Emphasising that the fundamental test in the matter of classification is that specific entries would prevail over the general entries, the Bombay High Court has held that when the product was not only styled as an “Nescafé premix”, but it was also used to prepare a “Nescafé” vended through a vending machine, then such Nescafé being prepared by simply pouring hot water into the premix, is nothing but Nescafé.
As Entry C-II-3 includes not just “coffee” but also “instant coffee”, the Court explained that in the absence of any statutory definition in precise terms, the words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning.
Therefore, the Court applied the common parlance test to conclude that the resultant product, which is an “instant coffee” prepared by pouring hot water into the premix, cannot be classified under the general Entry C-II-18(2).
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna was concerned with the classification and consequently the determination of tax rate for the respondent’s product “Nescafé premix”, which is based on the premise that this product is used for preparing Nescafé through a vending machine by simply pouring hot water into the premix.
The Bench said that the Sales Tax Tribunal has correctly reasoned that if the soluble coffee powder were to be withdrawn from the Nescafé premix, no matter what its percentage from the premix, then the perception of such a product in common parlance would be entirely different. Therefore, the Tribunal rightly classified the product in question under Entry C-II-3, which was a specific entry and not under Entry C-II-18(2), which was a general entry in the context of powders from which non-alcoholic beverages are prepared.
The Bench also clarified that neither the heading is decisive of whether an article mentioned in the Schedule can be subjected to tax or not, nor the percentage of the ingredients is decisive in such matters. Reference was made to the decision of the Supreme Court in the case of Forge & Co. vs Municipal Corporation of Greater Bombay [(1999) 8 SCC (577)].
Briefly, the dispute pertained to the correct classification of “Nescafé Premix” sold by the respondent, i.e., Nestlé India Limited, which claimed that the product, used in vending machines by adding hot water, contains 8.5% soluble coffee powder along with sugar, skimmed milk powder, and maltodextrin. The respondent therefore sought a determination that the product be treated as “instant coffee” under Entry C-II-3 of Schedule C Part II, taxable at 8%.
The Commissioner, however, held that since coffee constituted only 8.5% of the premix, it could not be regarded as “instant coffee” in common parlance and instead classified it under Entry C-II-18(2), covering powders from which non-alcoholic beverages are prepared, taxable at 16%. Not satisfied with the determination, the respondent approached the Maharashtra Sales Tax Tribunal, which applied the common parlance test and concluded that the premix, which yields Nescafé upon adding hot water, is understood by consumers as instant coffee.
Appearances:
Advocate Jyoti Chavan, for the Applicant/ Revenue
Advocates Nikita Badheka and Lata Nagal, for the Respondent/ Taxpayer
