upheld by the Apex Court by dismissing the
21 | P a g e
appeal filed by the Revenue Department. This aspect was
urged before the adjudicating authority at the time of
hearing. However, the respondent No.3, who was the
adjudicating authority in the present proceedings refused
to accept the findings which was patently binding on the
same authority. He submits that the Revenue Authorities
are bound by the orders and decisions of the appellate
authorities, including that of the Tribunal. In support of his
contentions, he has relied on the following judgments:
Kamalakshi Finance Corporation Limited reported in 1991
(55) ELT 433 (SC), Viacom18 Media Pvt. Ltd. V. State of
Maharashtra reported in 2019 (22) GSTL 338 (Bom),
Industrial Mineral Company vs. Commissioner of Customs
Tuticorin reported in 2018 (18) GSTL 396 (Mad).
19. Relying on these judgments, the learned Senior
Counsel submits that the impugned show cause notice and
the order passed by the respondent No.3 is completely
contrary to the judicial pronouncements of the learned
Tribunal as well as of the Apex Court and the other High
Courts of the country. He therefore, submits that the
impugned order passed by the respondent No.3 is ex-facie,
illegal, arbitrary and against the mandate of law and on
this count alone these proceedings initiated by the
respondent No.3 should be dropped and the impugned
order dated 14.07.2022 being absolutely illegal and without
jurisdiction and not tenable in law is liable to be set aside
and quashed.
21. The third limb of the argument of the learned Senior
Counsel is that the Tariff Heading 2202 10 would cover
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only those beverages which are prepared with flavors. The
learned Senior Counsel submits that the classification
submitted by the petitioner is the appropriate classification
of the subject products under Tariff Item 2202 99 20 as
they are fruit based drinks. That merely because the
products are aerated and/or carbonated the same will not
entail its classification under Tariff Sub-Heading 2202 10 as
sought to be made by the Revenue Authorities. The
contention sought to be raised by the Revenue Authorities
that in respect of the present subject drinks of fruit juice is
not the primary defining and unique ingredient of the
subject products and the juice comprises of only a
miniscule percentage of the product combination and that
the main contents of the goods are alleged to be
carbonated water, sugar, along with the preservative
present is only contrary to the scheme of the Tariff Act and
the classifications made under the said Tariff Act read with
the judicial pronouncements discussed. It is submitted by
the learned Senior Counsel that carbon-dioxide is added
merely for preservation of the beverage and not for any
other purpose. Rather, it is the fruit juice which gives the
subject product its essential character and forms the base
of the beverage. He submits that the carbon-dioxide in
combination of other additives are added only for ensuring
the safety of the beverage for consumption over its
declared “best before date”. The learned Senior Counsel
places reliance on materials extracted from the
“Carbonated Soft Drinks Formulation and Manufacture”
edited by David P. Steen and Philip R. Ashurst, 2006 by
23 | P a g e
Blackwell Publishing Ltd. He also places reliance on
“Chemistry and Technology of Soft Drinks and Fruit Juices,
Second Edition, edited by Philip R. Ashurst & Associates,
Consulting Chemists for Food Industry, Hereford, UK, 2005
by Blackwell Publishing Ltd. Referring to these authorities
by specialists in the fruit drinks and beverages industry
across the world, the learned Senior Counsel submits that
carbon-dioxide is a very effective preservative as it inhibits
growth of microorganisms in the beverage. It is submitted
that in respect of the subject goods, the presence of
carbon-dioxide is only as a preservative agent. He further
submits that Sub-Heading 2202 10 covers waters, including
aerated waters which are either sweetened or flavored or
both. It is therefore, submitted that flavored water based
beverage is covered by Sub-Heading 2202 10. It is
submitted that flavor means odour and taste of a food
item. In support of his contentions he makes a reference to
the various authorities which define flavor. In Douglas M.
Considine (ED), Foods and Food Production Encyclopedia,
Van Nostrand Rainhold Company where it is explained that
the “flavor of a food substance is the combined serisation
of taste and odour as perceived by the eater/drinker of that
substance”.
22. Reference is also made to the Random House
Compact Unabridged Dictionary, 1996, Random House,
New York defines flavor as under:
“1. Taste, esp. the distinctive taste of something as it
is experienced in the mounth.”
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According to The Shorter Oxford English Dictionary,
1973, Clarendon Press, Oxford ‘flavour’ is
“1. A smell or odour. In mod, use: A trace of a
particular odour.”
23. Relying on these authorities, the learned Senior
Counsel for the petitioner submits that flavor is a trace
(extremely small amount of a component) of a particular
odour or taste in a food substance. Thus, flavoured waters
contemplated under sub-heading 2202 10 are berverages
or preparations which contain flavouring agents. Which
impart the sensation of a particular taste or odour. It does
nothing more. It does not impart or or attribute any sense
of texture or mouth-feel identical with the substance from
which the particular flavour was extracted or prepared. On
the contrary, however, as already submitted, in a fruit juice-
based drink the fruit juice content attributes the essential
character of the beverage, and also functions more than as a
mere agent imparting the sense of taste.
24. It is, therefore, submitted that since in the instant case,
apple juice concentrate / orange juice concentrate / lemon
concentrate is not added to the subject products merely as a
flavouring agent, but as the base component of the product
(being more than 5%/ 10%/ 12% content of the total
product), the correct classification of the subject products will
be under tariff item 2202 99 20 and not/ under tariff item
2202 10 20 or 2202 10 90. Thus, primary ingredient in the
subject products are fruit juice and not carbonated water,
25 | P a g e
sugar and other preservatives as alleged by the Ld. Joint
Commissioner in the impugned SCN.
25. Hence, the proposed classification of the subject
products by Ld. Joint Commissioner, as carbonated water
falling under CTH 2202 10 90 is factually incorrect and legally
erroneous.
26. Thus, it is submitted that the goods manufactured by
the petitioner are classifiable as fruit juice based drink since
the essential component of the drink comprises of apple fruit
juice and therefore the goods are classifiable under the tariff
item 2202 99 20 as against the tariff sub-heading 2202 10 as
proposed in the impugned SCN. Hence, the impugned SCN is
liable to be dropped on this ground alone.
27. The learned Joint Commissioner of Taxes has applied
the HSN Explanatory Notes of heading 2202 to propose that
the subject products are classifiable under the tariff sub-
heading 2202 10. In this regard, it is submitted that tariff
heading 2202 of the Customs Tariff Act, 1975 is not fully
aligned with the Harmonized System of Nomenclature
(“HSN”) issued by the World Customs Organization (“WCO”)
since the entry 2202 99 20, viz. ‘fruit pulp or fruit juice based
drink’ is not there in the said HSN but is specifically inserted
in the Customs Tariff Act, 1975. Thus, the explanatory notes
to HSN should not be the basis for interpretation of the said
entry of the Customs Tariff Act. The said entry specifically
inserted by the Indian legislature in Customs Tariff Act, 1975
has to be given a meaning and therefore, if all the products
containing lime/lemon/ apple juice etc., whether as flavour or
26 | P a g e
not, are classified as ‘Lemonade’/ ‘Carbonated water’, then
the ‘fruit juice-based drinks’ entry would become redundant.
Therefore, only the water with flavour or essence of
lemon/apple/ other fruits would be classified under the Tariff
Sub – Heading 2202 10, whereas the beverages/ drinks
where the essential character is given by the lemon juice/
apple juice/ other fruit juices (in terms of the fruit juice
content as per the FSSAI Regulations) would be classifiable
under the tariff Item 2202 99 20.
28. In the light of the above it is submitted that the
impugned order dated 14.07.2022 passed by the learned
Joint Commissioner of Taxes, suffers from misinterpretation
of relevant tariff entries in place. Accordingly, the proposal to
demand GST by classifying them under Tariff sub- heading
2202 10 90 is misplaced and liable to be dropped completely.
29. The next argument of the learned Senior Counsel for
the petitioner is that the Food Safety and Standards (Food
Products and Food Addictives) Regulations, 2011 can be
relied upon for the purpose of determining the correct
classifications of the subject products.
30. He also submits that the standards of quality for
various food including all types of beverages has been laid
down in the Food Safety and Standards Act, Rules and
Regulations (Food Products Standards and Food
Additives), 2011. Therefore, a trader of a beverage has to
necessarily abide by the standards provided under the Food
Safety and Standards (Food Products Standards and Food
27 | P a g e
Additives) Regulations, 2011. The Regulations further help in
establishing whether a beverage qualifies as a:
ï‚· Carbonated Sweetened Water, or
ï‚· a Carbonated Fruit Drink, fruit juice or flavoured water/
aerated water.
31. Once a product meets all the essential characteristics of
a category of product, the trader is granted a licence under
FSSAI Act to manufacture and sell the product. A copy of the
license (FORM C) granted to the Noticee under FSS Act,
2006.
32. It is submitted that the standards for ‘thermally
processed fruit beverages/ fruit drink/ ready to serve fruit
beverages’ have been laid down under Para 2.3.10 of the
said Regulations. As per the said Para, thermally processed
fruit beverages/ fruit drink/ ready to serve fruit beverages’
means an unfermented but fermentable product which is
prepared from juice or pulp/puree or concentrated juice or
pulp of sound mature fruit. Further, the drink may also
contain water, peel oil, fruit essences and flavours, salt,
sugar, invert sugar, liquid glucose, milk and other
ingredients. Similarly, the standards for ‘carbonated fruit
beverages or fruit drinks’ have been laid down under Para
2.3.30 of the said Regulations. As per the aforesaid para,
Carbonated Fruit Beverages or Fruit Drink means any
beverage or drink which is purported to be prepared from
fruit juice and water or carbonated water and containing
sugar, dextrose, invert sugar or liquid glucose either singly or
in combination. Further, he fruit drink made plod contain peel
28 | P a g e
oil, fruit essences and any other ingredient appropriate to the
product.
33. He refers to the Regulation 2.3.30 of the Regulation
of 2011 to submit that the criteria mentioned in the said
regulation prescribes the following requirements to make
the said product fall under carbonated fruit beverages or
fruit drinks:
i. Total soluble solids (m/m): not less than 10.0
percentii. Fruit content (m/m)
a. Lime or Lemon juice : not less than 5.0
percentb. Other Fruits: Not less than 10.0 percent
In case the quantity of fruit juice is below 10.0
per cent. But not less than 5.0 per Cent. (2.5
per cent. In case of lime or lemon), the
product shall be called ‘carbonated Beverages
with fruit juice’ and in such cases the
requirement of TSS (Total Soluble Solids) shall,
not apply and the quantity of fruit juice shall be
declared on the label.
34. It is submitted that as per the laboratory reports It is
an undisputed fact that the products in question, meet the
criteria as stipulated in FSSAI i.e., regarding the percentage
of fruit juice content. The apple juice/ orange juice
concentrate content is actually more than the prescribed limit
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of 10% in all cases except in case of XSS Cola wherein the
same is 5%. Further, the beverages based on lime/ lemon
also have the juice content in excess of 5% in all cases. It is
pertinent to note that this fact has already been declared on
the labels of the product.
35. The learned Senior Counsel for the petitioner humbly
submits that the clause 3-A of Regulation 2.3.30 of FSSAI is a
mere extension/ sub-set of Regulation 2.3.30 of the FSSAI,
wherein the beverages with less than 10% of fruit juice but
more than 5% of fruit juice content have been classified. It is
submitted that clause 3-A of Regulation 2.3.30 of the FSSAI
was introduced on 25th October 2016 in line with
Government’s policy to increase the usage of fruits in the
carbonated drinks to help farmers, since almost 35% of the
fruits get wasted for lack of storage and processing facilities.
Thus, clause 3-A is merely a sub part of 2.3.30 Regulation,
wherein the beverage with fruit content ranging from 10% to
5% is also classified as a carbonated fruit beverage.
36. It is, therefore, submitted that once the carbonated
fruit beverages falling under the Regulation 2.3.30 have been
held by the CESTAT/ Hon’ble Supreme Court to be classified
under the tariff item 2202 99 20, the sub-set of the same
also needs to be classified thereunder. Thus, the subject
products would merit classification under Sl. No. 48 of
Schedule II to the IGST Rate Notification (for inter-state
supply of goods made by Noticee). Even the learned CESTAT.
Kolkata in Anutham Exim case (supra) held the same in its
recent Final Order No. 75031/2021 dated 25.01.2021.
30 | P a g e
37. Hence, it is submitted that the products in question are
fruit juice-based drinks, wherein fruit juice (having
percentage content in excess of 5%, as provided under the
regulation) is used to provide the essential characteristic of
the drink and the related features of appearance and mouth-
feel. Thus, the subject products, in present SCN, are correctly
classifiable under tariff item 2202 90 20 as “fruit pulp or fruit
juice-based drink”
38. It is thus, submitted that the products manufactured
and supplied by the petitioner are classifiable as fruit juice-
based drink since the essential component of the drink
comprises of apple/ orange/ lemon fruit juice and therefore
the goods are classifiable under the tariff item 2202 99 20
and not under the tariff sub-heading 2202 10, as proposed in
the impugned SCN.
39. It is also submitted that Rule 3(a) of the General Rules
for Interpretation of the Customs Tariff Act, 1975 provides
that the heading which provides the most specific description
shall be preferred to headings providing a more general
description. The CGST/IGST Rate Notification, as amended,
also specify that for interpretation of correct classification of a
commodity under the said Notification the rules of
Interpretation of Customs Tariff Act, 1975 will be applicable.
40. It is submitted that Rule 3(a) categorically provides
that a heading that is most specific is preferred over a
heading that provides more general description. The Rules
provide that any mixture is to be classified based on the
material that gives it their essential character. Therefore,
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when there is specific Tariff Entry No. 2202 99 20 for ‘fruit
pulp and fruit juice-based drinks’, there is no need to
place reliance on the residuary entry for classification of a
product if such entry is self-sufficient to classify a particular
product.
41. Reliance is placed on the case of Hindustan Poles
Corporation v. CCE, Calcutta, 2006 (196) E.L.T. 400
(SC) wherein it was held that the residuary entry is meant
only for those categories of goods, which falls outside the
ambit of specified entries. Further, the learned Tribunal of
Chennai, in the case of CC, Chennai v. Associated
Cement Companies Ltd., 2001 (133) E.L.T. 400 (Tri.-
Chennai) held that a residuary heading cannot be resorted
to for classification when specific entry is available.
42. The next limb of arguments by the learned Senior
Counsel is that the special entry as prescribed under the tariff
item will always prevail over the general entry. The HSN
explanatory note are not applicable to the present case. It is
also submitted that Rule 3(a) of the General Rules for
Interpretation of the Customs Tariff Act, 1975 provides that
the heading which provides the most specific description
shall be preferred to headings providing a more general
description. The CGST/IGST Rate Notification, as amended,
also specify that for interpretation of correct classification
of a commodity under the said Notification the rules of
Interpretation of Customs Tariff Act, 1975 will be
applicable.
32 | P a g e
43. It is submitted that Rule 3(a) categorically provides
that a heading that is most specific is preferred over a
heading that provides more general description. The Rules
provide that any mixture is to be classified based on the
material that gives it their essential character. Therefore,
when there is specific Tariff Entry No. 2202 99 20 for ‘fruit
pulp and fruit juice-based drinks’, there is no need to
place reliance on the residuary entry for classification of a
product if such entry is self-sufficient to classify a particular
product.
44. Reliance is placed on the case of Hindustan Poles
Corporation v. CCE, Calcutta, 2006 (196) E.L.T. 400
(SC) wherein it was held that the residuary entry is meant
only for those categories of goods, which falls outside the
ambit of specified entries. Further, the Hon’ble Tribunal of
Chennai, in the case of CC, Chennai v. Associated
Cement Companies Ltd., 2001 (133) E.L.T. 400 (Tri.-
Chennai) held that a residuary heading cannot be
resorted to for classification when specific entry is
available.
45. Reliance is also placed on the Judgments of the Apex
Court rendered in CCE, Bhubaneswar-I Vs. Champdany
Industries Ltd., reported in 2009 (241) ELT 481 (SC).
Referring to the Judgment, the learned Senior counsel
submits that the products in question clearly satisfy the
description of this entry and accordingly, should be
classifiable under the Tariff Item No. 2022 99 20, by
application of rules 3(a) of the GIR.
33 | P a g e
46. The next limb of argument of the petitioner is that as
per the common parlance test, the subject products are
classifiable under tariff item 2202 99 20. Referring to the
4th Paragraph in the Show Cause notice, the learned Senior
counsel submits that the respondent No. 3 has admitted
the fact that under common parlance test, the subject
products are being marketed and sold as Carbonated fruit
Beverage, Fruit Based Carbonated Beverage. However,
merely because the ingredients provided in product’s labels
also provides for Carbonated water as an ingredient, it has
been alleged that the products have been mis-classified as
fruit juice based drink instead of as carbonated flavoured.
It is submitted that this view of the respondent authority
stems for non-appreciation of factual and transactional
matrix are purchased consumers treating the same as a
fruit juice based drink, unlike the other aerated beverages
marketed under the various brand names, which are
commonly understood by the consumers as ‘soft drinks’ or
flavoured aerated water. It is a settled principle of law that
the words used in the statute, imposing taxes or granting
exemption should be understood in the same way as they
are understood in ‘ordinary parlance’ in the area in which
the law is in force or by the people who ordinarily deal with
them. It is submitted that the understanding of the product
in common parlance could be gauged from the way the
subject products are marketed and the understanding of
the customers purchasing the same. Marketing shapes the
view of the vendors selling it and the customers buying the
product. In this regard, reference is drawn to the wrapper/
34 | P a g e
label on the pack/ bottle of the subject products, wherein
clearly the description of the product, prominent mention
of fruit juice content, photograph of fruits etc. clearly
substantiate the intent of the petitioner to market the
product as fruit juice based drink. In support of his
contention, petitioner relies on the Judgment of the Apex
Court rendered in CCE Vs. Cannaught Plaza Restaurant (P)
Ltd., reported in 2012 (286( ELT 321 (SC) as well as Delhi
Cloth & General Mills Co. Ltd. Vs. State of Rajasthan,
reported in 1980 (6) ELT 383 (SC).
47. It is submitted that the Apex Court has held that if
there is one principle fairly well settled it is that the words
or expressions must be construed in the sense in which
they are understood in the trade, by the dealer and the
consumer.
48. Referring to the said Judgment, the learned Senior
counsel submits that from ratio laid down by the Apex
Court it is abundantly clear that the ordinary meaning of a
product must be considered over the technical meaning for
classification purpose.
49. It is submitted that the subject products in the
present case, clearly indicates that such beverage is a fruit
juice and not as merely flavoured water. The label of each
of the product labels (e.g. XSS Apple Fruit Drink, XSS clear
lemon, XSS cola, Thirst Cola, XSS Orange etc.) clearly
depict in the centre that it ‘CONTAINS FRUIT’, photograph
of fruits, phrase ‘fruit drink’ etc. This clearly indicates the
35 | P a g e
intent of the petitioner in labelling the product in this
manner in order to depict the fact that the product will be
marketed to the customers as fruit juice-based beverage
and not as flavoured water. Copy of the labels of the said
products are already enclosed as Annexure-2.
50. Thus, the subject products are not understood in
common parlance at par with the aerated carbonated soft
drinks, which are classifiable under the tariff sub- heading
2202 10. The customers of the subject products buy it for
the fruit juice content, which is adequately referred to, on
the product label.
51. Therefore, though the Ld. Joint Commissioner has
himself admitted that applying common parlance test, the
goods are marketed and sold as Carbonated Fruit
Beverages, Fruit Based Carbonated Beverage, which are
treated as fruit drinks under Regulation 2.3.30 of the FSSAI
regulations and have been held as ‘fruit juice based drinks
as per the judgments of Parle Agro (SC) and Brindavan
Beverages (Tri-LB), as referred above. However, merely
due to the presence of carbonated water in the ingredients,
the Ld. Joint Commissioner has assumed that the product
is the consumers buy the subject products for carbonated
water and thus, the products have been mis- classified by
the petitioner. It is submitted that the allegations of the Ld.
Joint Commissioner are factually erroneous and entirely
based on vague presumptions. As mentioned earlier, the
subject products are instead marketed and sold by
petitioner and purchased by customers as “fruit juice-
36 | P a g e
based drinks”. Even applying the common parlance test,
the subject products merit classification as “Fruit pulp or
fruit juice based drinks” under Tariff Item No. 2202 99 20.
52. The further argument of the learned Senior counsel
for the petitioner is that the burden is on the department
to prove the classification of subject items are under such
tariff heads as it is claims by the Revenue. The learned
Senior counsel for the petitioner submits that it is settled
law that once the assessee determines a classification and
declares the same to the authorities along with all relevant
facts, then, the burden is on the Department to prove that
the same is incorrect and lead evidence to show that the
goods are not classifiable in the manner as claimed by the
assessee.
53. In support of his contention, he has relied upon the
Judgment of the Apex Court rendered in Union of India Vs.
Garware Nylons Ltd., reported in 1996 (87) ELT 12 (SC).
Referring to the said Judgment, he submits that the
decision of the Bombay High Court in favour of the
assessee was upheld by the Apex Court. It was held by the
Apex Court that the burden of proof is on the taxing
authorities to show that the particular case of the item in
question is taxable in the manner claimed by them, Mere
assertion in that regard is of no avail. There should be
material to enter appropriate finding in that regard and the
material may either be oral or documentary. The taxing
authority therefore must lay evidence in that regard even
before the first adjudicating authority.
37 | P a g e
54. Reliance is also placed on the Judgment of the Apex
Court rendered in HPL Chemicals Ltd. Vs. CCE, Chandigarh,
reported in (2006) SCC 208; Hidustan Ferodo Ltd. Vs. CCE,
Bombay, reported in (1997) 2 SCC 677; Colgate Palmolive
(India) Ltd. Vs. Union of India & Ors, reported in 1980 SCC
OnLine Bom 384.
55. In view of the elaborate submissions made above by
the learned Senior counsel representing the petitioner it is
vehemently urged that the subject products were correctly
classified by the petitioner and the taxes due have been
appropriately paid and the classifications in turn made by
the Revenue Authorities in respect of the subject products
rejecting the claims of the petitioner being contrary to the
law as discussed above, the invocation of provisions under
Section 74 of the CGST Act are not at all applicable. It is
submitted that these provisions can only be invoked when
there is any fraud or wilful suppression. In the facts of the
present proceedings, no such fraud or wilful suppression
can be alleged against the petitioner. The impugned Show
Cause notice has proposed differential GST, Cess, interest
on both GST and Cess, penalty under Section 74 of the
Assam GST Act by merely alleging that the offence falls
under Section 122 of the Assam GST Act.
56. It is submitted that the provisions of Section 74 of
the CGST Act can be invoked only for recovery of tax not
paid by reasons of fraud or collusion or willful mis-
statement or suppression of facts or contravention of any
of the provisions of the Act or Rules with intent to evade
38 | P a g e
payment of tax. Further, as per Explanation 2 of Section 74
of AGST Act/CGST Act, the term ‘suppression has been
explained as non-declaration of facts or information in
returns. Thus, the provisions of Section 74 are applicable
only if any of the ingredients specified above exist.
57. Referring to the Judgment of the Apex Court in CCE
Vs. Chemphar Drugs & Liniments, reported in 1989 (40)
ELT 276 (SC) and Anand Nishikawa Co. Ltd. Vs.
Commissioner of Central Excise, Meerut, reported in 2005
(188) ELT 149 (SC) , it is submitted that the term “wilful”
and “suppression” signifies conscious withholding of
information with malafide intention and not an
unintentional failure due to inadvertence. Thus, in order to
invoke the extended period of limitation, it is necessary to
prove an act or omission on the part of the petitioner
equivalent to collusion or wilful misrepresentation or
suppression of facts.
58. It is submitted that the petitioner is a bona fide
assessee and is regular in filing statutory returns within
due date of filing by classifying the subject products under
tariff item 2202 99 20 and thus, discharging tax @12%.
Further, during the investigation/ search and seizure
proceedings, the petitioner has always co- operated with
the department and submitted all the relevant documents.
indicating that goods manufactured by the petitioner are
classified under tariff item 2202 99 20.
39 | P a g e
59. Since the impugned Show Cause Notices are is based
on the information suo moto declared by the petitioner in
statutory returns and during investigation process,
therefore, there can be no ground to allege any
suppression or concealment of information where
everything was disclosed. This goes on to establish that all
relevant facts were well within the knowledge of the
Department and no suppression can now be alleged
against the petitioner. The question, thus, of evading the
liability to pay tax cannot arise.
60. Further, the petitioner humbly submits that the
impugned SCN has not brought on record any evidence to
show that suppression of any fact from the Department.
61. It also submitted that the present issue involves
interpretation of complex and technical question of
determining classification of goods manufactured and
supplied by the petitioner. The position adopted by the
petitioner is in line with the settled principles of law and
various judicial precedents as referred to above. Thus,
there cannot be said to be any malafide intent on the part
of the petitioner. Therefore, the provisions of Section 74
are not invokable.
62. The petitioner was and is still under the bonafide
belief that subject products are classifiable under tariff item
2202 99 20. The bonafide belief is based on the
submissions made above. Thus, in cases of bonafide belief,
the Joint Commissioner has erred in invoking the provisions
40 | P a g e
of Section 74 of the AGST/ CGST Act in the present case of
the petitioner.
63. The learned Senior counsel therefore submits that
the penalty sought to be imposed under Section 122 is not
imposable on the petitioner. Referring to the provisions of
Section 122, it is submitted that the said provision provides
for the imposition of penalty equivalent to tax due from the
assessee or ten thousand rupees, whichever is higher.
Thus, for the purpose of imposing penalty under Section
122(2)(b), there should be an intention to evade payment
of tax, or there should be suppression or concealment or
wilful mis-statement of facts.
64. It is therefore submitted that the ingredients for
imposition of penalty under Section 122(2)(b) are identical
to the ingredients for invocation of the provisions of
Section 74 of the CGST Act.
65. The petitioner has conclusively demonstrated in the
foregoing paragraphs that there has been no suppression
of facts or willful mis-statement as alleged by the
Department and thus, the provisions of Section 74 are not
invokable in the instant case and in the absence of the said
ingredients, no penalty can be imposed upon it under
Section 122(2)(b) of the CGST Act.
66. It is further submitted that the penal provisions are
only a tool to safeguard against contravention of the rules.
It is submitted that the petitioner has always been and are
still under the bona fide belief that fruit juice based drinks
41 | P a g e
is classifiable under tariff item 2202 99 20 only. Such bona
fide belief is based on the submissions made above. Thus,
petitioner had no intention to evade payment of duty as
mentioned in the grounds above. Therefore, no penalty is
imposable on the petitioner.
67. In support of the above contentions, reliance is
placed on the decision of the Hon’ble Supreme Court in the
case of Hindustan Steel Ltd. V. The State of Orissa
AIR 1970 (SC) 253.
68. It is submitted that once the demand is found to be
non-sustainable, question on levy of penalty does not arise.
Reference is made to the Judgment of the Apex Court
rendered in Collector of Central Excise Vs. H.M.M. Limited
1995 (76) ELT 497 (SC) as well as CEE, Aurangabad Vs.
Balakrishna Industries, reported in 2006 (201) ELT 325
(SC).
69. Relying on the aforesaid Judgments, it is submitted
that penalty is not imposable when differential duty is not
payable.
70. It is submitted that the issue in the present case is
highly technical and interpretational since it pertains to the
classification of goods vis-Ã -vis fruit juice based drinks.
Therefore, in such cases, where the issue is complex and
requires technical understanding of the product, no penalty
can be imposed on the petitioner. It is settled law that the
imposition of penalty on the petitioner cannot be sustained
when the issue is one of pure interpretation. Therefore,
42 | P a g e
proposal to impose penalty under Section 122(2)(b) of the
CGST Act is invalid and unsustainable in law. It is therefore
submitted that the proposal for imposition of penalty on
the petitioner is not sustainable in law.
71. The further contention of the petitioner is that the
interest under Section 50 of the CGST is also not
recoverable in the instant case. It is submitted that the
charging of interest under the provisions of Section 50 of
the AGST Act is not sustainable since the demand is itself
not payable. The purpose of levying interest is to ensure
that the Department is not at a loss due to any late
payment of duty or tax. Therefore, what emerges is that
interest is payable when there exists a liability to pay tax
and the same has not been paid within the prescribed time
limit.
72 In the present case, since the proposed demand of
duty has been established to be legally unsustainable in
preceding paragraphs, hence there is no question of
demand of interest under Section 122 of the CGST Act.
73. In support of the contention, reliance is placed on
Goyal tobacco Co. Pvt. Ltd. Vs. CCE & ST, Jaipur-1 reported
in 2015 (329) ELT 619 (Tri-Del). The pressing the
Judgment into service, the learned Senior counsel submits
that no interest is charged when demand is not sustainable
and the interest is not payable by the petitioner.
74. The next limb of the argument is that the Notification
No. 8/2021- Central Tax (Rate) dated 30.09.2021 and
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Notification No. 1/2021-Compenation Cess (Rate) dated
3009.2021 operates prospectively.
75. It is submitted that the Notification No. 8/2021-
Central Tax (Rate) dated 30.09.2021 whereby a new entry
was inserted as Serial No. 12A in Schedule – IV making
Carbonated Beverages of Fruit Drink or Carbonated
Beverages with Fruit Juice to be taxable @ 14% and
Notification 1/2021-Compensation Cess (Rate) dated
30.09.2021 whereby in the Schedule of the Goods and
Services Tax (Compensation to States) Act, 2017 a new
entry namely 4B was inserted levying 12% Cess on
Carbonated Beverages of Fruit Drink or Carbonated
Beverages with Fruit Juice and the same was made
effective from 01.10.2021. The tax @ 14% and Cess @
12% cannot be imposed on the said items for the periods
prior to 01.10.2021. It is therefore submitted that the
aforesaid Notifications by which the higher rate of tax
imposed and cess has been imposed being oppressive and
cannot be retrospectively. To buttress his submissions, the
learned Senior counsel has placed reliance on
Commissioner of Central Excise, Bangalore Vs. Mysore
Electricals Industries Ltd., reported in (2006) 12 SCC 448.
76. It is submitted that in the present case since the
periods involved in the writ petition are prior to the
issuance of the aforesaid Notification re-classifying the
items, the said Notification shall have effect only from the
date, the same have been made effective. It is also
respectfully submitted that if the aforesaid items dealt with
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by the Petitioner would have fallen within the Entry 2202
10 10 i.e. “Aerated Waters”, there was no necessity of
inserting a separate item in the Schedule and also by
inserting a new entry into the Cess into the Assam Goods &
Service Tax Act, 2017. He refers to the Judgment of the
Parle Agro (P) Ltd. (Supra) to submit that the Apex Court in
that case held that the items concerned were always
included under Section 6(1)(a) and therefore, there was no
occasion of the subordinate authority to include the
products in the Notification under Section 6(1)(d).
77. Similarly, in the present case if the aforesaid product
would have been covered by 2202 10 10, there would have
been no occasion to issue the aforesaid Notifications by
inserting new items making it effected from 01.10.2021. In
view of the aforesaid, it is very clear that earlier the items
in question were covered by Tariff Item 2022 90 20 and
only after issue of the aforesaid Notification, the same are
made taxable at a higher rate.
78. It is therefore submitted that in the absence of any
concrete evidence, the allegation of the Department fails
entirely. Further, it is important to note that the minimum
consumption percentage has been arrived at by comparing
concentrate in kgs with finished goods (viz. Apple Drink,
Mango Drink in milli – litre (ml), which is grossly erroneous.
Comparison if any must be made in same units to ensure
accurate results.
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79. With regard to the allegations that there were 2
negative stock during certain periods, the Petitioner
submits that manufacture of final products without having
input/raw material is practically impossible. The Petitioner
yet again submits that discrepancies in maintenance of
books of accounts should not be used as a basis to make
vague allegations such as negative stock.
80 In view of the above, the learned Senior counsel
submits that the impugned show cause notices dated
17.02.2022 and orders dated 14.07.2022 for each of the
financial years are illegal and without jurisdiction and
thereby the same are liable to be set aside and quashed.
81. In W.P (C) No. 5342/2022, the respondents have
filed their counter-affidavit. During the course of the
hearing, the respondents submitted that the affidavit filed
in W.P(C) No. 5342/2022 will cover the stand of the
respondents in all the other writ petitions. Accordingly, this
affidavit is considered to be the affidavit of the respondents
in all the writ petitions including W.P(C) No. 5342/2022.
Submission of the respondents
81. The respondents deny and dispute the submissions
made by the counsel for the petitioner. It is submitted that
the contentions raised by the petitioner in regard to the
classification of the said product under Tariff Item 2022 99
20 of the Customs Tariff Act, 1975 is wholly misplaced and
misconceived. The Tariff Heading 2202 in the Customs
Tariff Act, 1975 has been divided into two sub-headings,
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viz sub-heading 2202 10 which covers “waters, including
mineral waters and aerated waters, containing added sugar
or other sweetening matter or flavoured”, and sub-heading
2202 90 which covers “other”.
83. Referring to the Notifications under the Customs
Tariff Act, 1975, it is submitted that the products are
broadly classified under Tariff Item 2202 in the Customs
Tariff Act, 1975, which have been divided into two sub-
headings viz. 2202 10 which covers “waters, including
mineral waters and aerated waters, containing added sugar
or other sweetening matter or flavoured” and sub-heading
2202 90 which covers “other”.
84. It is submitted that the petitioner manufactures
various types of beverages using different
ingredients/inputs such as sugar, sucrose, flavours,
artificial sweetener, fruit pulp, fruit concentrate,
preservatives etc. Different ingredients/inputs are used for
manufacture of different finished products which give
different identity to each product.
85. Referring to the labels of the various products
showing the ingredients, the respondent counsel submits
that from the label available on the products manufactured
by the petitioner, which has been listed as above, it
transpires that Carbonated Water, is used as an essential
ingredient in some of the products manufactured by him.
86. It is further submitted that from the “Report of
Analysis of Food Samples” conducted by the State Public
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Health Laboratory, Govt. of Assam, it is clear that
Carbonated Water (i.e. aerated water) has been used in
case of thrist Clear Lemon, Thrist Orange and Thrist Cola.
However, in case of Thrist Mango Drink and Thrist Namboo
Pani Drink, carbonated water has not been used.
87. Based on the ingredients of the products, as seen
from the label of the products, and which has been duly
described above and the list of ingredients as found in the
factory premises, it is seen that the products are
manufactured by adding fruit concentrate to large
quantities of water along with other flavours, sweetener,
preservatives etc. which then goes through a carbonation
process. The fruit juice concentrate is just one of the many
ingredients of the drink.
88. It is submitted that the petitioner has used fruit
concentrate for manufacturing of Apple Drink, CFD (i.e.
Carbonated Fruit Drink) Clear Lemon, CFD Cola, CFD
Lemon, CFD Orange. CFD Clear Lemon, Fontys CFD Clear
Lomon, CFD Orange, CFD Thrist Orange, Fontys CFD
Orange, etc., along with carbonated water and the
petitioner did not use any fruit pulp or fruit juice for
manufacturing of such finished product.
89. It is submitted that as per the contents of the
products, the said products are sweetened (with sugar
and/or sweetener) and flavoured (with Juice concentrate
and added flavours natural and nature-identical flavouring
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substances). The same is also carbonated (aerated) as well
as presented in PET bottles.
90. Based on the manufacturing flowchart, the method of
preparation of various products are shown as follows:
Processing RO Water- Preparation of Sugar Syrup
Solution- Add mixure (Recipe containing the concentrate,
flavours, additives and preservatives)- Thermal Process-
Blending- Carbonisation/Carbonator- Hilden RFC- Filling-
Capping- Inspection- Sleeve application- Shrinik Sleeve-
Batch Coding- Dispatch.
91. The Revenue submitted that HSN for Sub-heading
2202 10, includes beverages which consists of ordinary
drinking water, sweetened or not, flavoured with fruit
juices or essences, or compound extracts; that they are
often aerated with carbon dioxide gas, and are generally
presented in bottles or other airtight containers. On
examining the contents of the products, based on
laboratory reports and as appearing on the label of the
products, it contains Carbonated Water, Sugar, Sweetener,
Juice (from concentrate), added flavours (natural and
nature-identical flavouring substances). These products
also contain Acidity Regulator, Preservatives, Stabilizers
and permitted synthetic food colour. The product is
presented in the PET bottle.
92. Since the products manufactured and sold by the
petitioner, under various brand names such as X’SS, Thrist,
Fontys, etc., contains carbonated water along with added
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sugar or other sweetening matter or flavoured depending
on the type of product manufactured, are to be covered
under HSN 2202 10.
93. The Chapter 22 has different tax rate for different
items ranging from 12% to 28% and Cess @ 12% is also
leviable on some items. For the HSN Code 2202 10 90: the
tax rate is 28% (14% SGST + 14% CGST) and 12% Cess,
whereas the petitioner has categorised such products
under the HSN code 2202 only with tax rate of 12% (6%
SGST + 6% CGST) without any cess.
94. It is therefore submitted that the petitioner has
deliberately misclassified his products in lower tax rate
category with the sole intention of minimizing his tax
liability.
95. With regard to the submissions of the petitioner
placing reliance on the Food Safety and Standard (Food
Products and Food additives) Regulation, 2011 for the
purpose of determining the classification of the subject
matter, it is submitted that the classification of the product
is well placed in accordance with the Customs Tariff Act,
1975 and GST Law, and as such by adhering to the well
settled principle the Statutes having common object may
provide aid to each other. But different statutes seeking to
achieve different objects rule out interpretation of
expressions used in one statute with reference to their use
in another statute and decisions rendered with reference to
construction of one Act cannot be applied with reference to
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the provisions of another Act, when the two Acts are not in
parimateria.
96 Relying on the Judgment of the Apex Court rendered
in Ram Narayan Vs. State of Uttar Pradesh, reported in
1956 (9) TMI 54-Supreme Court, it is submitted that it
cannot be presumed that the Legislature while enacting a
statute intended to import meaning from other statute for
interpretation of provisions of the former statute, unless
otherwise stated in the former statute. When there is no
ambiguity in interpreting object of a statute it is not
permissible to refer for the purpose of its construction,
provisions of any other legislation. An effort to construe
legislation on one subject with the help of other legislation
on different subject is to defeat the purport of the former
statute, unless both the statutes serve the common object.
Only by incorporation or adoption of provisions of a statute
for the construction of other, no aid is permissible. Rule of
construction suggests that when two statutes remain
different and distinct and each is to be judged with
reference to their object, there is no scope for adoption of
provisions of one statute by the other. The object of each
enactment plays a dominant role in rule of construction.
97. Referring to Hotel & Restaurant Association Vs. Star
India (P) ltd., reported in 2006 (11) TMI 540- Supreme
Court of India, it is submitted that the Apex Court has held
that the definition of a term in one statute cannot be used
as a guide for construction of a same term in another
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statute, particularly in a case where statutes have been
enacted for different purposes.
98. It is further submitted by placing reliance upon
Eagles Chicory (Firm) Vs. Collector of Central Excise &
Customs, reported in 1986 (7) TMI 358-CEGAT, New Delhi,
that it is no sound principle of construction to interpret an
expression used in one Act with reference to its use in
another Act, since the meaning of words and expressions
used in an Act must take their colour from the context in
which they appear.
99. Reference is also made to Bharat Hansraj Gandhi Vs.
Addl. Collector of Central Excise, reported in 1990 (12) TMI
89-High Court of Judicature at Bangalore (Karnataka),
wherein it has been held that it is not a sound principle to
interpret the expressions with reference to their use in
another Act, when the two statutes are not in parimateria.
100. Reference has also been made to the Judgment of
the Apex Court in CCE Vs. Shree Baidyanath Ayurved
Bhawan Ltd., reported in 2009 (4) TMI 6- Supreme Court,
to submit that the definition of one statute having different
object, purpose and scheme cannot be applied
mechanically to another statute.
101. It is also submitted that based on findings
about the nature of products, ingredients used,
manufacturing process it can be clearly seen that the
product was misclassified by the petitioner to wrongly avail
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the benefit of incorrect classification into goods which are
taxed at lower rate.
102. The further submission of the Revenue is that the
GST being a progressive tax regime it encourages self-
policing by the taxpayers and generally undertakes
enforcement activities in cases where there is a strong
suspicion of tax evasion. Hence, the contention of the tax
payer that the GST department didn’t raise any dispute or
objection does not signify anything.
103. The Revenue contends that the classification of the
finished products under Assam GST Act must be done as
per the HSN Code and not by borrowing any other
standard like from FSSAI which is codified for a different
purpose.
104. The Revenue submits that the product is
manufactured by adding fruit concentrate to large
quantities of water along with other flavours, sweetener,
preservatives etc. which then goes through a carbonation
process. The fruit juice concentrate is just one of the many
ingredients of the drink. The petitioner has used fruit
concentrate for manufacturing of Apple Drink, CFD (i.e.
Carbonated Fruit Drink), Clear Lemon, CFD Cola, CFD
Lemon, CFD Orange. CFD Clear Lemon, Fontys CFD Clear
Lemon, CFD Orange, CFD Thrist Orange, Fontys CFD
Orange, etc., along with carbonated water and the
petitioner did not use any fruit pulp for manufacturing of
such finished product.
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105. The Revenue reiterates that the petitioner’s finished
products are manufactured from “fruit concentrates” and
not from fruit pulp or fruit juice alongwith Carbonated
Water, Sugar, Sweetener, added flavours (natural and
nature-identical flavouring substances). Hence it cannot be
classified under the entry 2202 99 20 i.e. “Fruit pulp or fruit
juice-based drinks” and therefore disputes the contentions
made by the petitioner.
106. The Judgments referred by the petitioner rendered
by the CESTAT are disputed by the respondents on the
ground that the CESTAT has jurisdiction to hear and decide
appeals arising only from the Customs Act, 1962, the
Central Excise and Salt Act, 1944 and the Gold (Control)
Act, 1968 and therefore the Judgments of CESTAT relied
upon by the writ petitioner are not applicable in the facts of
the case.
107. The Revenue submits that during the entire
investigation, the petitioner was afforded multiple hearing
opportunities and one such personal hearing was even
granted after submission of the Show Cause Reply by the
petitioner, wherein the authorized representative of the
petitioner on 05.05.2022 has attended the hearing.
108. The Revenue denies the contention of the petitioner
that it ignored the judicial pronouncements relied upon by
the petitioner.
109. It is submitted on behalf of the Revenue that the
contention of the petitioner of classification of the said
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products under HSN 2202 99 20 instead of HSN 2202 10 90
does not find merit to the fact that the correct classification
rightly falls under HSN 2202 10 90 instead of HSN 2202 99
20. It is submitted again that the said product are
manufactured using juice concentrate along with it being
sweetened and aerated, which is sold in PET Bottles. The
Revenue also disputes the submissions made by the
petitioner in providing that the tariff heading 2202 10
would cover only those beverages which are prepared with
flavours.
110. It is contended by the Revenue that the petitioner
has indulged itself into misclassification of the said product
under HSN 2202 99 20 instead of HSN 2202 10 90. It is
submitted that the petitioner has been using concentrate
for manufacturing of the said product along with
Carbonated Water and other ingredients. It is submitted
that the HSN Classification Heading 2202 10 specifically
provides for “Water including mineral waters and aerated
waters, containing added sugar or other sweetening matter
or flavoured”
111. The contention of the petitioner that applying
common parlance tests, the subject products are known in
the markets as “fruit pulp” or “fruit juice based drink” is
disputed by the Revenue. It is submitted that the Label of
the said products provides for “Fruit Based Carbonated
Beverage” and/or “Carbonated Fruit Beverage” and/or
“Ready to Serve Fruit Drink”. The Revenue therefore
submits that while taking reliance on the label of the
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products along with taking the contention of the petitioner
into account, it becomes imperative to note. The Revenue
further disputes the contention of the petitioner that the
two Notifications have been ignored while issuing the Show
Case notice and the consequential demand. It is submitted
that the reports of the State Laboratories clearly provide
that the products are “Fruit Based Carbonated Beverages”
It is further submitted that the results of the State
Laboratories giving “no negative results” cannot be the
basis to question the classification made by the Revenue.
112. Revenue further disputes the contention of the
petitioner that Section 74 of the CGST Act, 2017 has been
wrongly invoked taking into light that there lies no case of
non-payment of tax due to reasons of fraud or collusion or
misstatement or suppression of facts or contravention of
any of the provisions of the Act. It is submitted that the
petitioners have been deliberately misclassifying the said
product under HSN 2202 99 20.
113. It is contended by the Revenue that there lies a
Tax Rate Difference in between the two HSN Codes and if
the former was supposedly charged, the same came to be
40% (14% CGST + 14% SGST + 12% Cess). But the same
products were classified under HSN 2202 99 20, the same
product was charged under 12% (6% CGST +6% SGST). It
is submitted on behalf of the Revenue that the petitioner
knowingly without any iota of doubt had been involved in
short paying of taxes and even involved in misclassifying
the product resulting in short payment of taxes and
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thereby the petitioner deliberately misclassified the product
to evade payment of due taxes. Such actions of the
petitioner, clearly establishes the fact that petitioner is
liable for proceedings under Section 74 of the CGST Act,
2017, as the petitioner has by reasons of fraud/wilful
misstatements/suppression of facts have evaded the
legitimate payment of statutory dues to the Government.
Such acts of the petitioner are required to be strictly dealt
with as per law and as such the same should be considered
as an economic offence for which the petitioner should be
made liable.
114. The contention of the petitioner that no default
should be charged and that the same is without
jurisdiction, is also denied by the Revenue. The Revenue
reiterates that the petitioner has been rightly charged
under Section 74 of the CGST Act, 2017 and penalty has
been appropriately imposed under Section 122 of the CGST
Act, 2017 as also the interest under Section 50 of the
Assam GST Act, 2017 as the petitioner is required to pay
the demand raised by the Revenue.
115. The learned counsel for the parties have been heard.
Pleadings available on record carefully perused. The
Judgments and authorities placed before the Court have
been carefully perused.
116. In order to understand the issues raised in the
present proceedings, it is necessary to refer to the Show
Cause Notice which was issued on 17.02.2022. The Show
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cause Notice was issued by the Revenue on the following
grounds:
“1. The products manufactured by the Taxpayer have been
misclassified. Based on the ingredients of the products as
seen from the label of the products, and which has been duly
described in the SCN and the list of ingredients as found in
the factory premises it is seen that the product is
manufactured by adding fruit concentrate to large quantities
of water along with other flavours, sweetener, preservatives
etc. which then goes through a carbonation process, The
fruit juice concentrate is one of the ingredients of the drink
and are not meant for direct consumption.
2. As per the contents of the products, the said products are
sweetened (with Sugar and/or Sweetener) and flavoured
(with Juice Concentrate and added flavours natural and
nature-identical flavouring substances). The same is also
aerated. The product are sold in PET bottles.
3) The Tariff Heading 2202 in the Customs Tariff Act, 1975
has been divided into two sub-headings, viz, sub-heading
2202 10 which covers “waters, including mineral waters ‘and
aerated waters, containing added sugar or other sweetening
matter or flavoured”, and sub-heading 2202 99 which covers
“Other”.
4) In the backdrop of the aforesaid factual and legal position
the products manufactured ‘and supplied by the taxpayer
have been examined to ascertain whether, that it has been
appropriately classified under Sub-heading 2202 10 or under
Tariff Item 2202 99 20 or 2202 99 90.
5) It was observed that there is nothing in the Explanatory
Notes of HSN pertaining to Heading 2202 to suggest that the
product containing Carbon Dioxide as preservative only
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would not fall under Tariff Sub Heading 2202 10. On the
contrary, Explanatory Notes of HSN for Sub Heading 2202 10
specifically mentions that the products of this Sub heading
are often aerated with carbon dioxide gas. Therefore, the
products are not excludible from Sub Heading 2202 10 on
the ground that the product contains Carbon Dioxide as
preservative only.
6) From the reasons above, is clear that water with added
carbon dioxide (carbonated water) containing added sugar or
other sweetening matter or flavoured are separately
classified under the HSN code 2202 10.
7) Since the products manufactured and sold by the
taxpayer, under various brand names such as X’SS, Thirst,
Fontys, etc., contains carbonated water along with added
sugar or other sweetening matter or flavoured depending on
the type of product manufactured by the taxpayer, are to be
covered under HSN 2202 10,
8) Even under the Common Parlance Test, i.e determining as
to how a product in question is being marketed and sold to
the consumer at large. In taxpayer’s case, the products in
question are being marketed and sold as Carbonated Fruit
Beverage, Fruit Band Carbonated Beverage, based on the
product. Further, the ingredients provided/specified in the
label of the products sold provides for Carbonated Water as
one of the ingredient.
9) The chapter 22 has different tax rate for different items
ranging from 12% to 28% and Cess @12% is also leviable
on some items. For the HSN Code 2202 10 90: the tax rate is
28% (14% SGST+14%CGST) and 12% Cess, whereas the
taxpayer had categorised such products of his under the HSN
Code 2202 only with tax rate of 12% (6% SGST + 6% CGST)
without any cess. It appears that the taxpayer have
59 | P a g e
misclassified to minimize his tax liability. This implies that tax
has been short paid on such products.
10) There appears to be significant difference in the
consumption of concentrates in manufacturing the finished
products.”
117. In the said Show case notice, the raw materials in the
subject products are extracted in a tabular form indicating
the minimum percentage consumption and the maximum
percentage of the concentrate. The Revenue found
significant difference in the consumption of concentrates in
the manufacturing products and therefore called upon the
assessee to explain the reason for such mismatch between
the declaration made and thereby affecting the quality of
the products actually supplied versus the actual product.
118. Further on the basis of the date extracted from the
assessee’s computerised accounting software “Tally”, the
Revenue noticed “Negative Stock” during certain period
that is raw materials/stock consumed even without having
stock/raw materials present along with the assessee on
various occasions as per their books of accounts. The
assessee was therefore asked to explain the said
anomalies. The assessee was given 30 days time to submit
its reply in the prescribed form.
119. Pursuant to the Show cause notice issued, reply was
duly submitted and the reply was submitted on the
following points:
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“1. The subject products are “Fruit Juice Based Drink”
classifiable under Tariff Item 22029920 of Schedule-Il of
CGST/IGST rate notification.
2. That Tariff heading 2202 10 would cover only those
beverages which are prepared with flavours.
3. Food Safety and Standard (Food products and Food
Additives) regulations, 2011 can be relied upon for the
purpose of determining the correct classification of the
subject products.
4. As per the general rules for interpretation, specific entry to
prevail over general entry, Thus, the products in question are
classifiable under tariff item 2202 99 20. HSN explanatory
notes are not applicable to the present case.
5. As per the common parlance test, the subject products are
classifiable under Tariff item 2202 99 20.
6. The burden is on the department to prove the
classification of the subject items.
7. The allegations made by the Ld. Joint Commissioner are
entirely based on presumption as the department has not
adduced any cogent reasoning/evidence in support of such
allegations. Specific rebuttals to such allegations by the
notice,
8. Extended period under Section 74 of the CGST Act is not
invokable in the present case in the absences of any fraud or
wilful suppression.
9. Penalty under Section 112 is not imposable on the notice.
10. Interest under section 50 of the CGST is not recoverable
in the instant case.”
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120. The reply also discribed the manufacturing flow
chart showing the method of preparation of the various
products. The assessee submitted in the reply that the
appropriate sub-heading in the Customs Tariff Act of 1975
for application of the products is 2202 99 20 as the
products manufactured by the petitioners are “Fruit Juice
Based Drink”
121. The respondent No. 3 upon considering the
submissions rejected the contentions of the assessee/writ
petitioner. The Revenue rejected the case of the petitioner
on the following grounds:
ï‚· “The prayer for dropping the proceeding initiated vide issue of
SCN dated 17/02/2022 is being rejected to the fact that
taxpayer has not paid the demand raised in the SCN and
further the demand raised is tenable taking into consideration
the facts and circumstances involved in the present case.
Hence, it would not be appropriate to drop the proceeding as
has been prayed by the taxpayer.
ï‚· The prayer for classifying the subject products under tariff
item 2202 99 20 and accordingly praying for no-conforming
the demand raised is rejected to the fact: that the actual
classification of the subject product is under HSN 2202 10 90,
the reasons for which has been rightly provided under the SCN
issued on 17/02/2022 and even provided in the aforesaid
paragraphs. Further, considering the fact that the subject
products has to be rightly classified under HSN 2202 10 50
and not under 2202 99 20 (as provided by the taxpayer), the
necessity of allowing the prayer for not-confirming the
demand gets nullified.
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ï‚· The prayer for holding that the interest on the proposed
differential GST and Cess is not recoverable u/s. 50(1) of
AGST Act is not tenable considering the fact that the taxpayer
has not paid any amount against the demand raised and
further the fact that there exists a liability to pay tax and the
same has not been paid by the taxpayer till date.
ï‚· The prayer for dropping the imposition of penalty u/s. 122 of
the AGST Act deserved no consideration, taking into account
the fact that in the foregoing paragraphs, it has rightly
provided for charging the taxpayer under Section 74 of the
CGST Act and further by establishing the fact that there lies an
intention to evade payment of tax, Section 122 has been
rightly invoked and hence the same cannot be dropped off as
has been prayed by the taxpayer.
ï‚· The prayer for granting a personal hearing was granted. Shri
Rohit Agarwal, CA appeared and submitted the response of
the taxpayer. However, no new submission was made in the
hearing and the contention which were made in the written
submission was reiterated.”
122. As is revealed from the pleadings, the Petitioner is a
Partnership Firm registered under the Indian Partnership
Act, 1932 and is engaged in the business of manufacture
and sale of carbonated fruit drinks and ready to Serve Fruit
Drink. The Petitioner is engaged in the manufacture and
sale of the following carbonated fruit drinks and ready to
Serve Fruit Drink:
Product 1 – XSS Orange Product 6 – Thirst Cola
Product 2 – Thirst clear lemon Product 7 – Thirst Orange
Product 3 – XSS Cola Product 8 – XSS Clear Lemon
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Product 4 – XSS Nimboo Paani Product 9 – Thirst Nimboo PaaniProduct 5 – Thirst Mango Produce 10- XSS Mango Drink
123. According to the petitioner, the said products
are classifiable under Tariff Item 2202 99 20 of the
Customs Tariff Act, 1975, and specified at Serial No. 48
under Schedule – II as “fruit pulp or fruit juice-based
drinks” of Notification No. 1/2017 – Integrated Tax (Rate)
dated 28.06.2017 taxable @ 12%. It is to be mentioned
here that for the purpose of classifying the items for
fixation of the rate of tax to be imposed, the Customs Tariff
Act, 1975 is adopted for the said purpose.
124. To ensure adherence to quality, the goods
manufactured and supplied by the petitioner are regularly
tested by sending sample products to the State Public
Health Laboratory, Government of Assam. These test
results indicate Fruit Juice Content of more than 10%,
Soluble Solieds, Sugar, Acidity Regulators and Synthetic
Food Colour. As such the petitioner relying on the Food
Safety and Standards (Food Products Standards and Food
addictives) Regulations, 2011, considered these products to
be as per the specifications stipulated under Regulation
2.3.30 of FSSAI for Carbonated Beverages with Fruit Juice.
Based on the classification adopted by the Petitioner, the
GST returns were being filed regularly on payment of
appropriate taxes i.e. 12%. The classification of the
products were also disclosed in the invoices raised and the
returns filed by the Petitioner. There is no dispute that
64 | P a g e
there was no objection raised by the GST Department with
regard to the classification of fruit juice-based drinks under
Tariff Item 2202 99 20 until August, 2021. In the month of
September, 2021, the Department initiated an investigation
with respect to classification of the aforesaid goods
manufactured and sold by the Petitioner. On 03.09.2021,
Inspection was undertaken by a team of officers of State
Tax, Zone – A, Guwahati at the principal place of business
of the Petitioner under Section 67 of the Assam Goods and
Service Tax Act. During such investigation, certain
documents such as sales registers, purchase registers,
purchase files, loose slips file, long registers, sales bills file,
loose slips folder, miscellaneous file were seized. Further,
CPU cum monitor, pen drive, mobile phone and CCTV DVR
were seized. Accordingly an order of Seizure in Form GST
INS – 02 was issued to the Petitioner. The sample of the
Petitioner’s products were also drawn by the Department,
however, no test report in relation to the same was
provided to the Petitioner. In pursuance to the aforesaid
search and seizure conducted by the Tax Department
officials, an order dated 17.02.2022 was issued to the
Petitioner making allegation that the Department was of a
view that the goods manufactured and supplied by the
Petitioner contains carbonated water as an ingredient. It
was identified that these products namely, CFD
Orange/Thirst Orange, Apple Drink, CFD Clear Lemon, CFD
Cola, CFD lemon and CFD Orange (hereinafter referred to
as ‘the subject products’) were appropriately classifiable
65 | P a g e
under tariff sub-heading 2202 10 90 and attracted GST @
28% and compensation Cess @ 12%.
125. According to the Department from a perusal of
label available on products/goods manufactured by the
Petitioner, it transpired that Carbonated water was an
essential ingredient in such manufactured goods and that
from the Report of Analysis of Food Samples conducted by
the State Public health Laboratory, Government of Assam,
it appeared that carbonated water was used in Thirst Clear
Lemon, Thirst Orange and Thirst Cola.
126. From the data extracted from the accounting
system maintained by the petitioner, the department found
significant differences in consumption of concentrates in
manufacturing the products and accordingly, it found that
there was a mismatch between declarations made in label
versus the actual product. As such, the show cause was
issued calling upon the petitioner to explain why the
subject products should not be reclassified under the Tariff
sub-head considered to be appropriate by the department
instead of its classification under the Tariff subhead as
maintained by the petitioner.
127. The petitioner has assailed this impugned show
cause notice as well as impugned order and consequential
demand raised on several grounds and the same are dealt
with accordingly.
128. The subject products are “Fruit Juice Based
Drink” classifiable under the Tariff Item 2202 99 20 of
66 | P a g e
Schedule-II of CGST/IGST Rate Notification and that Tariff
heading 2202 10 would cover only those beverages which
are prepared with flavours.
129. In order to deal with the contentions raised, it
is necessary to refer to the tariff heading 2202 of the
Customs Tariff Act, 1975 which has been adopted for the
purposes of CGST/IGST Rate Notification. The same is
extracted below:
Tariff Description of goods
Item
(1) (2)
2202 Waters, including mineral waters and aerated
waters, containing added sugar or other
sweetening matter or flavoured, and other
non-alcoholic beverages, not Including fruit or
vegetable juices of Heading 2009
2202 10 Waters, including mineral waters and aerated
waters, containing added sugar or other
sweetening matter or flavoured:
2202 10 10 Aerated Waters
2202 10 20 Lemonade
2202 10 90 Other
2202 99 Other
2202 99 10 Soya milk drinks, whether or not sweetened
67 | P a g e
or flavoured2202 99 20 Fruit pulp or fruit juice based drinks
2202 99 30 Beverages containing milk
2202 99 90 other
130. From a perusal of the above. It is evident that
Chapter Heading No. 2202 has been divided into two sub-
headings, viz.
ï‚· Sub-heading 2202 10 which covers “waters, including
mineral waters and aerated waters, containing added
sugar or other sweetening matter or flavoured”, and
ï‚· Sub-heading 2202 99 which covers “other” non-
alcoholic beverages. Fruit pulp or fruit juice-based
drinks are specifically covered under Tariff Item No.
2202 99 20 under the Sub-heading No. 2202 99 as
‘other non-alcoholic beverages.
131. The structure and scheme of the Tariff Heading No.
2202 demonstrates that tariff Sub-heading No. 2202 10
covers drinks which are predominantly made up of water,
including mineral water and aerated water and are either
sweetened or flavoured or both. Tariff Item No. 2202 99
covers other non-alcoholic beverages.
132. A perusal of the nomenclature of the Tariff
Item No. 2202 99 10 to 2202 99 30 clearly shows that
products classified thereunder would be known by the
68 | P a g e
dominant ingredient present therein, like soya milk, fruit
pulp, fruit juice, milk, etc. These products are seen to be
classified by the presence of such ingredients, as in the
case of the drinks falling under Tariff Item No. 2202 10.
133. The leads to the next question as to whether
the expression “Fruit Pulp or Fruit Juice Based Drinks”
falling under 2202 99 20 would essentially mean a drink
based on fruit pulp or fruit juice with or without additional
flavours and sweeteners and whether the fruit pulp/fruit
juice gives the overall/essential character to the drink?
134. Since the answer to this question is not found
in the Customs Tariff Act nor it is defined under the CGST
or AGST Act, reference is therefore is necessary to be
made to other authorities which have been pressed into
service.
The Collins Cobuild English Dictionary for Advanced
Learners, 2001. Harper Collins Publishers, defines ‘base’
thus:
“Base-
(1) The base of something is its lowest edge or
part.
(11) The base of a substance such as paint or
food is the main ingredient of it, to which other
substances can be added”
69 | P a g e
135. Similarly, The Compact Edition of the Oxford
English Dictionary, 1987, Oxford University Press explains
‘base’ to mean “…II. The main or the most important
element or ingredient, looked upon as its fundamental
part.” Thus, a substance or ingredient of a food item can
be called its base when such substance/ ingredient forms
the main or fundamental ingredient and imparts the
essential attribute to the food item.
136. Similarly in D. Hicks (ed.), Production and
Packaging of Non-carbonated Fruit Juices and Fruit
Beverages, 1990, Van Nostrand Reinhold, New York,
wherein it is stated that the most significant feature of a
fruit beverage is not its fruit content but the function for
which it is designed and marketed. The fruit is often a
dominant ingredient providing its overall character to the
drink which cannot be achieved in any other way.
137. The US Customs Ruling No. N122815 in the
matter of Ms. Michele Peplinski Parker’s Organic Fruit
Juice, which deals with the issue regarding the
classification of certain beverages containing concentrates
of fruit juices as well as other ingredients. The ruling
entailed classification of four such products, which could be
summarised in the following table:
Sl. Product Name Ingredients Classification
1. Parkers Organic 50 percent organic 2202.90.9090
Sparkling Apple apple, 5 percent
(Others)
with a Twist of organic grape and70 | P a g e
Lime organic lime juices
from concentrate.
Carbonated water
has been added to
bring the final Brix
value of this product
to a Brix of 13.
2. Parkers Organic 9 percent grape 2202.90.0040
Sparkling Pink juice concentrate, 7
Lemonade percent apple juice
concentrate, 1
percent lemon juice
concentrate, 0.5
percent strawberry
juice concentrate
and 83 percent
water.
3. Parkers Organic Carbonated water, 2202.10.0040
Ginger Beer organic cane sugar, (Carbonated
and Australian Soft drink-
organic ginger. others)
4. Parkers Organic Carbonated water, 2202.10.0040
Lemonade organic cane sugar (Carbonated
organic lemon juice Soft drink-
and natural flavour others)
71 | P a g e
138. From the discussions and the information in the
tabular form extracted above, it is seen that a beverage
could be a fruit juice – based drink (e.g. SI. 1 & 2 above)
or it could be flavoured water (e.g. Sl No. 3 & 4 above).
The classification is seen to be determined by the nature of
the beverage, particularly by the presence of the fruit juice
to an extent that it attributes the essential character to the
beverage, not merely as a flavouring agent. It is the
dominant nature of the product which determines the
classification.
139. Reference is also made to Carbonated Soft
Drinks: Formulation and Manufacture, edited by David
P. Steen and Philip R. Ashurst, 2006 by Blackwell
Publishing Ltd. wherein, it has been stated that:
“Carbon dioxide is a colourless, non-toxic, inert
gas that is virtually tasteless and is readily
available at a reasonable cost. It is soluble in
liquids, the degree of solubility increasing as the
liquid temperature decreases, and can exist as a
gas, liquid or a solid. When dissolved in water it
forms carbonic acid. It is carbonic acid that
produces the acidic and biting taste found in
carbonated waters and soft drinks. Above a
certain level of carbonation carbon dioxide has a
preserving property, having an effective
antimicrobial effect against moulds and yeasts. It
achieves this with moulds by depriving the
moulds of oxygen required for growth.”
72 | P a g e
140. In Chemistry and Technology of Soft
Drinks and Fruit Juices, Second Edition, edited by
Philip R. Ashurst, Ashurst and Associates, Consulting
Chemists for the Food Industry, Hereford, UK, 2005 by
Blackwell Publishing Ltd., wherein it has been stated that:
“RTD (ready to drink) beverages are mostly
carbonated (i.e. contain carbon dioxide). This,
as well as giving sensory characteristics,
provides a very effective antimicrobial effect,
especially against yeasts and moulds. Carbon
dioxide is effective against yeasts because it
tends to suppress the production of more CO2
as a by product of the fermentation of sucrose
to ethanol. It deprives moulds of the oxygen
that most require for growth.”
The Random House Compact Unabridged Dictionary,
1996, Random House, New York defines ‘flavour’ thus:
“1. Taste, esp. the distinctive taste of something as
it is experienced in the mouth.”
According to The Shorter Oxford English Dictionary,
1973, Clarendon Press, Oxford ‘flavour’ is
“1. A smell or odour. In mod. Use: A trace of a
particular odour.”
141. From these Technical Literatures referred to
above, what is seen is that a substance or an ingredient of
a food item can be called its base it’s when such substance
73 | P a g e
or ingredient forms the main or fundamental ingredient
and imparts the essential attribute to the food item. The
most significant feature of a food beverage is not it’s food
content but the function for which it is designed and
marketed. The fruit is often a dominant ingredient
providing its overall character to the subject product which
cannot be achieved in any other way. This view is also
found in the US Customs Ruling No. N122815 in the matter
of Ms. Michele Peplinski Parker’s Organic Fruit Juice. The
said authority had classified the beverages by the presence
of the fruit juice to the extent it attributes the essential
character to the beverage.
142. Having noticed, the authorities placed before
the Court as discussed above, it will now be apposite to
refer to the various Judgments and the Rulings referred to
by the parties before this Court in this regard.
143. In CCE, Bhopal Vs. Parle Agro Pvt. Ltd.
Reported in (226) ELT 194 (Tri), the classification sought to
be made by the Revenue was rejected. This classification
was sought to be made by the Revenue placing reliance on
the HSN explanatory notes of chapter 22. The issue
involved before the Tribunal in respect of classification of
the product in question “Appy Fizz”. The classification
sought to be made by the Revenue under item head 2202
10 10 on the ground that it was aerated whereas the
assessee had classified the item under Tariff Subheading
2202 90 20 as it is a juice based drink and also because
the product contained 2203% apple juice. The assessee
74 | P a g e
therein relied upon the Prevention of Food Adulteration
Rules, 1955 to submit that fruit beverage or fruit drink
must contain soluble solids not less than 10%, whereas
their product contains 13.7% soluble solids. Rejecting the
contention of the Department, the Hon’ble Tribunal held
that the product was classifiable under tariff item 2202 90
20, observing as under:
“6. The Revenue relied upon HSN Explanatory
Notes of Chapter 22. We find that our tariff is
not fully aligned with the HSN Explanatory
Notes. In the HSN Explanatory Notices there
are two sub-headings under Heading No. 2202
one is “water including mineral waters and
aerated waters, containing added sugar or
other sweetening matter or flavoured and
second is in respect of others. Whereas Central
Excise Tariff under Sub-heading No. 2202 there
are specific headings in respect of soya milk,
drinks etc. As per the Central Excise Tariff, the
waters, including mineral waters and aerated
waters, containing added sugar or other
sweetening matter or flavoured are classifiable
under sub-heading No. 2202.10. The drinks
based on fruit juice are specifically classifiable
under Heading No. 22029020 of the Tariff. In
the present case, there is no dispute regarding
the contents of the product. Revenue is not
disputing the certificate given by the Ministry of
75 | P a g e
Food and Processing Industries, New Delhi
rather they are relying it in the ground of
appeal, and as per the certificate, the product
in question contains 23% of apple juice,
therefore, we find no infirmity in the impugned
order. The appeal is dismissed.”
144. The above decision of the Hon’ble Tribunal was
affirmed by the Hon’ble Supreme Court by dismissing the
civil appeal filed by the Department, as reported in 2010
(254) ELT A13 (SC).
145. The Hon’ble Supreme court in the case of
Parle Agro (P) Ltd. v. Commissioner of Commercial
Taxes, Trivandrum, (2017) 7 SCC 740 also held that
‘Appy Fizz’ containing more than 10% fruit juice (viz.
12.7%) was a fruit juice-based drink in terms of the
provisions of Kerala VAT Act, 2003.
146. In Parle Agro Private Limited Vs.
Commissioner of Commercial Taxes Trivandrum,
reported in (2017) 7 SCC 540 the Apex Court at
paragraph 20 of the said judgment observed that Section 6
of the Kerala Value Added Tax Act, 2003 provides for levy
of tax on sale or purchase of goods. The said Section
6(1)(a) 6(1)(a) read as under:
“20. 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 SRO No. 119 of 2008. Section 6 of76 | P a g e
the Kerala Value Added Tax 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 1-4-2007,
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 per cent, at all points of sale of
such goods within the State, namely–
Sl. No. Description of goods HSN Code
(1) (2) (3) .
1. Areated drink 2201.10.10
(1) Mineral Water ***
(2) Packaged drinking water 2202.10
(3) Branded soft drinks, excluding soda 8415"
2. Air Conditioners
3. Building materials"
The State by various notifications under Section
6(1)(d) has notified list of goods taxable at the rate
of 12.5%. Entry 71 which is relevant for the present
case as notified by the State as existing prior to
amendment by SRO No. 119 of 2008 is as follows:
“71. Non-alcoholic beverages and their
powders, concentrates and tablets including (i)
aerated water, soda water, mineral water, water sold
in sealed containers or pouches, (ii) fruit juice, fruit
concentrate, fruit squash, fruit syrup and fruit cordial
[* * *] [ The words “(iii) soft drinks of all varieties”
omitted by SRO No. 543/2007 dated 20-6-2007
77 | P a g e
published in Kerala Extraordinary No. 1167 dated 21-
6-2007.] , (v) other non-alcoholic beverages; not
falling under any other entry in this List or in any of
the Schedule.
(1) Water not containing added
sugar or other sweetening
matter
[* * *] [ Omitted by SRO No.
543/2007 dated 20-6-2007
published in Kerala Gazette
Extraordinary No. 1167 dated
21-6-2007. Prior to the
omission it read as under:”(a)
Mineral
water 2201.10.10″]
(b) Aerated water
(2) Water containing added 2201.10.20
sugar or other sweetening
matter
(3) Fruit juices and vegetables
juices, unfermented and not
containing added spirit,
whether or not containing 2009
added sugar of other
sweetening matter
(4) Fruit pulp or fruit juice 2202.90.30
based drinks
(5) Soft drink concentrates
(a) Sharbat 2106.90.11
(b) Others 2106.90.19
(6) Beverages containing milk 2202.90.30″
78 | P a g e
By SRO No. 119 of 2008 Entry 71 has been
substituted by another Entry. Entry 71 after amendment by
SRO No. 119 of 2008 w.e.f. 1-4-2007 is as follows:
“71.Non-alcoholic beverages and their powders,
concentrates and tablets in any form including–
(1) aerated water, soda water, mineral water, water sold in
sealed containers or pouches;
(2) fruit juice, fruit concentrates, fruit squash, fruit syrup
and pulp and fruit cordial;
(3) soft drinks other than aerated branded soft drinks;
(4) health drinks of all varieties;
(5) ‘similar other products not specifically mentioned under
any other entry in this List or any other Schedule’.”
147. In this connection, the Apex Court observed as
under:
“31. The aerated branded soft drinks,
excluding soda were always covered under Section
6(1)(a) and prior to 1-4-2007 it bears HSN Code
2201.10.10. Entry 71 Item 4 also reads as “fruit pulp
or fruit juice based drinks with HSN Code
2202.90.20”. When fruit juice based drinks were
covered under Entry 71 the State Government knew
that fruit juice based drinks were not covered by
Section 6(1)(a). Applicability of the power of State to
issue notification under Section 6(1)(d) arises only79 | P a g e
when goods were not covered by Section 6(1)(a).
Fruit juice based drinks, thus, were never treated as
“aerated branded soft drinks” which was the
understanding of the State of Kerala while issuing
notification under Section 6(1)(d). Had fruit juice
based drinks were also to be covered by aerated
branded soft drinks, there was no occasion for
subordinate legislative authority i.e. the State
Government, to include such products in notification
under Section 6(1)(d).”
148. Similarly, in the case of Godrej Foods Ltd. v.
CCE, Indore, 2000 (121) ELT 231 (Tri.), the issue
before the Hon’ble Tribunal was regarding classification of
the fruit drink marketed under the brand name “Lipton
Tree Top” as a ready to serve beverage. The fruit drink
was prepared in different fruit flavours Mango, Apple,
Guava and Orange. The assessee had claimed its
classification under sub-heading No. 2001.10 as fruit juice,
whereas Revenue was of the view that the product merits
classification under sub-heading No. 2202.90 as non-
alcoholic beverages. The product contained 15.18% to
19.32% fruit pulp/concentrate, 13.44% to 14.7% sugar,
and 70% water. The Hon’ble Tribunal held the product was
not classifiable under heading 2001 as a preparation of
food but was classifiable under sub-heading 2202 90 as
other non-alcoholic beverage.
149. It is submitted that Squash and other ready-to-
serve beverages made from fruit/ fruit juice have been held
80 | P a g e
to be classifiable under tariff item 2202.90 of the old six-
digit Tariff Schedule, which corresponds to present eight-
digit tariff item 2202 99 20, in the following cases:
150. In the case of Hamdard (Wakf)
Laboratories Vs. Collector of Central Excise, Meerut,
reported in (1999) 6 XCC 617, the Apex Court was
examining with regard to the classification of a product
made by the Appellate Court called “SharbatRoohAfza”
which contained some orange juice and distillates of citrus
medica, rose damascene and permissible food colours and
was said to be a summer drink and useful also in treating
disorders associated with heat. The Apex Court was
examining the question of the said sharbat falls within
Tariff Heading 2202.90. In this connection the Apex Court
held as under:
“6. The Tribunal would appear to have gone wrong
in concluding that the said sharbat did not fall under Entry
2202.90 because it read “not including fruit or vegetable
juices of Heading 20.01” as meaning beverages which do
not contain fruit or vegetable juices. This is patently
erroneous. Where the Tariff wanted to convey this
intention it used the words “not containing”, as in Heading
22.01, and where it intended to convey that an article
should contain something it used the word “contained”, as
in Entry 22.02 itself. The fact that a beverage includes fruit
or vegetable juice does not ipso facto exclude it from
Heading 22.02. Only beverages that contain fruit or
81 | P a g e
vegetable juices that fall under Heading 20.01 are excluded
from Heading 22.02.”
151. In the case of Katrala Products Ltd. v. CCE,
Meerut, reported in (1999) SCC Online SC 701, the
Apex Court was examining the question as to whether
synthetic squash or concentrate which can be consumed as
a table drink after dilution with water. Even so, it has not
been classified as a beverage. The Apex Court following
the judgment of Hamdard (Wakf) Laboratories,
allowed the appeal of the appellant.
152. The final order No. 75031/2021 dated
25.01.2021 passed by the Tribunal, Kolkata in the case of
Anutham Exim Pvt. Ltd. also returned similar findings that
the items before the Tribunal are classifiable under item
head 2202 99 20.
153. In the facts of that case for the period under
consideration, the assessee therein had filed Bills of Entry,
for the import of the goods, viz. Big Cola, Big Jeera etc.,
which were carbonated beverages with fruit juice, having
the fruit juice content of atleast 5% (2.5% in case of lime/
lemon), classifying the same under the tariff item 2202 99
20 (as fruit juice-based drinks) and applying appropriate
IGST at the rate of 12%. However, the adjudicating
authority re-assessed the said illis of entry and classified
imported goods under tariff sub-heading 2202 10 treating
the same as carbonated flavoured waters.
82 | P a g e
154. Thereafter, on appeal before Commissioner
(Appeals.), against aforesaid order, the Commissioner
(Appeals), Kolkata vide Order-In-Appeal dated 08.06.2020,
set aside the Order-in-Original dated 06.05.2020 and held
that the said goods would be treated as fruit juice-based
drinks’ only and classifiable under tariff item 2202 99 20
and chargeable to GST @ 12%.
155. Being aggrieved with aforesaid order, the
department challenged the same before the Hon’ble
Tribunal vide Customs Appeal No. C/75195/2020. The
Hon’ble Tribunal, Kolkata vide Final order No. 75031/2021
dated 25.01.2021. rejected the appeal filed by the
department, relying on settled judicial pronouncements of
the Hon’ble Apex Court in the case of Parle Agro (P) Ltd.
v. Commissioner of Commercial Taxes, Trivandrum,
2017 (352) ELT 113 (SC) and the larger bench of
Tribunal in the case of Brindavan Beverages Pvt. Ltd.
v. Commr. of Cus., CX & ST 2019 (29) GSTL 418 (Tri-
LB). Accordingly, the said goods were held to be
classifiable under Tariff Item 2202 99 20. Relevant portion
of the order is reproduced herein below:
“25.The question which falls for consideration
in the present case is how to view the products
in question- (a) as carbonated beverages
treating the fruit juice as a secondary character
as the Revenue views them or (b) as fruit juice
based drinks as the Respondent assessee views
them. In our considered view, a decision on83 | P a g e
this could be made by examining how they are
being sold. They are being sold as Carbonated
beverages with fruit juice”- neither as fruit juice
based drinks nor as carbonated beverages
although the fruit juice content is only 5% (or
2.5% in case of lime). This gives the products
their unique characteristic distinct from both
carbonated beverages and fruit juices. The
FSSAI regulation (2.3.30 clause 3A) also
conceives of such a category of products in the
market. Thus, they form a separate specie of
products known to the market and are
recognised as such by FSSAI. The Customs
Tariff, however, does not have a separate entry
for such products. We do not agree with the
Revenue’s contention that the essential
character of the products is only carbonated
drinks and not the fruit juices. In our view both
components are important. As carbonated
beverages, they can be classified under 2202
10 20/22021090 (as claimed by the Revenue).
As fruit juice based drinks, they could as well
be classified under 2202 99 20 (as claimed by
the assessee). In our view neither carbonated
beverage alone nor fruit juice alone gives the
essential character of theproducts in question;
both contribute to its essential character. The
issue cannot be resolved as per Rule 3(a) and
3(b) of the Rules of Interpretation and84 | P a g e
therefore we need to resort to Rule 3(c) which
reads as follows:
“3 (c) When goods cannot be classified by
reference to (a) or (b), they shall be
classified under the heading which occurs
last in numerical order among those
which equally merit consideration. Since
Customs tariff heading 22029920 comes
last in the order, it prevails and the goods
are classifiable under this heading.”
26. We find that the Hon’ble Supreme Court in
the case of Parle Agro (supra) examined the
classification of appy fizz which was a drink
containing apple juice as well as carbonated
water and held that the product is correctly
classifiable under 22029920. While deciding the
matter, the Hon’ble Apex Court has referred to
the Regulation 2.3.30 of FSSAI too, inter-alia,
found that the product appy fizz met with the
conditions in Clause 2 of this Regulation.
Revenue’s argument is that the appy fizz
contained 10% of the apple juice whereas the
present products contained only 5% fruit juice
(2.5% in the case of lime). It is true that in
view of this difference in the composition these
goods do not fall under Clause 2 of FSSAI
Regulation 2.3.30 but they do fall under Clause
85 | P a g e
3A. Identical view has been taken by the Larger
Bench of the Tribunal in the case of Brindavan
Beverages (supra).
Revenue has relied upon the ruling of the
Advance Ruling Authority in the case of IGST
and a support to such a decision by the GST
Council which are not binding precedents for
this Bench. At any rate, the ruling of the
Advance Ruling Authority is not even applicable
to any assessee other than the one who sought
clarification. Therefore, the learned
Commissioner (Appeals) is correct in not relying
upon such a decision.
28…
29. It was also argued by the Revenue that the
Commissioner (Appeals) has erred in relying on
the judgment of the Hon”ble Apex Court in the
case of Parle Agro (supra) as it was in respect
of Appy fizz in which the apple fruit content
was more than 10% whereas in the present
case the juice content is only 5% or 2.5% (in
case of Lime). We find no force in this
argument because products containing 5% fruit
juice (2.5% in case of lime) are now squarely
covered by the FSSAI regulations. 30. In view
of our above findings and respectfully following
the decisionof the Hon’ble Supreme Court in
86 | P a g e
the case of Parle Agro (supra) and the decision
of the Larger Bench of the Tribunal in the case
of Brindavan Beverages (supra), we hold that
the products, in question, have been correctly
classified under 22029920 by the learned
Commissioner (Appeals) in the impugned order
and the same calls for no interference. 31. The
impugned order is upheld and Revenue’s
appeal is rejected. The stay application filed by
the Department also stands disposed of.”
156. The catena of judicial pronouncements as
discussed above unequivocally lead to the conclusion that
while interpreting the classification under Tariff heads and
the sub heads, the meaning ascribed or provided in the
statute must be followed.
157. As have been discussed above, a plain reading
of the schedule under Chapter 22 reveals that the Tariff
item 2202 is to be applied in respect of “Waters including
mineral waters and aerated waters containing added sugar
and other sweetening matter or flavoured, and other non-
alcoholic beverages not including food or vegetable juices
under heading 2009”. This Tariff head is divided into two
parts namely;
2202 10- Waters including mineral water, aerated
water containing added sugar or other sweetening matter
or flavoured.
And the other sub-head
87 | P a g e
2202 99- “Others”
158. The chemical examination of the sample
products undertaken by the petitioner company which are
available as Annexure-2 series in the writ petition reveals
amongst others the following:
The total soluble solids more than 10% and food juice
content is found to be present. Sugar is also found to be more
than 10% in most of the products is also found to be present.
The results also reflects that as per the standard prescribed
under the Food Safety and Standard Regulations, total soluble
solids should not be less than 10%.
The opinion of the Food Analyst show that the
sample confirms to the prescribed standards as per food
safety and standards regulations with respect to the tests
carried out.
159. These tests were conducted to ensure the food
safety and standards required to be maintained under the
relevant statute. The Food Safety and Standards Act and
Regulations are essentially statutes which are enacted by
the State to regulate food standards, production,
distribution, consumption and are based on international
legislations. The objectives of the Food Safety and
Standards Act are as follows:
(i) to consolidate the laws regulating the food;
(ii) to establish food safety and standards
authority of India for laying down science
based standards for articles of food88 | P a g e
(iii) To regulate their manufacture, storage,
distribution, sale and import;
(iv) To ensure availability of safe and
wholesome food for human consumption.
160. The Act apart from making stringent provisions
to curb food adulteration, also ushers in new concepts such
as putting in place food safety management systems and
food safety audit to realise its ultimate goal of ensuring
availability of safe and wholesome food for human
consumption. {for reference Swami Achyutananda Teerth
Vs Union of India 2016 (9) SCC 669}.
161. Under Section 92 read with Section 16 of the
Food Safety and Standard Act, 2006, the Food Safety and
Standards (Food Products Standards and Food Additive)
Regulations, 2011 have been framed. The assessee has
referred to the standards mentioned in Regulation 2.3.30
which pertains to carbonated food beverages or fruit
drinks.
162. It is further provided thereunder that in order
to confirm to the Micro Biological Requirements given in
Appendix-B, the product must meet the following
requirements:
(i) Food content (m/m)
A lime or lemon not less than 5%
(ii) Other foods not less than 10%
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163. It is further provided that the product shall have the
colour, tastes and flavour characteristic of the product and
shall be free from extraneous matter.
164. Under the Customs Tariff Act, which is adopted by
the GST authorities for the purpose of rate of tax in respect
of the items prescribed in the schedules, the Rules for
interpretation of the schedule as prescribed would be
relevant for the purposes of this case. Under the said
general Rules, the classification of goods in the schedule
are to be governed in the principles prescribed thereunder.
“Rules for the interpretation of this Schedule
1. The titles of sections and Chapters are provided for ease of
reference only; for legal purpose, classification shall be
determined according to the terms of the headings and any
relative section or Chapter Notes and, provided such headings
or Notes do not otherwise require, according to the provisions
hereinafter contained.
2. (a) Any reference in a heading to goods shall be taken to
include a reference to that goods incomplete or unfinished,
provided that, the incomplete or unfinished goods have the
essential character of the complete or finished goods. It shall
also be taken to include a reference to that goods complete or
finished (or falling to be classified as complete or finished by
virtue of this rule), removed unassembled or disassembled.
(b) Any reference in a heading to a material or substance shall
be taken to include a reference to mixtures or combinations of
that material or substance with other materials or substances.
Any reference to goods of a given material or substance shall
be taken to include a reference to goods consisting wholly or
partly of such material or substance. The classification of goods
consisting of more than one material or substance shall be
according to the principles contained in Rule 3.
3. When by application of sub-rule (b) of Rule 2 or for any
other reason, goods are, prima facie, classifiable under two or
more headings, classification shall be effected as follows:
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(a) The heading which provides the most specific description
shall be preferred to headings providing a more general
description. However, when two or more headings each refer to
part only of the materials or substances contained in mixed or
composite goods or to part only of the items in a set, those
headings are to be regarded as equally specific in relation to
those goods, even if one of them gives a more complete or
precise description of the goods.
(b) Mixtures, composite goods consisting of different materials
or made up of different components, and goods put up in sets,
which cannot be classified by reference to (a), shall be classified
as if they consisted of the material or component which gives
them their essential character, insofar as this criterion is
applicable.
(c) When goods cannot be classified by reference to (a) or (b),
they shall be classified under the heading which occurs last in
the numerical order among those which equally merit
consideration.
4. Goods which cannot be classified in accordance with the
above rules shall be classified under the heading appropriate to
the goods to which they are most akin.
5. For legal purposes, the classification of goods in the sub-
headings of a heading shall be determined according to the
terms of those sub-headings and any related Chapter Notes
and, mutatis mutandis, to the above rules, on the
understanding that only sub-headings at the same level are
comparable. For the purposes of this rule, the relative section
Notes also apply, unless the context otherwise requires.
General Explanatory Notes
1. Where in column (3) of this Schedule, the description of an
article or group of articles under a heading is preceded by “-“,
the said article or group of articles shall be taken to be a sub-
classification of the article or group of articles covered by the
said heading. Where, however, the description of an article or
group of article is preceded by “—-“, the said article or group
of articles shall be taken to be a sub-classification of the
immediately preceding description of articles or group of articles
which has “-“.
2. The abbreviation “%” in column (4) of this Schedule in
relation to the rate duty indicates that duty on the goods to
which the entry relates shall be charged on the basis of the
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value of the goods as defined in Section 4 or the tariff value
fixed under Section 3 of the Central Excises and Salt Act, 1944
(Act 1 of 1944), the duty being equal to such percentage of the
value or tariff value as is indicted in that column.”
165. From a perusal of these Rules, it is seen that
while interpreting the Tariff heads/sub-heads that where
the goods cannot be classified in accordance with the
above Rules, they shall be classified under the heading
appropriate to the goods to which they are most akin.
166. Coming to the facts of the present case, the
chapter 22 does not specifically define the items
manufactured and sold by the petitioner . Therefore, under
the Rules of interpretation provided under the 1 st schedule
to the Customs Tariff Act, 1975, these items will have to be
classified under the heading appropriate to the goods to
which they are most akin. The tests conducted under the
Food Safety Act quite clearly reveal that they are within the
permissible limits prescribed under the Food Safety Act and
except lime based products where the fruit concentrate is
required to be 5% in all the other products it is seen to be
more than 10%. This is not disputed by the Revenue.
167. It is also not disputed that the GST Statute does not
have the Tariff heads and classification prescribed under
the Act and the Rules. Therefore, the Customs Tariff Act
has been adopted. Therefore, in order to arrive at a
definitive conclusion as to whether the subject products
manufactured by the petitioner and its constituents, in the
absence of any specific description or heading provided
under Chapter 22, the items will have to be classified under
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the heading or sub-heading to which these goods appear
to be most akin to. From the laboratory test reports and
the manufacturing flow charts placed before the Court, it is
clear that it cannot be classified under 2202 10 rather it is
more akin to 2202 99 20 namely fruit pulp or fruit juice
based drinks as has been classified by the petitioner. To
contradict this conclusion, which is based on Laboratory
Test reports, the Revenue is required to place alternative
materials to suggest that the classification made by the
assessee is incorrect and the one made by the Revenue is
the appropriate one. No such contrary material has been
placed before the Court by the Revenue. The only ground
on which the Revenue has classified the subject product
under sub-heading 2202 10 is that it contains carbonated
water. However, a quick reference to the Tariff schedule
makes it clear that Sub-heading 2202 10 is primarily
‘WATER’ and it also includes mineral waters/ aerated
waters /water containing added sugar or sweetening
matter or flavour whereas sub-heading 2202 99 includes
‘OTHERS’ which are further described under the said sub-
heading. The Tariff heading 2202 99 20 is seen to be for
fruit pulp or fruit juice based drinks.
168. There is also no dispute that the subject products
manufactured by the petitioner had at any point in time
earlier been classified as water in order that it is required
to be classified under sub-head 2202 10 as per Revenue.
The Revenue has never at any point in time raised the
issue or question that the subject products are essentially
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“Water” with or without flavour. Notwithstanding the
seizures made by the Revenue the materials collected from
the assessee and the various inputes received from the
assessee during the course of the hearing and the
elaborate order passed by the respondent No. 3, it is clear
that the Revenue never proceeded to treat the subject
products to be “Water” or products which are akin to water
and have accordingly therefore proceeded to levy GST
under Sub-head 2202 10.
169. The sole basis for rejecting the assessee’s
classification under Sub-head 2202 99 is that these subject
products contained carbonated water. However, such
conclusions by the Revenue that merely because it contains
carbonated water, the subject products are to be treated
under classification ‘water’ or ‘aerated water’ is completely
fallacious. The Laboratory Reports as well as the Labels on
the fruit products which were placed before the Revenue
Authorities clearly reveal the contents of the subject
product. These products being sold as drinks and not as
powders to be solved in water or in any other solid or semi
solid form, must necessarily contained an element of water
or carbonated or aerated water. That by itself cannot
classify the subject product under the sub-head as have
been sought to be done by the Revenue.
170. Even if the classification of the subject items are to
be based on the Doctrine of common perlance then also
the classifications sought to be made by the Revenue
cannot be sustained. These subject products have been
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sold in the market as Fruit Based Drinks or Drinks
containing Fruit Pulp or Fruit Concentrate. When a
consumer seeks to purchase water, there is no possibility
that these subject products can be sold and/or purchased
by such a consumer who seeks to purchase water. These
products cannot be identified as water by a consumer.
171. Under such circumstances, taking into
consideration the Rules of interpretation as prescribed
under the 1st schedule to the Central Excise Tariff, the
subject products classification under Tariff Heading 2202
99 20 as have been done by the assessee will have to be
accepted over the claim of the Revenue that it is
classifiable under the heading 2202 10 90. The contention
of the Revenue therefore cannot be upheld and the same is
rejected.
172. In so far as the contention raised before this
Court by the Revenue regarding the correctness of the
placing reliance by the petitioner on the Food Safety and
Standards (Food Products and Food Additive) Regulation,
2011. It is seen that the Central Excise Tariff Act does not
specify any particular category of laboratory where such
tests are to be conducted nor does it specifically debar
tests results undertaken under the FSSAI for the purposes
of determining the classification of the items under the
appropriate tariff heads. The Revenue has also not
suggested any alternative methods or means by which
such tests results were undertaken leading to contradictory
findings to that of the tests results conducted under the
95 | P a g e
FSSAI. During the search and seizure operations conducted
in the petitioners unit, sample products were also taken by
the Revenue which is not denied. These products could
have been sent to appropriate laboratories for tests to find
out the contents of each of them. However, no such
laboratory results etc have been placed before this Court to
substantiate the claim of the Revenue that these tests
results under FSSAI are unreliable. As it has already been
held in the above discussions that the tests conducted by
the State Laboratory indicate the presence of the total
soluble solids of more than 10% where the required
standard is the presence of soluble solids of not less than
10% and fruit juice content being found to be present, it
cannot be considered to be water or carbonated water
alone
173. In Parle Agro Pvt. Ltd (Supra) before the
Tribunal also the Food Standards laid down under the
prevention of Food Adulteration Rules, 1955 were referred
to and relied upon to classify the product in question. The
order of Tribunal in favour of the assessee therein has also
been upheld by the Apex Court. There is no finding that
placing reliance on Food Adulteration Rules or FSSAI in
order to determine the appropriate classification of the
product in question is contrary to the provisions of Customs
Tariff Act or the same would be unreliable for the purposes
of classification of the items under the Customs Tariff Act.
It is therefore held that the reliance placed by the assessee
on the Food Standard Regulation and the tests results from
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the State Laboratory cannot be set to be unreliable. Rather
its supports the contention of the petitioner that the items
in question cannot be classified under the Sub Head “Water
or Carbonated Water”. Therefore, this Court does not find
any infirmity in the petitioner placing reliance on Food
Safety and Standards (Food Products Standards and Food
Additives) Regulation, 2011 as well as the test results by
the State Laboratory for the purposes of classifying the
products items in question under appropriate heads. Under
such circumstances, this contentions of the Revenue fails
and is therefore rejected.
174. There is also another reason why the
submissions of the Revenue cannot be upheld.
175. Chapter 22 is for “beverages, spirits and
vinegar”. For the purposes of this proceedings, the tariff
head 2202 is relevant. The said sub-head along with the
items described is extracted below:
Tariff Description of goods
Item
(1) (2)
2202 Waters, including mineral waters and aerated
waters, containing added sugar or other
sweetening matter or flavoured, and other
non-alcoholic beverages, not Including fruit
or vegetable juices of Heading 2009
2202 10 Waters, including mineral waters and aerated
waters, containing added sugar or other
97 | P a g e
sweetening matter or flavoured:
2202 10 10 Aerated Waters
2202 10 20 Lemonade
2202 10 90 Other
2202 99 Other
2202 99 10 Soya milk drinks, whether or not sweetened
or flavoured
2202 99 20 Fruit pulp or fruit juice based drinks
2202 99 30 Beverages containing milk
2202 99 90 other
176. A perusal of the chart reveals that Tariff Head
2202 is for Water including mineral waters and aerated
waters, containing added sugar or other sweetening matter
or flavoured, and other non-alcoholic beverages, not
including fruit or vegetable juices of Heading 2009. This
head is again further divided into sub-heads namely 2202
10 for Waters, including mineral waters and aerated
waters, containing added sugar or other sweetening matter
or flavoured and Sub- Head 2202 99 for Others.
177. If the sub heading 2202 10 and the items
specified under that sub heading are to be seen, it will be
apparent that all the sub heads under 2202 10 are meant
for different kinds of water. Whereas 2202 99 and the
Tariff Items thereunder have been so classified as to
distinguish them from products which are ordinarily
identified with water or mineral water or aerated waters.
Under such circumstances, it is a well established Rule to
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be followed that Tariff Items are to be classified under
Items to which it is most akin to. Therefore, where the
subject product contains soluble solids and fruit content as
per the report of the State Food Laboratory, it cannot be
said to be akin to water, mineral water or aerated water.
Mere presence of carbon dioxide or carbonated water
cannot be treated to classify the subject items under water
or carbonated water. Therefore, the classification sought to
be made by the Revenue cannot be accepted. The
classifications by the petitioner of the items under the
subject head Fruit Pulp or Fruit Based Drink appear to be
correct to this Court.
178. As have been discussed above, the burden is
on the department to prove the classification of the subject
items. Although, the results of the State Food Laboratory
have been discarded by the Revenue, no alternative test
reports or methods for appropriate classification of the
subject products have been placed before the Court.
Where an established laboratory for food testing under the
FSSAI has in it’s test reports indicated presence of food
content and soluble solids in the report, and these reports
not having been contradicted by the Revenue by referring
or relying on other reliable test reports, the contention of
the Revenue that these reports cannot be reliable,
therefore cannot be accepted as the same are not
supported by any sufficient reason.
179. In Union of India Vs Garware nylons Ltd,
reported in 1996 (87) ELT 12 (SC), the dispute before the
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Apex Court was regarding the classification of ‘Nylon Twine’
which the assessee classified under Tariff Item No. 18 as
Nylon Yarn whereas the department entertained the view
that it is classifiable under the residuary entry 68. The
assessee produced certificates/ affidavits from experts in
the field and also from the users of its products to the
effect that Nylon Twine was treated as Nylon Yarn only in
commercial parlance. The assessee also laid before the
authorities the text of various technical literatures to
substantiate the classification adopted by it. However, the
department did not agree to the classification adopted by
the assessee and confirmed the demand, which upon
appeal by the assessee, was set aside by Hon’ble High
Court of Bombay. The Hon’ble Apex Court upheld the order
of the Hon’ble High Court observing as under:
“15. In our view, the conclusion reached by the
High Court is fully in accord with the decisions
of this Court and the same is justified in law.
The burden of proof is on the taxing authorities
to show that the particular case or item in
question, is taxable in the manner claimed by
them. Mare assertion in that regard is of no
avail. It has been held by this Court that there
should be material to enter appropriate finding
in that regard and the material may be either
oral or documentary. It is for the taxing
authority to lay evidence in that behalf even
before the first adjudicating authority.
100 | P a g e
Especially in a case as this, where the claim of
the assessee is borne out by the trade inquiries
received by them and also the affidavits filed by
persons dealing with the subject matter, a
heavy burden lay upon the revenue to disprove
the said materials by adducing proper evidence.
Unfortunately, no such attempt was made. As
stated, the evidence led in this case
conclusively goes to show that Nylon Twine
manufactured by the assessee has been treated
as a kind of Nylon Yarn by the people
conversant with the trade. It is commonly
considered as Nylon Yarn. Hence, it is to be
classified under Item 18 of the Act. The
Revenue has failed to establish the contrary….
180. Again in H.P.L. Chemicals Ltd. v. CCE,
Chandigarh, reported in in (2006) 5 SCC 208, the Apex
Court held that classification of goods is a matter relating
to chargeability and the burden of proof is squarely upon
the Revenue. If the Department intends to classify the
goods under a particular heading or sub-heading different
from that claimed by the assesse, the Department has to
adduce proper evidence and discharge the burden of proof.
In the present case the said burden has not been
discharged at all by the revenue.
181. In Hindustan Ferodo Ltd. v. CCE, Bombay,
reported in (1997) 2 SCC 677, the Apex Court held that
the onus of establishing that the said rings fell within Item
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22-F lay upon the Revenue. The Revenue led no evidence.
The onus was not discharged. Assuming therefore, that the
CEGAT was right in rejecting the evidence that was
produced on behalf of the appellants, the appeal should,
nonetheless, have been allowed.
182. The ratio in the above judgments can be
squarely applied to the facts of the present proceedings. As
such, it is held that the burden is on the Revenue to
establish with cogent materials that the classification of the
subject items have been wrongly classified under the sub
Heads by the assessee rather it has to be classified under
the sub Heads as projected by the Revenue.
183. In so far the arguments of the petitioner that
Section 74 of the CGST Act is not applicable in the present
case in the absence of any fraud or wilful suppression on
the part of the petitioner. In order to deal with the said
contention of the petitioner it will be necessary to refer to
Section 74 of the CGST Act. The said section reads as
under:
“74. Determination of tax not paid or short paid or
erroneously refunded or input tax credit wrongly
availed or utilised by reason of fraud or any willful-
misstatement or suppression of facts.-(1) Where it
appears to the proper officer that any tax has not been paid or
short paid or erroneously refunded or where input tax credit
has been wrongly availed or utilised by reason of fraud, or any
wilful-misstatement or suppression of facts to evade tax, he
shall serve notice on the person chargeable with tax which has
not been so paid or which has been so short paid or to whom
the refund has erroneously been made, or who has wrongly
availed or utilised input tax credit, requiring him to show cause
as to why he should not pay the amount specified in the102 | P a g e
notice along with interest payable thereon under section
50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section
(1) at least six months prior to the time limit specified in sub-
section (10) for issuance of order.
(3) Where a notice has been issued for any period under sub-
section (1), the proper officer may serve a statement,
containing the details of tax not paid or short paid or
erroneously refunded or input tax credit wrongly availed or
utilised for such periods other than those covered under sub-
section (1), on the person chargeable with tax.
(4) The service of statement under sub-section (3) shall be
deemed to be service of notice under sub-section (1) of
section 73, subject to the condition that the grounds relied
upon in the said statement, except the ground of fraud, or any
wilful-misstatement or suppression of facts to evade tax, for
periods other than those covered under subsection (1) are the
same as are mentioned in the earlier notice.
(5) The person chargeable with tax may, before service of
notice under sub-section (1), pay the amount of tax along with
interest payable under section 50 and a penalty equivalent to
fifteen per cent. of such tax on the basis of his own
ascertainment of such tax or the tax as ascertained by the
proper officer and inform the proper officer in writing of such
payment.
(6) The proper officer, on receipt of such information, shall not
serve any notice under sub-section (1), in respect of the tax
so paid or any penalty payable under the provisions of this Act
or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount
paid under sub-section (5) falls short of the amount actually
payable, he shall proceed to issue the notice as provided for in
sub-section (1) in respect of such amount which falls short of
the amount actually payable.
(8) Where any person chargeable with tax under sub-section
(1) pays the said tax along with interest payable under section
50 and a penalty equivalent to twenty-five per cent. of such
tax within thirty days of issue of the notice, all proceedings in
respect of the said notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the
representation, if any, made by the person chargeable with
tax, determine the amount of tax, interest and penalty due
from such person and issue an order.
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(10) The proper officer shall issue the order under sub-section
(9) within a period of five years from the due date for
furnishing of annual return for the financial year to which the
tax not paid or short paid or input tax credit wrongly availed or
utilised relates to or within five years from the date of
erroneous refund.
(11) Where any person served with an order issued under
sub-section (9) pays the tax along with interest payable
thereon under section 50 and a penalty equivalent to fifty per
cent. of such tax within thirty days of communication of the
order, all proceedings in respect of the said notice shall be
deemed to be concluded.”
184. The penalty sought to be imposed by the
Revenue on the petitioner under Section 74 of the CGST
Act is by reason for recovery of tax not paid by the
assessee by reasons of fraud or collusion or wilful mis-
statement or suppression of facts and contravention of any
of the provisions of the Act or the Rules with the intent to
evade to payment of tax.
185. Under Section 74 Explanation 2, the term
“suppression” has been explained as non declaration of
facts or information in the returns. In this context, it
is necessary to examine whether there was any
suppression or non-declaration of materials by the
assessee while payment of taxes by classifying the subject
items under Tariff Head 2202 99 20.
In order to decide, whether there was any wilful
suppression or mis-statement by the petitioner, it is
necessary to examine the case laws pressed into service in
this regard.
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186. In the case of CCE V. Chemphar Drugs &
Liniments, 1989 (40) E.LT. 276 (S.C.), it has been
observed that the term ‘willful’ and ‘suppression’ signifies
conscious withholding of information with mala fide
Intention and not an unintentional failure due to
inadvertence. Thus, in order to invoke the extended period
of limitation, it is necessary to prove an act or omission on
the part of the petitioner equivalent to collusion or wilful
misrepresentation or suppression of facts.
187. Again in Anand Nishikawa Co. Ltd. Vs.
Commissioner of Central Excise, Meerut, reported in 2005
(188) ELT 149 (SC), the Apex Court held that suppression
of facts” can have only one meaning that the correct
information was not disclosed deliberately to evade
payment of duty. But when facts were known to both
parties, the omission by one to do what he might have
done, not that he must have done, would not render it
suppression. It is settled law that mere failure to declare
does not amount to wilful suppression. There must be
some positive act of the assessee to bring it within the
ambit of wilful suppression.
188. From the Judgments above, it is seen that for arriving
at the conclusion that there was a suppression of facts, it
must be evident that the correct information was
deliberately not disclosed by the petitioner or that there
was a conscious withholding of information with malafide
intention by the petitioner/assessee. Mere failure due to
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inadvertence will not amount to suppression for invoking
the powers under Section 74.
189. In the impugned show cause notice or in the
impugned order, there is no finding by the Revenue that
the petitioner evaded from furnishing his returns regularly.
The returns which were furnished by the petitioner were on
the basis of the classification made by the petitioner. These
returns filed by the petitioner under the Tariff Head were
known to the Revenue all along. There was no occasion
earlier to raise objections to these returns filed under the
concerned Tariff Head by the petitioner. Therefore, it
cannot be said that there was wilful suppression or
concealment with malafide intention on the part of the
petitioner which will lead to the ultimate conclusion that
there was suppression on the part of the
petitioner/assessee and which gives rise to the invocation
of powers by the Revenue under Section 74.
190. The dispute in the present proceedings is with regard
to the appropriate Tariff Head for the subject products. The
elaborate discussions above would reveal that there is no
specific or definitive description of the items manufactured
and sold by the petitioner. As have been discussed above,
the Revenue did not lay before this Court any contrary
evidence to contradict the views of the petitioner that in
respect of the Tariff Head.
191. Under such circumstances, where substantial
discussion is required to arrive at a conclusion to determine
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the appropriate Tariff Head of the subject products, it
cannot be said that filing of returns under the Tariff Head
2202 90 20 by the petitioner in respect of the subject
products will amount to deliberate and wilful suppression
or non-disclosure of facts and thereby attract the
provisions of Section 74. Accordingly, it is held that
invocation of powers by the Revenue under Section 74 was
uncalled for and the same is therefore unwarranted.
192. In order to dwell upon the arguments made by
the petitioner questioning the penalty imposed under
Section 122 of the Assam GST Act and to decide on the
correctness of such imposition, it is necessary to refer to
the provisions of Section 122 of the Assam GST Act. For
the purposes of the present proceedings, reference to the
provisions of Section 122 (2)(b) would be sufficient. The
said Section reads as under:
“Penalty for certain offences.
(2) Any registered person who supplies any
goods or services or both on which any tax has
not been paid or short-paid or erroneously
refunded, or where the input tax credit has
been wrongly availed of utilised,-
(a) for any reason, other than the reason of
fraud or any wilful misstatement or suppression
of facts to evade tax, shall be liable to a penalty
of ten thousand rupees or ten per cent. of the
tax due from such person, whichever is higher;
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(b) for reason of fraud or any wilful
misstatement or suppression of facts to evade
tax, shall be liable to a penalty equal to ten
thousand rupees of the tax due from such
person, whichever is higher.”
193. From perusal of the said provision, it is clear that for
imposition of penalty under Section 122 (2) (b), there
should be an intention to evade payment of tax or there
should be suppression or concealment or wilful mis-
statement of the facts.
194. It is apparent that the ingredients for
imposition of penalty under Section 122(2)(b) are identical
to the ingredients for invocation of the provisions of
Section 74 of the CGST Act.
195. From the elaborate discussions above, this
Court has concluded that there was no suppression of facts
or wilful mis-statement on part of the petitioner assessee
as alleged by the department and consequently provision
of Section 74 of the CGST cannot be invoked in the instant
case.
196. It should also be noted that penal provisions
are only a tool to safeguard against contravention of the
Rules. Reference to the Judgment of the Apex Court in
Hidustan Steel Ltd. Vs. The State of Orissa, reported in AIR
1970 (SC) 253 is relevant for the purpose. The Apex Court
held that liability to pay penalty does not arise merely upon
proof of default in registering as a dealer. An order
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imposing penalty for failure to carry out e statutory
obligation is the result of a quasi-criminal proceeding, and
penalty will not ordinarily be imposed unless the party
obliged either acted deliberately in defiance of law or was
guilty of conduct contumacious or dishonest, or acted in
conscious disregard of its obligation. Penalty will not also
be imposed merely because it is lawful to do so .
197. Further once the demand has been found to be
non-sustainable, the question of levy of penalty does not
arise. The Apex Court in HMM Ltd (Supra) held that the
question of penalty would arise only if the Department is
able to sustain the demand. Similarly, in the case of CCE,
Aurangabad v. Balakrishna Industries, Civil Appeal
No. 3389-3390 of 2001, Hon’ble Supreme Court held
that penalty is not imposable when differential duty is not
payable. Therefore, the proposal for imposition of penalty
upon the petitioner is not sustainable in law.
198. For the reasons given in the foregoing
paragraphs, if the proposed demand is unsustainable in
law, no penalty is imposable on the petitioner. Under such
circumstances, it is held that where the demand has been
found to be unsustainable on the ground that there was no
wilful and deliberate suppression or mis-statement or
evasion or payment of tax, the question of imposition of
penalty must also failed. Accordingly, the imposition of
penalty by the Revenue is therefore interfered with and set
aside.
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199. Similarly, the imposition of interest under
Section 50 is also not recoverable in the present
proceedings. The reason being that where the primary
demand has been held to be unsustainable there is no
basis for levy of any interest. Therefore, the levy of interest
under Section 50 of the CGST Act is also interfered with
and set aside.
200. Coming to the Notification No. 8/2021-Central
Tax (Rate) dated 30.09.2021 and Notification No. 1/2021-
Compenation Cess (Rate) dated 30.09.2021, it is seen by
the said Notification No. 8/2021-Central Tax (Rate) dated
30.09.2021 whereby a new entry was inserted as Serial No.
12A in Schedule – IV making Carbonated Beverages of
Fruit Drink or Carbonated Beverages with Fruit Juice to be
taxable @ 14% and Notification 1/2021-Compensation
Cess (Rate) dated 30.09.2021 whereby in the Schedule of
the Goods and Services Tax (Compensation to States) Act,
2017 a new entry namely 4B was inserted levying 12%
Cess on Carbonated Beverages of Fruit Drink or
Carbonated Beverages with Fruit Juice and the same was
made effective from 01.10.2021. The tax @ 14% and Cess
@ 12% cannot be imposed on the said items for the
periods prior to 01.10.2021. These Notification have been
made effective only from the date it is notified.
201. In Commissioner of Central Excise,
Bangalore Vs. Mysore electricals industries Ltd.,
reported in (2006) 12 SCC 448, the Apex Court held that
the classifications of a item can take effect only
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prospectively. The Apex Court held that the assessee
therein had filed a classification list effective from 1-3-
1993, classifying the single panel circuit-breakers under
Heading 85.35 and claiming concessional rate of duty at
5% under Notification No. 52/93 dated 28-2-1993. The
said classification list was approved by the jurisdictional
Assistant Commissioner on 10-6-1993. Thereafter, the
assessee cleared the said goods in accordance with the
approved classification list. When this approved
classification was proposed to be revised to reclassify the
single panel circuit-breakers under Heading 85.37 of the
Tariff Act, such reclassification can take effect only
prospectively from the date of communication of the show-
cause notice proposing reclassification. It was held by the
Apex Court that the show-cause notice was communicated
to the assessee only on 31-12-1993, therefore, as rightly
urged by the learned counsel for the respondent, the
reclassification can take effect only from 27-4-1994 and
accordingly the differential duty can be demanded only
from that date.
202. The periods involved in the present writ
petitions are prior to the issuance of the said Notifications
re-classifying the items. These Notifications therefore can
only have effect from the date it is made effective and
prospectively. There is no justification by the Revenue to
make these notifications applicable retrospectively.
203. The publication of the Notifications and
insertions of new entry rather supports the case of the writ
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petitioners. If the subject items dealt with by the
petitioners are classifiable under entry 2202 10 10 i.e.
under the description “aerated waters” as sought to be
classified by the Revenue, there would have been no
necessity of inserting a separate item in the schedule and
also by inserting by new entry of Cess under the Assam
GST Act, 2017. In this context, the reference to the
Judgment of Parle Agro (P) Ltd (Supra) is very relevant.
204. In this case before it, the Apex Court observed
that fruit juice based drink were also to be covered by
aerated branded soft drink, there was no occasion for the
subordinate authorities to include the said products in
Notification under Section 6(1)(d). Paragraph 31 of the said
Judgment is extracted below:
“31. The aerated branded soft drinks, excluding soda
were always covered under Section 6(1)(a) and prior to 1-
4-2007 it bears HSN Code 2201.10.10. Entry 71 Item 4 also
reads as “fruit pulp or fruit juice based drinks with HSN
Code 2202.90.20”. When fruit juice based drinks were
covered under Entry 71 the State Government knew that
fruit juice based drinks were not covered by Section
6(1)(a). Applicability of the power of State to issue
notification under Section 6(1)(d) arises only when goods
were not covered by Section 6(1)(a). Fruit juice based
drinks, thus, were never treated as “aerated branded soft
drinks” which was the understanding of the State of Kerala
while issuing notification under Section 6(1)(d). Had fruit
juice based drinks were also to be covered by aerated112 | P a g e
branded soft drinks, there was no occasion for subordinate
legislative authority i.e. the State Government, to include
such products in notification under Section 6(1)(d).”
205. Similarly, in the present case if the aforesaid
product would have been covered by 2202 10 10, there
would have been no occasion to issue the aforesaid
Notifications by inserting new items making it effected from
01.10.2021. In view of the aforesaid, it is very clear that
earlier the items in question were covered by Tariff Item
2022 90 20 and only after issue of the aforesaid
Notification, the same is made taxable at a higher rate.
206. In view of the elaborate discussions above, the
contentions raised by the Revenue fails. The Judgments
relied upon by the Revenue therefore do not support the
contentions raised by the Revenue and are therefore not
discussed. The writ petitions are therefore allowed. The
impugned Show cause Notice dated 17.02.2022 and
impugned order dated 14.07.2024 for the periods from
July, 2017 to March, 2018 in W.P.(C) No. 5340/2022; April,
2018 to March, 2019 in W.P(C) No. 5342/2022; April, 2019
to March, 2020 in W.P.(C) No. 5341/2022; April, 2020 to
March, 2021 in W.P(C) No. 5347/2022; April, 2021 to
August, 2021 in W.P.(C) No. 5346/2022 are interfered
with, set aside and quashed. No order as to cost. Interim
orders, if any, stands merged.
JUDGE
Comparing Assistant
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