TMI Blog1976 (11) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ctober, 1970 and also for Writ of mandamus against them to withdraw or cancel the said impugned decision and notices mentioned above and to refund ₹ 35,482.07 already paid by the petitioners towards the excise duty since 28-7-1973. 2. Few facts relevant for determination of the question arising under the petition are as follows :- The first Petitioners manufacture non-alcoholic aerated waters. Amongst various varities of aerated waters manufactured by the 1st Petitioners, there are certain varities which are sweetened and flavoured in which admittedly they use synthetic essences for adding flavour. 3. Prior to 17-3-1972, Item 1D of the 1st Schedule to the Central Excise and Salt Act, 1944 under which excise duty was leviable on aerated waters provided : Aerated waters, whether or not flavoured or sweetened and whether or not containing vegetable or fruit juice or fruit pulp rate of duty. 10% ad valorem 4. With effect from 17-3-1972 the said item was varied so as to levy thereon excise duty at 20% ad valorem instead of 10% ad valorem. On the same day i.e. on 17-3-1972, the Union of India issued a notification int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheets on the basis of which he had arrived at his opinion. By his letter dated 16-12-1972 the 1st Respondent forwarded to the petitioners a copy of the report of the Dy. Chief Chemist showing that 12 samples mentioned therein were found containing blended flavouring concentrates. The Petitioners by their letter dated 12th December, 1972 requested for a full copy of the Test Report of the said Deputy Chief Chemist including the method adopted by him to come to his conclusion and also the work sheets for the same. 5. However, the petitioners received from the 1st respondent a notice dated 22-2-1973 under Rule 10 of the Central Excise Rules, 1944 demanding a sum of ₹ 2,94,889.83 for the period from 17-3-1972 to 31-1-1973 being the difference of 10% ad valorem claimed by the Department. In reply thereto the petitioners by their attorneys letter dated 5-3-1973 to the 1st Respondent denied that the Petitioners manufacture contained concentrates and stated that therefore no duty was payable. They again called upon the first Respondent to disclose and furnish all the evidence on the basis of which it was held that the petitioners' aerated waters contained blended flavourin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September, 1973 to 28th February, 1973 (sic) a sum of ₹ 1,14,084.39 for a period of 1-8-1973 to 31-5-1973 (sic) and a further sum of ₹ 43,771.78 for a period of 1-6-1973 to 27-7-1973 being the differential duty. The petitioners by their Attorneys letter dated 19th September, 1973 pointed out that the said three demand notices were issued without issuing any show cause notice to them and without offering them any opportunity of submitting their explanation or granting them a personal hearing to deal with the allegations made by the Department. 9. According to the petitioners, Excise Authorities at Madras had given the benefit of the exemption under the said notification to M/s. Kali Aerated Water Works and Messrs. Spencer and Co. Ltd. in respect of aerated waters manufactured by them in which also only synthetic essences were used as in the case of the petitioners and have taken the view that the said manufacturers were not using any blended flavouring concentrates but were only using essences. 10. To the petition the petitioners have annexed at Ex. 'L' a certificate of one Dr. Dubash, Reader in Food Technology, Department of Chemical Technology, Universi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nct from juice concentrates. Juice concentrates were juices that had been concentrated by removal of water which, when rediluted with water, resembled original juice composition, and that like juice concentrates, the term 'blended flavouring concentrate was applied to the product known as essences obtained by the concentration of volatile flavouring component of materials by the process of distillation, solvent extraction etc. According to him distinction sought to be made by the Petitioners between the concentrates and essences was unreal and could not stand the test of science and technology. According to him the petitioners have not cited any technical authority in support of their contention nor have they scientifically or otherwise established any distinction between essences and blended flavouring concentrates. As regards the certificate from the manufacturers relied upon by the petitioners, the respondents have denied that they establish the petitioners' contention. 13. He has admitted that the concerned Asstt. Collector has personally visited the factory of the petitioners for ascertaining whether the first Petitioners' products fell within the exemption. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chief Chemist if they so desired. 17. To their affidavit in rejoinder, the petitioners have annexed several certificates and documents from experts, manufacturers and dealers to show that their products did not contain any blended flavouring concentrates, but only contained essences and that both in their commercial as well as scientific meaning both the things were distinct. They have further stated that the Asstt. Collector of Excise when he visited their factory had noted during the said visit that each and every bottle of essences bore the label of a recognised manufacturer of India of Synthetic essences and he had conceded the use of essences during a very brief discussion in the course of his inspection when he was present. They have however categorically stated that during the said visit of the Asstt. Collector there was no discussion of the case in detail and have denied that they were given full opportunity to submit their case or discuss the fact fully as alleged by the Respondents. According to them, in fact to visit of the Asst. Collector was to precede by regular hearing which was asked for by the petitioners but the same was not given and the said order was passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. As on 17-3-1972 the said item 1D reads as follows : Item No. Description of Goods Rate of Duty 1D Aerated water, whether or not flavoured or sweetened and whether or not contained vegetable or fruit juice or fruit pulp - 20% ad valorem A notification issued on the same day (Ex. C to the petition) reads as follows :- G.S.R. 108(E) - In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts aerated waters falling under Item No. 1D of the First Schedule to the Central Excises and Salt Act, 1944, (1 of 1944), from so much of the duty of excise leviable thereon as was in excess of ten per cent ad valorem : Provided that the aforesaid exemption shall not apply to aerated waters in the manufacture of which blended flavouring concentrates in any form are used. 23. The effect of the said entry read with the said notification was as follows : The effect of the said entry read with the said notification was as follows : Aerated waters in the manufacture of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report which are definite in nature and do not import any fiction as the Asstt. Collector has done in his order in holding that the essences are Deemed to be blended flavouring concentrates . The said conclusion of the Asstt. Collector which is the basis of his said impugned order therefore appears to have been based on no material at all. His order is therefore arbitrary and liable to be set aside on that grounds alone. 25. The other ground of attack against the said order is that the same was made without following the principle of natural justice inasmuch as before passing the said order no opportunity of being heard was given to the petitioners. In my view on the admitted facts, on this ground also the impugned order cannot stand scrutiny. It is not disputed that in reply to the demand notice dated 22-2-1973 issued by the Superintendent Central Excise, the petitioners had by their attorneys letter dated 5-3-1973 in terms pointed out that they did not know on what basis it was alleged therein that the petitioners aerated waters contained concentrates and that if the Department was relying on any test report or any other evidence the same should be disclosed to them so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lyser who is alleged to have analysed the samples of the aerated water manufactured by the petitioners nor are they able to point out the method adopted by him for that purpose. No explanation is also forthcoming for not being able to do so. As pointed above, the petitioners had before the order by their attorneys letter dated 5-3-1973 while making a request for disclosing the same pointed out that the same should be disclosed so that they might have an opportunity of dealing with same. The stand taken by the Respondents in the affidavit is that the Petitioners were not entitled to have the said work-sheets and methods of analysis disclosed to them and that if the petitioners so wanted they could have cross-examined the said Dy. Chief Chemist. In my view the said stand of the Respondents is not justified. In order to properly meet the said report either by producing evidence of their own or otherwise the petitioners were entitled to have disclosed to them the method adopted by the chemical analyser making the report in analysing the samples and also the work sheets, particularly in the light of the letter dated 6-12-1975 from the Asstt. Director Drug Controller, Government of Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to him they are deemed to be the same. The Court therefore will have to find out on the material produced before it whether the essence can be interpreted to mean or were in fact same as blended flavouring concentrates . 29. The learned Counsel for the Respondents has urged that for that purpose the court should send the matter back to the Asstt. Collector for the determination of the question by him on the fresh material that both sides may produce before him. I do not think it proper after a lapse of over four years to send the matter back again to the Asstt. Collector. All the material in that connection which both the parties could produce before the Asstt. Collector has been produced before me. Admittedly, according to the learned Counsel for the Respondents, the work sheets and methods applied by the Chemical Analyser for arriving at his conclusion in his report, which the petitioners were entitled to get, are not available this day. The petitioners had offered to keep ready for being cross examined by the Respondents if they so desired, the exports, the manufacturers and the dealers whose affidavits they have filed to support their contention that essences are consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expert. 33. It is now well settled by the decisions of the Supreme Court and this court that items or entries in taxing statutes inclusive of terms or expressions used therein which are not expressly defined, are to be construed in a sense which persons dealing with or commercially conversant with the same would attribute to it, in preference to its scientific, technical or laboratory sense or to the dictionary meaning [see (1) Union of India and Anr. v. Delhi Cloth and General Mills Co. Ltd. and Ors. - AIR 1963 S.C. 701, (2) The Commissioner of Sales Tax, Madhya Pradesh, Indore v. M/s. Jaswant Singh Charan Singh - AIR 1967 SC 1454, (3) South Bihar Sugar Mills Ltd. and another etc. v. Union of India and Another etc. - 1978 (2) E.L.T. (J 336) (S.C.) = AIR 1968 SC 922, (4) Minerals Metals Trading Corporation of India Ltd. v. Union of India and Others - AIR 1972 SC 2551, (5) Madras Rubber Factory Ltd. v. Union of India and Ors. - AIR 1976 SC 242, (6) M/s. Healthways Dairy Products Company v. The Union of India and Others - 1978 (2) E.L.T. (J 457) (S.C.) = (1976) 2 SCC 887 and (7) an unreported decision of this court (Tulzapurkar, J.) in Misc. No. 491 of 1964 - Nirlon Synthetic F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that these two entries were introduced in pursuance of a common purpose, that purpose being that the articles listed in entry 26AA whether produced out of indigenous pig iron or steel ignot or made out of imported pig iron or steel ignot must bear the same amount of duty . However, it may be pointed out the majority judgment in that case did not accept the contention that an entry in the Excise Act could be interpreted with reference to a similar entry in Tariff Act which was in pari materia with the Excise Act. At p. 1177 of the report Sirki, J. who delivered the majority judgment observed : - I am not able to appreciate how the insertion of item No. 63(36) in the First Schedule of the Tariff Act or the subsequent amendment of the Indian Tariff Act, 1934, by Indian Tariff (Amendment Act) 1963 throw any light on the interpretation of item 26AA (i) . But even otherwise the said above quoted observations of Hegde, J. appear to have been based on two important factors which existed in that case viz. (1) that both the said entries were inserted in the said statutes on one and the same day and (2) the surrounding circumstances showed that they were so incorporated for a comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mport Control Order hand book is not a statute in pari materia with the Excise Act and therefore even on the arguments of the learned Counsel for the Respondents his effort to interpret the said two expressions in Excise Act or notification issued thereunder with reference to a statute which is not pari materia cannot be sustained. But even otherwise what the learned Counsel for the Respondents is seeking to do is that by process of elimination he is trying to connect essences in the said entry 79(2) to the said entry 21(7) in the Tariff Act being one of such item as shown in the last column to the said entry 79(2) by taking each item in the said entry 79(2) against the entries of the schedule to the Tariff Act as are mentioned in the last column to the said entry 79(2). However, the said process of elimination is as well faulty as there are certain items in the said entry 79(2) such as Chicory or Yeast which cannot be connected with any of the entries from the Tariff Act as are mentioned in the 3rd column of the said entry 79(2) so also conversely some of the entries of the Tariff Act from those mentioned in the said entry 79(2) cannot be connected with some of the items mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections of the learned Counsel for the Respondents, it would be proper to find out whether there was any material on record to find out whether according to the commercial or trade meaning the terms blended flavouring concentrates in any form would mean the same thing or include therein essences or otherwise. 42. In that regard as pointed out above the petitioners have put in the affidavits and letters from three manufacturers viz. (i) M/s. Pioma Industries Ltd. (p. 9 of the compilation), (ii) M/s. Naarden (India) Ltd. (p. 10 of the compilation) and (iii) M/s. Shannon Chemical Works (p. 13 of the compilation) and also affidavits and letters from two of the leading dealers in goods viz. (i) M/s. Roshanlal and Sons (p. 56 of the compilation) and (ii) M/s. T. Allimahomed and Co. (p. 57 of the compilation). 43. As against this, in that connection, the Respondents have produced no material in support of their contention that essence are the same as concentrates although initially the burden was on them to do so. Nor have the Respondents availed themselves of the opportunity of cross examining the said Manufacturers and dealers, who were offered for cross examination by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. Their affidavit, therefore cannot be brushed aside simply on the ground that they are the manufacturers only of essences and not of concentrates. 48. Affidavits of dealers put in by the petitions are those of M/s. Roshanlal and M/s. T. Allimahomed. The letter from M/s. Roshanlal and Co. (p. 56 of the compilation) shows that they are dealers in flavouring essence and food colours since 1962 with an annual turn over of about ₹ 11 lacs. According to them in their trade there was a distinct known difference between essences and concentrates and they supply essences and not concentrates. 49. The letter by another dealer viz. T. Allimahomed and Co. dated 26-8-1976 (p. 57 of the compilation) shows that they have been dealing in all requirements of aerated waters since 1925 and that they had the annual turn over of 40 lacs. They have certified that in their trade flavouring essences and blended flavouring concentrates were understood and known as two different and distinct item, that in fact, there was no trading in the open market of any form of concentrates and that the flavouring essences which were manufactured and sold in the open market were all essences and not conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int out in this case the said scientific or technological meaning so also the dictionary meaning of the said terms as well synchronises with trade meaning mentioned above. 54. Firstly dealing with the dictionary meaning the meaning of the term concentrates to be found in the Webster s New International Dictionary at p. 469 is inter alia a food reduced in bulk by elimination or water fluid . The meaning of the expression essences as found at p. 777 is inter alia : 8 A(1) : A substance considered to possess in high degree the predominant qualities or virtues of a plant, drug or other natural product from which it is extracted used as a flavouring . As the dictionary meaning shows essences are also equated with essential oil. The said Dictionary meaning therefore shows that the concentrates and essences are distinct and different in their nature. 55. Coming to the scientific or technological meaning of the said expressions firstly I may refer to affidavits of two experts food technologists filed by the petitioners to support their contention that concentrates are distinct from essences. One of such affidavits is that of one Dr. Shreenivasan Exhibit A to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexed to his affidavit. Firstly in para 4 of his affidavit he has categorically stated that - essences and concentrates are two entirely distinct entities and cannot be equated as being synonymous. 57. In para 6 of the affidavit, he has also pointed out inter alia, that Flavour Essence was defined by Jacob as a solution of flavouring materials in appropriate solvent. According to him, to the manufacturers concentrates mean, a flavour base wherein all or part of the flavour base comes from actual concentration of natural fruit or juices. To counter act the said two affidavits of their experts filed by the petitioners, the Respondents have filed an affidavit of one Saluja Chemical Examiner Grade I Customs House Bombay as an expert. According to the said affidavit his academic qualifications are M.Sc. (Tech.) His experience was : Working as Chemical Examiner, Grade I of the Bombay Customs since 25th May 1972 and has an experience of 25 years as a chemist. His said affidavit shows that he has nothing to do with the knowledge of food technology. His affidavit is completely silent on the question whether as a chemist or chemical analyser he had anything to do with food techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r weights. Purification by distillation can never be completely effective because many of the individual flavour components have boiling points close to that of alcohol and water, or form azeotropes with water or alcohol. 60. After dealing with another convenient method of isolating essences or volatile flavouring components by adding solvents, the author goes to point out at p. 59 : After evaporating the solvent from the extract phase, the flavouring principles are obtained as a residue in a highly concentrated form essentially free from water and alcohol and possessing the true natural aroma of the produce from which they were extracted. The products may be employed for flavouring products of all kinds, for example, concentrated fruit juices, dehydrated fruit juices, etc. 61. Then the following passage at p. 64 of the said book clearly brings out the distinction between concentrates and essences : The essence obtained from the juice of citrus fruits, crushed berries and grapes, purees of deciduous fruits (such as apricots, apples, pears, peaches etc.) can be used to impart a natural, fresh and characteristic flavour and aroma to food products and confections, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural fruit or juices. For most flavour purposes, there is a limit to degree of concentration that can be reached. This necessitates adding further flavour to achieve an acceptable product. A little further he observes : Natural or true fruit flavour concentrates usually are somewhat weak in flavour strength or character. To overcome this problem, there are added other stronger natural flavours that are compatible with the concentrates. 62. Then at page 170/171 the author has given various REPRESENTATIVE FORMULAS OF SYRUP AND SODA FLAVOURINGS. They are amongst other : Cola Flavour Emulsion, Cola Syrup, Cola Flavour Concentrate, Cola Nut Essence (Tincture) Cola Flavour Base, Cola Flavour, Cola Nut Extract etc. A look at the formula for cola Flavour Concentrate as against the formula for Cola Nut Essence would show that concentrates and essences are formed of distinct ingredients and cannot be equated with each other. 63. A reference also to a passage at p. 197 in the Standard Book Synthetic Food Adjuncts by Jacob also clearly brings about the said distinction between concentrates and essences . 64. In that connection at this stage a reference also m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Composition, Manufacture, and use by Joseph Merory 5th Ed. Evaporation of water from expressed fruit juices and flavouring extracts by vacuum distillation yields concentrated soluble solids and extractive matter with little flavouring. The aromatic substances are stripped from the juice or flavouring extract during the vacuum distillation. They separate in form of vapour, part of which is recovered by condensation while the more volatile part is lost. Thus, the condensed material after vacuum distillation retains only a part of the original flavour. Coupled with the concentrated extractive matter, a flavour concentrate is obtained which is similar in character but weaker in volatile components to the flavour of the fruit from which it is made. This passage however does not show that essences and concentrates are the same. (As I have pointed out above reliance by the respondents on the formula of Vanilla concentrates to be found at p. 28 in the book chemical formulary by H. Bennet Volume I, also cannot take the matter any further. 66. In my view all the said passages from the Standard Books clearly support the opinion expressed by the petitioners experts in their affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id contention of the learned Counsel cannot be accepted. The said rule read with Rule 173-J seeks to confer a power and jurisdiction on the authorities to reopen the assessment in respect of the dues short levied by serving on such person within 1 year form the date on which the duty or charge was paid by issuing the show cause notice excess amount. Being a fiscal statute the said rule giving jurisdictional powers has got to be strictly construed. Therefore demand sought to be made by a demand notice without the issue of a show cause notice in strict compliance with the said Rule 10 will be valid. The said notices of demand are in any event invalid and are liable to be set aside. The result therefore is that the petition succeeds. Rule is made absolute in terms of prayers (a) and (b) excluding the letter dated 27-8-1973 of the Collector as mentioned therein. Respondents to pay petitioners costs. 71. Any bank guarantees given by the petitioners for the grant of interim reliefs will stand discharged. However, the order as regards the refund contained in prayer (b) to the petition as well as the order as regards discharge of the bank guarantees not to be operative for a period 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
