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TMI Blog1976 (7) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... coa powder' of the Schedule to the Central Excises and Salt Act, 1944. The contention of the Petitioners being that Cocoa powder in item I-A which is liable for excise is flavoured and blended cocoa powder known to the trade as such and unblended and unflavoured powder of cocoa bean which is sought to be made liable for the payment of excise duty under Item I-A is not known to the trade as cocoa powder and is not in excisable item and was not therefore liable for excise duty. On the other hand, it is contended by the Respondents that since the said unblended or unflavoured cocoa powder was a marketable product, it being imported into India and hence sold in India it was liable to excise duty under the said Item I-A. 3. A few relevant facts to appreciate the said rival contentions are as follows : - The Petitioners' factory manufactures amongst other things, two food products derived from cocoa beans viz. chocolates and food drinks such as cocoa powder, drinking chocolate and Bournvita. The basic law material for the manufacture of these products is cocoa-beans which at all times relevant have been imported by the Petitioners from abroad. After their importation, the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Petitioners set out their case in their letter dated 26th May, 1971 and 9th June, 1971 addressed to the excise authorities. 5. Item I-A of the Schedule to the Central Excises and Salt Act, 1944, as amended on 1st of March, 1970, read as follows : - "CONFECTIONERY, COCOA POWDER AND CHOCOLATES IN OR IN RELATION TO THE MANUFACTURE OF WHICH ANY PROCESS IS ORDINARILY CARRIED ON WITH THE AID OF POWER, NAMELY - (1) Boiled sweets, toffees, caramels, candies, nuts, (including almonds) and fruits kernels coated with sweetening agent, and chewing gums.... 10 percent ad valorem (2) Cocoa Powder........ 10 percent ad valorem (3) Drinking chocolates, chocolates in the form of granules or powder 10 percent ad valorem (4) Chocolates in the form of blocks, slabs, tablets, bars, pastilles or croquettes, or in any other form, not elsewhere specified, whether or not containing nuts, fruit kernels, or fruits 10 percent ad valorem 6. By an order dated 1st September, 1971 the Assistant Collector of Central Excise rejected the Petitioners' contention as regards the said powder not being known in the market as cocoa powder and could not be liable for excise levy and held "that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocoa powder and drinking chocolates had been made excisable, and therefore, if no duty was paid on such cocoa powder, it will go outside the excise net. He further held that even on the product manufactured for captive consumption, duty was levied. The said Revisional Authority, however, did not even refer to the various affidavits filed by the Petitioners or deal with the Petitioners' contention that the said item 'cocoa powder' is to be given the trade meaning which has 'flavoured and blended cocoa powder'. 10. The Petitioners have, therefore, filed this Petition, challenging the validity of the said orders on various grounds mentioned in paragraph 11 of the Petition. The main ground being (1) that the expression 'cocoa powder' used in the said Item I-A has not been defined in the said Tariff and must, therefore, be interpreted in the light of the meaning given to it in the trade, that the expression "cocoa powder" as understood in the trade means a product which is flavoured and blended and that the said product being unblended or unflavoured cocoa powder was not known in the trade as cocoa powder, and therefore, was not liable for excise duty, (2) that the test of marketa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble product, i.e. a product which was fit for human consumption, and, therefore, the said item I-A covered all sorts of cocoa powder blended or not, sweetened or not or flavoured or not. 11. Broadly speaking, the main question involved in this case is; What test is to be applied to determine the meaning to be given to the excisable article 'cocoa powder' found in item I-A, the petitioners contended that the term 'cocoa powder' to be excisable has to be understood in the same manner as it is understood by the trade and: The test that was applicable was that of the common commercial sense in which it is understood in trade by purchasers and consumers. As against this, it is contended by the Respondents that test to find out whether the item on which excise is sought to be levied as being included in Schedule, was to find out whether it was marketable. 12. Item I-A with which we are concerned, relates to confectionery, cocoa powder and chocolates in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power viz. (1) Boiled sweets, toffees, caramels, candies, nuts etc. (2) Cocoa powder, (3) Drinking chocolates, chocolates in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons, whose use of the word is to be determined the sense in which it is employed in the relevant document, inasmuch as the chemist and laboratory expert may attribute to it a meaning different from that which the lay mind would adopt. As has been said, the chemical contents of the petroleum and the natural gas found in the field are the same, and regarded scientifically, the substances are, therefore, the same. But a scientific similarity of substance does not establish that the materials are themselves rightly to be described by the same name. The proper approach, says the appellant, is to ascertain the meaning of the word in the mouths of those non-scientific persons who are concerned with its use, such as landowners, business men and engineers, and to be guided by them as to the true construction of the reservation. The vernacular, not the scientific, meaning is, he maintains, the true one, and in support of this contentions, he calls attention to the observations of Lord Halsbury, L.C., in Glasgow Corporation v. Farie (1), when he says of mines and minerals, that, in construing the expression, it has to be determined what these words mean in the vernacular of the mining worl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would come within item 23 of the Schedule viz., "vegetable non-essential oils all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power". According to the Respondents, however, in the course of the manufacture of Vanaspati, i.e. the vegetable product from raw groundnut and til oil, the Petitioners brought into existence at an intermediate stage after carrying out some processes with the aid of power, a product which was known to the market as "refined oil", which falls within the Item 23 of the Schedule, and was therefore, liable for excise duty. 18. The Supreme Court firstly held that the fact that the substance produced by Petitioners at an intermediate stage is not put in the market would not make any difference, if from the raw material has been brought into existence a new substance by the application of processes one or more of which are with the aid of power and that substance is the same as alleged by the Respondents "refined oil" as known to the market, an excise duty may be leviable under Item 23. However, as regards the question whether the intermediary brought into existence, was "refined oil" as all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clear that to become "goods" an article must be something which can ordinarily come to the market to be bought and sold". This decision, in my view, puts beyond pale of doubt, that while interpreting the meaning of the word in a taxing statute, the court has to look to the meaning given to the expression in the commercial world and not its technical or scientific meaning or even a dictionary meaning. 21. The next decision is in case of The Commissioner of Sale Tax, Madhya Pradesh, Indore, v. Messrs. Jaswant Singh Charan Singh, reported in A.I R. 1967 Supreme Court 1454. That was the matter under M. P. General Sales Tax Act, and the items concerned there were charcoal and coal. The question was whether the charcoal was covered under Entry I of Part III of Schedule II to the M.P. General Sales Tax Act, 1958; which provided Sales Tax payable on 'coal' at the rate of 2 per cent or whether it was liable for sales tax under Entry I of Part VI of Schedule II to the said Schedule which provided for payment of sales tax on "other goods not included in Schedule I or any other part of the Schedule at 4 per cent. While trying to find out under which of the said entry "charcoal" would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "The Act charges duty on manufacture of goods. The word "manufacture" implies a charge but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. That it would be such an article which would attract the Act was brought out in Union of India v. Delhi Cloth and General Mills Ltd., 1963 Supp (1)) SCR 586 - (AIR 1963 SC 791). In our view, the gas generated by these concerns is kiln gas and not carbon dioxide as known to the trade, i.e. to those win deal in it or who use it. The kiln gas in question therefore is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and therefore cannot attract Item 14-H in the First Schedule". (Emphasis supplied.) 24. In another decision of the Supreme Court, in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant that the normally acceptable merchantable quality of Wolfram or tungsten contains a minimum 65% WO 3. This is the usable ore and it is in that sense that it is commercially understood. Wolfram ore when mined contains only .5 to 2 per cent WO3 and in order to make it usable and merchantable ore with minimum 65% WO 3, concentration is necessary. If Item 26 of the Import Tariff is to be restricted to Wolfram being material containing .5 to 2 per cent WO 3 it would be mainly rock which can neither be imported in large quantity and which will have no market. The separating of Wolfram ore from the rock to make it usable ore is a process of selective mining. It is not a manufacturing process. The important test is that the chemical structure of the ore should remain the same. Whether the ore imported is in powder or granule form is wholly immaterial. What has to be seen is what meant in international trade and in the market by Wolfram ore containing 60% or more WO3. On that there is a preponderating weight of authority both of experts and books and writings on the subject which show that Wolfram ore when detached and taken out from the rock in which it is embedded either by c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try No. 37 have to be construed in their own context and in the sense, as ordinarily understood and attributed to these words by people usually conversant with and dealing in such goods. Similarly the words "food colours" and "syrup essences" which are descriptive of the class of goods the sales of which are to be taxed under the Act have to be construed in the sense in which they are popularly understood by those who deal in them and who purchase and use them". (Emphasis supplied). 28. Reliance was also placed on certain observations of the Supreme Court in case of Madras Rubber Factory Ltd. v. Union of India and Others, reported in 1976 S.C.C. 242. In that case the Supreme Court had observed that "while interpreting the meaning of the words in a Taxing Statute, the acceptance of a particular word by the trade and its popular meaning should commend itself to the authority". 29. The next Supreme Court decision in that connection relied upon by the Learned Counsel for the Petitioners is in the case of Messrs. Healthwave Dairy Products Co. v. The Union of India and others, reported in (1976) 2 Supreme Court Cases 887. In that case, the Central Government had, by a notific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raise revenue and for this purpose to classify substances according to general usage and known denomination of trade and, therefore, the proper ride of construction applicable in respect of the items or entries OCCURING IN Schedule I to the said Act would be that these items or entries inclusive of the words and expressions comprised in sub-clauses thereof will have to be construed not in the scientific or technical or laboratory sense but in the sense which person dealing with or commercially conversant with those items or sub-items would attribute to them. It is true that several words and expressions occurring in sub-clauses (i), (ii) and (iii) of item 15A(1) are high sounding, jaw-breaking and unpronounceable words from layman's point of view but from such appearance these words it cannot be concluded that these are scientific or technical terms and the true criterion would be whether these words and expressions are well known to and are freely used by manufacturers, traders and dealers in that line as if they have become common place words of everyday use with them and having regard to the manner in which almost all words and expressions occuring in entry 15A(1)(i), (ii) and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court, 1492, to show that the ordinary meaning is to be given to the expression used under the Central Sales Tax Act. In that case a notification exempted milk and milk products such as Chhena, Dahi, Khoa, Butter and Cream, but excluding (i) products sold in sealed containers (ii) Sweet meats and (iii) ghee from duty". In that case, the Petitioners had sold the product included in the said entry in containers which were soldered and not sealed and on that ground had claimed exemption. The Supreme Court negatived the said contention by observing :- "All that the notification stales is that products sold in sealed containers must sail out of the harbour of exemption. The simple question is this: Was the sale of cream? Yes. Was it, when sold, packed in containers which were sealed? Yes. On these two affirmative answers the exclusion from the exemption operates". 36. That decision has no reliance to the question before me particularly because, what the Supreme Court was concerned in that case was to find the meaning of the word 'sealed' and not with the meaning of any excisable item in the Schedule. 37. The above cited decisions, in my view, unmistakably show that the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority who have in their orders applied the test of marketability have decided the matter by applying a wrong test and their orders therefore cannot be sustained in law. This is more so in the case of the revisional order passed by the Joint Secretary to the Government of India, who had passed the order holding the said goods viz. unblended and unflavoured cocoa powder as liable for excise duty mainly relying on the marketability test by completely ignoring the several affidavits filed by the Petitioners before him to show how the said word 'Cocoa Powder' was understood in trade, viz., it covered only flavoured and blended Cocoa powder, and further, on a strange reasoning that if no duty was paid on cocoa powder, it would go outside the excise net. 42. Dealing further with the merits, it may be first pointed out that as laid down by Supreme Court in the case of Deputy Commissioner of Agriculture Income-tax and Sales Tax Quilon v. Travancore Rubber and Tea Co., reported in 20, Sales Tax Cases at page 520, in all cases of taxation the burden of proving the necessary ingredients laid down by law to justify taxation is upon the taxing authority. In this case if the taste of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; x x x x x x x x x x x x x The paste can be used in this state by confectioneries but it is generally used for the manufacture of cocoa butter, cocoa powder and chocolate. x x x x x x x &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, and who had an experience of the business of purchase and sale of provision stores including confectionery, cocoa powder and chocolates. According to him, the expression "Cocoa Powder" as used and understood in the confectionery trade refers to the flavoured powder packed in tins which can be straightaway made into a beverage merely by adding water and/or milk. After referring to several brands of cocoa powder, he has stated that he had been shown by the Petitioners a sample of pulverised cocoa cake which was unblended and unprocessed; that during his entire experience, he had never come across such material in his business and such material was not known in the trade as 'cocoa powder'. (3) The third affidavit was of K. S. Desai, Factory Manager of Dr. Writer's chocolates and Canning Co. According to him, the expression "cocoa powder" meant the pulverised cocoa cake which was flavoured and blended with the addition of substances such as vanillin, cinnamon, cassia and other powdered spices or oleo resins and slats. Such flavouring substances were blended with the said pulverised cocoa cake and it was that processed and blended pulverised cocoa cake which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributed to the words 'cocoa powder' in commerce and trade only relates to flavoured and blended cocoa powder. The said affidavits were from the persons in the traders and purchasers, and one of them was an expert in food technology. 47. It was contended by the Learned Counsel for the Respondents that these affidavits show only the meaning attributed to the words 'cocoa powder' by a section of trade and there is no material to show that the other sections of trade which buy and sell the unfavoured and unblended cocoa powder also attribute the same meaning to the said goods. It is difficult to appreciate the said contention of the Learned Counsel for the Respondents. As pointed out above, the burden of showing that the unblended and unflavoured cocoa powder was known to the trade as 'cocoa powder' as mentioned in item I-A lay on the Respondents. The Respondents cannot be heard to complain that the Petitioners had not discharged the burden which was the Respondents' obligation to discharge. 48. Lastly, I may also mention that the group of items amongst which the excisable entry 'cocoa powder' is placed viz., Food: Chocolates Sweets etc., would also indicate that 'cocoa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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