2019 (10) TMI 762 - AT - Central Excise

Classification of goods - Minute Maid Nimbu Fresh - Nimbooz Masala Soda - Nimbooz - whether would fall under Tariff Item No. 2202 10 20 of the Central Excise Tariff Schedule or under Tariff Item No. 2202 90 20? - HELD THAT - For a product to be classified under 2202 10 20 it must be in the nature of waters including mineral waters and aerated waters containing flavouring elements as lime/lemon. It therefore follows that products which are not essentially waters with flavouring elements as lime/lemon would not fall for classification under 2202 10 20. Thus unless the products MMNF Nimbu and Nimbooz satisfy the description of single dash 2202 10 as waters including mineral waters and aerated waters containing added sugar or other sweetening matter or flavoured they cannot straightway be classified under the three dash --- 22020 10 20 as lemonade. It is not even the charge in the show cause notice or in the impugned order that any of the products in question satisfy the above description of 2202 10 as waters including mineral waters and aerated waters containing added sugar or other sweetening matter or flavoured. These products therefore cannot fall under 2202 10 20 as lemonade. Tariff Item No. 2202 10 20 would cover only those products which are essentially waters with added sugar and flavoured. The Supreme Court in its decision in Parle Agro (P) Ltd. 2017 (5) TMI 592 - SUPREME COURT examined at length the provisions of the Regulations framed under The Food Safety and Standards Act and more particularly to the provisions of Regulation 2.3.10 that requires fruit juice content in lime / lemon ready to serve beverage as not less than 5% and in all other beverages / drinks as not less than 10%. It was noticed that in Appy Fizz the contents of apple is more than 10%. In the case of lime / lemon the fruit juice content the requirement is that it has to be not less than 5 %. The products bought and sold as fruit drink with lemon juice having a juice content of 5 per cent or more are described as Ready to Serve Fruit Drink and not as Lemonades or Lemon/Lime Flavoured Drinks. On the other hand the products which are sold as Sweetened Carbonated Beverage have no fruit juice content in them and they are bought and sold either as Lemonades or Lemon Flavoured Drinks with a clear stipulation that they contain no fruit juice or fruit pulp - It can therefore safely be assumed that the first group of products which are Lemon Juice Based Drinks having a juice content of 5 per cent or more are not Lemonades in the commercial parlance and therefore will not be covered under Tariff Item No. 2202 10 20 and will be covered under Tariff Item No. 2202 90 20. Regulation 2.3.10 deals with Non-Carbonated Fruit Beverages and Regulation 2.3.30 deals with Carbonated Fruit Beverages . The fruit juice content (m/m) for both the Non-Carbonated and Carbonated Fruit Beverages has been indicated. In the case of Non-Carbonated Fruit Beverages the Total Soluble Solid (m/m) should not be less than 10% and the fruit juice content for Lime/Lemon ready to serve beverage has been mentioned to be not less than 5.0 per cent. In the case of Carbonated Fruit Beverage the Total Soluble Solid (m/m) should also not be less than 10% and the Fruit content of Lime or Lemon juice should not be less than 5%. It has also been stated that the product shall have the colour taste and flavour characteristic of the product and shall be free from extraneous matter. Thus the fruit juice content of lime or lemon juice in MMNF Nimbu Masala Soda or Nimbooz has been indicated to be not less than 5% and the Total Soluble solids is also not less than 10%. All the three products namely MMNF Nimbu Masala Soda and Nimbooz satisfy the requirements of Regulation 2.3.10 or Regulation 2.3.30. These products therefore would classify under Tariff Item no. 2202 90 20 as fruit juice based drinks - The irresistible conclusion therefore that follows from both the common parlance test and the supporting legislation test is therefore that the three products MMNF Nimbu Masala Soda and Nimbooz would classify under Tariff Item No. 2202 90 20 as fruit juice based drinks.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issue considered by the Larger Bench concerns the classification of certain non-alcoholic beverages under the Central Excise Tariff Schedule. Specifically, the question referred for determination was whether the products "Minute Maid Nimbu Fresh" (MMNF) manufactured by Brindavan Beverages Private Limited, and 7up "Nimbooz Masala Soda" and 7up "Nimbooz" manufactured by Pepsico India Holdings Private Limited, fall under:

• Tariff Item No. 2202 10 20, described as "Lemonade" (as claimed by the Revenue), or
• Tariff Item No. 2202 90 20, described as "Fruit pulp or fruit juice based drinks" (as claimed by the appellants).

Additional issues implicitly considered included:

• The applicability and interpretation of the General Rules for Interpretation of the Tariff Schedule, especially the hierarchical structure denoted by the dash system ("-", "--", "---") in tariff sub-classifications;
• The relevance of the Food Safety and Standards Act, 2006 and its Regulations (particularly Regulations 2.3.10 and 2.3.30) in determining the nature of the product for classification;
• The application of the common parlance test to ascertain the commercial understanding and description of the products;
• The evidentiary burden on the Revenue to establish classification under the contested heading;
• The precedential value and applicability of prior Tribunal and Supreme Court decisions on similar classification disputes.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification under Tariff Item 2202 10 20 (Lemonade) or 2202 90 20 (Fruit pulp or fruit juice based drinks)

Relevant Legal Framework and Precedents:

The Central Excise Tariff Act, 1985, particularly Chapter 22, governs classification of beverages. Heading 2202 covers "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." The relevant sub-headings are:

• 2202 10 20: Lemonade (a sub-classification under 2202 10 "Waters... containing added sugar or other sweetening matter or flavoured")
• 2202 90 20: Fruit pulp or fruit juice based drinks (a sub-classification under 2202 90 "Other non-alcoholic beverages")

General Rules for Interpretation of the Tariff Schedule (notably Rule 3(a)) require preference for the heading providing the most specific description. The General Explanation Notes clarify that three-dash ("---") sub-headings are subordinate to the immediately preceding single-dash ("-") heading.

Precedents considered include:

• The Tribunal's decision in Commissioner of Central Excise Bhopal vs. Parle Agro Pvt. Ltd. (2008), which classified "Appy Fizz" (23% apple juice content) under 2202 90 20 as a fruit juice based drink;
• The Supreme Court's decision in Parle Agro (P) Ltd. vs. Commissioner of Commercial Tax, Trivandrum (2017), which upheld the relevance of Food Safety and Standards Act Regulations and the classification under fruit juice based drinks;
• The Mumbai Tribunal's decision in Hindustan Coca Cola Beverages Pvt. Ltd., which held MMNF to be lemonade under 2202 10 20, distinguishing Parle Agro on the basis of lower juice content (1% concentrate equivalent to 5.7% juice).

Court's Interpretation and Reasoning:

The Larger Bench analyzed the tariff structure, emphasizing the hierarchical nature of classification. It held that for a product to be classified under the three-dash sub-heading 2202 10 20 (Lemonade), it must first satisfy the single-dash heading 2202 10, i.e., be essentially "waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured."

The Bench found that the products in question are not essentially "waters" with lemon flavour but are lemon juice based drinks, containing 5% or more lemon juice. As such, they do not fall within the description of 2202 10 but within 2202 90, which covers other non-alcoholic beverages including fruit pulp or fruit juice based drinks.

The Bench also relied on the General Rules for Interpretation, particularly Rule 3(a), to reject classification under lemonade as the products do not meet the essential character of "waters containing added sugar or flavoured."

Key Evidence and Findings:

• The products MMNF, Nimbooz Masala Soda, and Nimbooz contain lemon juice concentrate equivalent to 5% or more real lemon juice;
• The Total Soluble Solids (m/m) in these products is not less than 10%;
• Labels and product descriptions classify these as "Ready to Serve Fruit Drinks" or "Carbonated Fruit Drinks" rather than lemonade;
• Comparative analysis of market products showed that drinks with lemon juice content above 5% are commonly described as fruit juice based drinks, whereas lemonades or lemon/lime flavoured drinks contain no fruit juice;
• The Revenue did not produce documentary or oral evidence to establish that the products are commercially known as lemonade;
• Food Safety and Standards Act Regulations 2.3.10 and 2.3.30 require a minimum lemon juice content of 5% for classification as fruit juice based drinks.

Application of Law to Facts:

Applying the General Rules for Interpretation and the hierarchical dash system, the products cannot be classified under 2202 10 20 unless they first satisfy 2202 10. Since the products are not essentially waters with added flavour but fruit juice based drinks, they fall under 2202 90 20.

The common parlance test and supporting legislation (Food Safety and Standards Act and Regulations) reinforce this classification, as the products meet the minimum fruit juice content and are labeled accordingly.

Treatment of Competing Arguments:

The Revenue argued that the products are lemonade based on website descriptions and common parlance, emphasizing the advertising slogan "ghar ki yaadon ka ras" (memories of home made lemonade). The Bench rejected this, clarifying that "ras" translates to "juice," not lemonade, and that mere advertising claims do not determine classification.

The Revenue also contended that the Food Safety and Standards Regulations are irrelevant for excise classification; the Bench disagreed, holding these regulations relevant for understanding the product's nature.

The Mumbai Tribunal's reliance on the low juice content (1% concentrate) to distinguish Parle Agro was found unpersuasive, as 1% concentrate corresponds to 5.7% juice content, meeting the regulatory threshold.

The appellants' submissions on the burden of proof were accepted, with the Bench noting that the Revenue failed to produce evidence that the products are commercially known as lemonade.

Issue 2: Relevance of Food Safety and Standards Act, 2006 and Regulations

Relevant Legal Framework and Precedents:

The Food Safety and Standards Act, 2006, and the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, set standards for food products including fruit beverages. Regulation 2.3.10 defines thermally processed fruit beverages and requires a minimum fruit juice content of 5% for lime/lemon ready to serve beverages. Regulation 2.3.30 similarly governs carbonated fruit beverages with the same juice content requirement.

The Supreme Court in Parle Agro (P) Ltd. (2017) held that these regulations are relevant and cannot be ignored in classification disputes.

Court's Interpretation and Reasoning:

The Larger Bench held that the Food Safety and Standards Regulations provide a scientific and technical standard for defining fruit juice based drinks, which is relevant for classification under the Tariff Act. The products in question meet the regulatory thresholds of minimum fruit juice content and total soluble solids, supporting classification under 2202 90 20.

Application of Law to Facts:

The products MMNF, Nimbooz Masala Soda, and Nimbooz meet the regulatory requirements of not less than 5% lemon juice and not less than 10% total soluble solids, confirming their status as fruit juice based drinks rather than lemonade.

Treatment of Competing Arguments:

The Revenue's contention that the Regulations are irrelevant for excise classification was rejected. The Bench emphasized that the scientific and technical definitions under the Food Safety Act assist in understanding the nature and characteristics of the products for tariff classification.

Issue 3: Application of Common Parlance Test

Relevant Legal Framework and Precedents:

Where tariff entries lack statutory definitions, the common parlance test is applied, which considers how the product is understood by people conversant with the product and those dealing in the trade. The Supreme Court and Tribunal decisions have recognized this test as an important aid in classification.

Court's Interpretation and Reasoning:

The Bench examined labels and market descriptions of various lemon/lime based drinks. It found a clear distinction between products described as "Ready to Serve Fruit Drinks" with 5% or more lemon juice content, and those described as "Sweetened Carbonated Beverages" or "Lemonade" with no fruit juice content.

The products in question fall into the former category, indicating that in commercial parlance, they are fruit juice based drinks rather than lemonade.

Application of Law to Facts:

The labels of MMNF, Nimbooz Masala Soda, and Nimbooz describe them as fruit juice based drinks with lemon juice content exceeding 5%. Competing products labeled as lemonade or lemon/lime flavoured drinks contain no fruit juice. This distinction supports classification under 2202 90 20.

Treatment of Competing Arguments:

The Revenue's reliance on website descriptions and advertising slogans to classify the products as lemonade was rejected as insufficient evidence. The Bench emphasized the need for documentary or trade evidence to establish commercial understanding, which the Revenue failed to produce.

3. SIGNIFICANT HOLDINGS

"Thus, for a product to be classified under 2202 10 20 it must be in the nature of waters, including mineral waters and aerated waters, containing flavouring elements as lime/lemon. It, therefore, follows that products which are not essentially waters with flavouring elements as lime/lemon, would not fall for classification under 2202 10 20."

"The fruit juice content of lime or lemon juice in MMNF, Nimbu Masala Soda or Nimbooz has been indicated to be not less than 5% and the Total Soluble solids is also not less than 10%. All the three products satisfy the requirements of Regulation 2.3.10 or Regulation 2.3.30. These products, therefore, would classify under Tariff Item no. 2202 90 20 as fruit juice based drinks."

"The irresistible conclusion, therefore, that follows from both the common parlance test and the supporting legislation test is, therefore, that the three products MMNF, Nimbu Masala Soda and Nimbooz would classify under Tariff Item No. 2202 90 20 as fruit juice based drinks."

"No documentary evidence has been placed by the Revenue to establish that the products are commercially bought and sold and known by the people dealing in the products as 'Lemonades'. The burden is clearly on the Revenue to support its contention with evidence."

"Therefore, the reference is answered as follows: The product 'Minute Maid Nimbu Fresh' manufactured by Brindavan Beverages Private Limited, and 7up 'Nimbooz Masala Soda' or 7up 'Nimbooz' manufactured by Pepsico India Holdings Private Limited are classifiable under Tariff Item 2202 90 20 of the Central Excise Tariff Schedule under the category of 'fruit pulp or fruit juice based drinks'."