Allowed

M/S. Ajinomoto India Pvt. Ltd. v. the State of Tamil Nadu

Madras HC27 Nov 2019WP/28794/2010

Case brief

AI extract

What is this about?

Dealers in monosodium glutamate challenged a clarification and consequential assessment orders taxing MSG at 12.5% under the residuary entry instead of 4% as a chemical. Applying composition, use and common-parlance tests, the court held MSG is a chemical falling under the specific descriptive entry, which prevails over the residuary entry, and allowed the writ petitions.

What did the court decide?

Writ petitions allowed; impugned clarification dated 21.08.2007 and consequential assessment orders quashed; MSG held classifiable under Entry 1/Part B/First Schedule to the Tamil Nadu Value Added Tax

M/S. Ajinomoto India Pvt. Ltd. Vs the State of Tamil Nadu — GST and Indirect Tax | Madras HC (2019)

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 27.11.2019

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CORAM

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THE HONOURABLE DR.JUSTICE ANITA SUMANTH

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M/s.Ajinomoto India Pvt.Ltd. Represented by its Managing Director T.Manoharan

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...Petitioner in W.P.Nos.28794 to 28796 of 2010

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TVL.Sha Kanthilal Jayanthilal, 41/7, Strotten Muthia Mudali Street, Chennai-70, Rep.by its Power of attorney Mr.Amritlal C.Doshi

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...Petitioner in W.P.No.11461 of 2011

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--Vs--

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The State of Tamil Nadu Rep.by its Secretary to the Government of Tamil Nadu Commercial Taxes and Registration Dept. Fort St. George, Chennai-600 009

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The Commercial Tax Officer Koyambedu Assessment Circle 426 P.H. Road Maduravoyal Koyambedu, Chennai-600 095

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The Commissioner of Commercial Taxes Chepauk, Chennai-600 005 ... Respondent in WP.Nos..28794 to 28796 of 2010

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The Commissioner of Commercial Taxes Department, Chepauk Chennai-5

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The Assistant Commissioner (CT) Sowcarpet II Assessment Circle, Chennai-1

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...Respondent in in W.P.No.11461 of 2011

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Prayer in WP.Nos.28794 to 28796 of 2010 :

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Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ or order of direction or any other Writ in the nature Writ of Certiorarified mandamus, calling for the records of the 3rd respondent relating to the impugned clarification No.VAT Cell/34053/2007 (VCC No.1072) dt. 21/08/07 and the consequential assessment order passed by the 2nd respondent for the assessment year 2007-08, 2008-09, 2009-10 in TIN.No./33966222065/2007-08 to 2009-10 dt. 27/09/10, quash the same and further direct that the MSG is classifiable under Entry 1 of the Part B of First Schedule of TNVAT Act.

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Prayer in W.P.No.11461 of 2011:

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Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ or order of direction or any other Writ in the nature Writ of Certiorari, calling for the records of the 2nd respondent in TIN No.33200240978/2008-09 dated 17.04.2011 and quash the same.

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For Petitioner : Mr.Mr.V.Selvaraj

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For Mr.B.Rabu Manohar in WP.Nos.28794 to 28796 of 2010 Mr.S.Ravee Kumar For Mr.Prabhakaran in W.P.No.11461 of 2011

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For Respondents: Mr.V.Haribabu

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Additional Government Pleader (Taxes) in all Wps

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COMMON ORDER

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In this batch of writ petitions, the issue relates to the classification of Mono Sodium Glutamate (MSG) for the purposes of determining the rate of tax under the Tamil Nadu Value Added Tax Act, 2006 (Act).

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Both petitioners, an individual in one case and a company in the other, are dealers in terms of the provisions of the Act. The petitioners import MSG and the imported product is thereafter marketed to other dealers after being subject to various processes. The individual writ petitioner, apart from importing, also purchases MSG from local registered dealers upon payment of VAT and sells the same claiming Input Tax Credit (ITC). The periods of assessment in question as far as the petitioner company is concerned are 2007-08, 2008-09 and 2009-10

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and as far as the individual petitioner is concerned, is 200809.

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MSG is stated to be an organic chemical and a salt of glutamic acid, which is an amino acid. Amino acid is a constituent of the amino and carboxylate groups of chemicals extensively used in cosmetic, pharma, agro and food industries.

¶31

According to the petitioners, MSG would fall within the ambit of Entry 1/Part B/First Schedule to the Act, which states 'acids and chemicals of all kinds other than those specified elsewhere in the Schedule’ attracting VAT at the rate of 4%. They state that MSG is an organic compound represented by the formula C5H8NNa04 with a molecular weight of 169.111. It is a while crystalised power soluble in water classified under Central Excise and Customs Laws as an organic chemical used in the food industry as food flavouring that enhances the savoury taste of food, by pharma companies in the production of folic acid, by agro chemical industries in the manufacture of plant growth promoters and in the production of Pyroglutamic acid used for processing chemical reactions, several States are said to classify MSG as a chemical, taxable at the rate of 4%.

¶32

Initially, assessments were completed accepting the taxability of turnover from sales of MSG at the rate of 4%. The assessments were in line with a Clarification issued by the Commissioner, Commercial Taxes dated 18.05.2007 to the effect that MSG and Gum Rasin would be taxable at the rate of 4% in terms of Entry 1/Part B/First Schedule with effect from 01.01.2007. The aforesaid clarification had been issued in the case of Tvl.The Madras Kirana Merchants' Association, Chennai.

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The Clarification was reiterated on 31.05.2007 to the effect that Monosodium Glutamate would continue to be classified as a chemical under Entry I/Part B First Schedule, taxable at 4%.

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While this is so, the same Commissioner who had issued the earlier Clarifications, issued a subsequent Clarification dated 21.08.2007 to the petitioner at its request, to the effect that MSG was taxable under the residuary entry, at the rate of 12.5% with effect from 01.01.2007. Clarification dated 21.08.2007 is challenged by the petitioner company along with consequential orders of assessments applying the enhanced rate of tax of 12.5%.

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As far as the individual petitioner is concerned, the challenge is only to the orders of assessment, where the officer, upon a independent appreciation of the facts involved, comes to the conclusion that MSG would come within the ambit of the residuary entry, at the higher rate of tax of 12.5%.

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Heard Mr.Ravee Kumar, learned counsel for the petitioner in WP.No.11461 of 2011, Mr.V.Selvaraj, learned counsel for the petitioner in W.P.No.28794 to 28796 of 2010 and Mr.V.Haribabu, learned Addtional Government Pleader for the respondents in all writ petitions.

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The rival entries are Entry 1/Part B/First Schedule as per the petitioner and Entry 69/Part C/First Schedule, as per the respondent and both entries are extracted below:

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Entry 1 Part B of First Schedule

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Acids and chemicals of all kinds other than those

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specified elsewhere in the Schedule – 4% w.e.f 1.1.2007 and 5% w.e.f. 12.7.2011

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Entry 69 Part C of First Schedule

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Any other goods, not specified in any of the Schedules – 12.5% w.e.f.12.7.2007 and 14.5% w.e.f. 12.7.2011

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The product in question, MSG, has been subject to detailed chemical analysis and the results of the tests, available and taken into account even at the time of assessment, have been placed before this Court for appreciation. Admittedly, MSG is the sodium salt of glutamtic acid found abundantly in non-essential amino acids.

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MSG is stated to be an organic compound represented by the formula C5H8NNaO4 with a molecular weight of 169.111. A white crystalline powder, it has a melting point of 225 degrees with high water solubility. A certificate of analysis issued by Italab Private Limited, Surveyors Samplers & Analysts, Industrial Testing & Analytical Laboratories states thus:

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CERTIFICATE OF ANALYSIS

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Certificate No.PMD/ Date: 16.3.2010

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1 .PARTICULARS OF SAMPLE SUBMITTED:

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a) Name of the Party: M/s.Sha Kantilal Jajantilal, Chennai

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b) Nature of Sample: MONOSODIUM GLUTMATE

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c) Reference No:

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d) Date of Receipt: 27.02.2010

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e) Quantity: 100 gms.

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RESULTS OF ANALYSIS : As per U.S.P 24/NF.19 Page No.2484

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Description : Almost white crystals

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Solubility : Passes the Test

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Clarity and colour of solution : Passes the test Identification : A) Passes the test

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B)Passes the test C) Sodium – Positive

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Limits Specific Rotation ..+25.03 Deg. .. +24.8 Deg. To + 25.3 Deg pH of 5% Solution .. 7..05 ..6.7 to 7.2 Loss on drying .. 0.11% .. Max 0.5% Chloride ..Passes the limit test .. Max 0.25% Lead ..Passes the limit test .. Max 10 ppm Heavy metals ..Passes the limit test .. Max 0.002% Assay (on dry basis) .. 99.76% ..99.0% to 100.5% The material is of standard quality as per USP/NF.19, in above respects.’

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The results describe MSG as ‘white crystals positive for sodium’.

¶62

Extracts from Wikipedia as well as the website of the petitioner company reveal three methods for the production of MSG (i) by hydrolysis of vegetable proteins with hydrochloric acid to peptide bonds (prevalent between 1909 and 1962) (ii) by direct chemical synthesis with acrylonitrile (prevalent between 1962 and 73) and (iii) by bacterial fermentation.

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The third method as above is stated to be the prevailing and popular method of MSG production as on date, and is organic, by bacterial fermentation, in a process very similar to making vinegar or yogurt. Sodium is added subsequently for nutralization during the process of formation. During fermentation, corynebacterium species, cultured with ammonia and carbohydrate from sugar beets, sugarcane, tapioca or molasses, excrete amino acids into a culture broth from which L-glutamine is isolated. The L–glutamine, after filtration, concentration, acidification and crystallization, results in glutamate sodium and water.

¶64

The first argument of the revenue is that since one of the methods of production of MSG is organic, it does not warrant classification as a chemical. The properties of MSG are detailed in the following terms in Wikipedia:

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The compound (MSG) is usually available as the monohydrate, a white, odorless, crystalline power. The Solid contains separate sodium cations Na⁺ and glutamate anions in zwitterionic form, -OOC-CH(NH3+)(CH2)2-COO-. In solution it dissociates into glutamate and sodium ions.

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MSG is freely soluble in water, but it is not hygroscopic and is insoluble in common organic solvents (such as ether). It is generally stable under foodprocessing conditions. MSG does not break down during cooking and, like other amino acids, will exhibit a Maillard reaction (browning) in the presence of sugars at very high temperatures.

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A chapter of the publication on ‘Chemistry for everyone’ entitled ‘The Monosodium Glutamate Story: The Commercial Production of MSG and other Amino Acids’ by Addison Ault, Department of Chemistry, Cornell College, Mount Vernon, reiterates the position that MSG was first isolated as a pure substance in 1866 through the acidic hydrolysis of gliadin, a component of wheat gluten. Though Glutamic acid has been isolated from innumerable vegetable sources, the fact that it is an acid is really not in dispute.

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The standard procedure used for extraction of MSG from natural sources appears to be by hydrolysis with aqueous acid, followed by capture of the amino acids by passage of the hydrolysate over a strongly acidic ion exchange resin. The process for industrial production of MSG, as seen from the literature circulated is as follows:

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Glutamic acid and Monosodium Glutamate

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All methods for the industrial production of (s)-mono sodium glutamate first produce either (S)-glutamic acid hydrochloride or (S)-glutamic acid.

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The crude, crystalline glutamic acid is first suspended in water and then dissolved, neutralized and converred to the monosodium salt by the addition of sodium hydroxide. The solution is decolorized using activated carbon, if necessary,

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and concentrated under vacuum at 60^. C before cooling for crystallization. The crystals are isolated by centrifugation and then dried.

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Thus, MSG, by its very composition, as seen from the material set out above, is an acid or a chemical. The mere fact that one of the methods by which it is derived is organic would neither change this position nor impact its classification. This argument is rejected.

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The other argument advanced is that the actual use to which a commodity is put would be the pertinent factor in deciding its character/classification. Thus and since the dominant purpose of MSG is as a food flavouring it would be more appropriate to bring it under the residuary entry and not classify the same as a chemical. The revenue cites the provisions of the Food Safety and Standard Act, 2006 (in short 'FSS Act') and Food Safety and Standard Regulation, 2009 (in short ‘FSS Regulations’), specifically the definition of ‘food additive’ as follows:

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(k) "food additive" means any substance not normally consumed as a food by itself or used as a typical ingredient of the food, whether or not it has nutritive value, the international addition of which to food for a technological (including organoleptic) purpose in the manufacture, processing, preparation, treatment, packing, packaging, transport or holding of such food result, or may be reasonably expected to result (directly or indirectly), in it or its byproducts becoming a component of or otherwise affecting the characteristics of such food but does not include "contaminants" or substance added to food for maintaining or improving nutritional qualities;

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Revenue then refers to Section 19 of the FSS Act which bars the addition of a food additive or processing aid unless it is in accordance with the provisions of that Act and the concerned regulations. My attention is drawn to the list of food additives set out in the appendix to the FSS Regulations, wherein MSG is mentioned in Serial No.425 as a flavour enhancer. Thus, according to the revenue, since MSG is a food additive used in the enhancement of flavour, its classification would only be under the residuary entry, and it should not be brought within the cover of ‘acids or chemicals of any kinds’.

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In this context, Learned Additional Government Pleader relies on the following judgments/decisions:

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(i) Ramavatar Vs. Budhaiprasad Vs. The Assistant Sales Tax Officer, Akola and Another [(1961) 12 STC 286];

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(ii) Avadh Sugar Mills Ltd. Vs. The Sales Tax Officer, Sitapur and Another [(1973) 31 STC 469];

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(iii) Filterco and Another Commissioner of Sales Tax, Madhya Pradesh and Another [(1986) 61 STC 318]

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(iv) Indian Cable Co. Ltd. Vs. Collector of Central Excise, Calcutta and Others [(1995) 97 STC 307];

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(v) Collector of Central Excise, Kanpur Vs. Krishna Carbon Paper Co. [(1989) 72 STC 280];

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(vi)Commissioner of Sales Tax, U.P. Vs. S.R.Brothers, Kanpur [(1973) 3 SCC 496];

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(vii) T.V.L.Nilsin Industries Vs. State of Tamil Nadu (and other appeals) [(1997) 106 STC 598];

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(viii) State of Tamil Nadu Vs. K.V.Dhanuskodi Nadar [(1994) 92 STC 406];

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(ix) Beardsell Ltd. Vs. State of Tamil Nadu [(1993) 89 STC 137];

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(x) Gujarat Distributors Vs. The State of Gujarat [(1975) 36 STC 116] (xi) Sapt Textiles Products (India) Pvt. Ltd. Vs. The State of Madras [(1965) 16 STC 267];

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(xii) B.Shah & Co., Surat Vs. State of Gujarat [(1971) 28 STC 5]

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(xiii) Commissioner of Sales Tax, U.P Vs. S.R.Brothers ((1973) 3 Supreme Court Cases 496)

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(xiv) S.Kannappa Mudaliar Vs. State of Madras, represented by the Commercial Tax Officer, Vellore [(1968) 21 STC 41]

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Learned counsel for the petitioner counters this submission placing reliance upon the following judgments/decisions:

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(i) Collector of Estate Duty Vs. R.Kanakasabai and Others [(1973) 4 SCC 169)

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(ii)Bharat Forge and Press Industries (Private) Limited Vs. Collector of Central Excise, Baroda [(1990) CJ(SC) 74]

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(iii)Mauri Yeast India Private Limited; Kothari Fermentation and Biochem Limited Vs. State of Uttar Pradesh [(2008) CJ(SC) 985]

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(iv)Commissioner of Customs Vs. Dilip Kumar and Co. and Others. [(2018) 6 GSTR-OL 46 (SC)

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(v) Assistant Commisioner, Commercial Taxes & Ors. Vs. LIS (Registered) [(2017) SCC Online SC 1562]

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(vi) Pradip Nanjee Gala Vs. Sales Tax Officer and Others [(2015) 13 SCC 149]

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(vii) J.Srinivasa Rao Vs. Govt. of A.P. and Another [(2006) 12 SCC 607]

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(viii) Federation of A.P.Chambers of Commerce Vs. State of A.P. and Others [(2000) 6 SCC 550

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(ix) Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai and another Vs. Sundek India Ltd. [88 VST 366]

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(x) V.R.S. Confectionery Vs. The Commissioner of Commercial Taxes and Another in WP.No.47713 of 2006 order dated 10.11.2017.

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(xi) AB Mauri India Pvt.Ltd., Vs. The Commissioner of Commercial Taxes and Another in WP.No.12363 of 2006 order dated 27.11.2017

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(xii) Harini Traders Vs. The Commercial Tax Officer WP (MD).Nos.4353 & 4354 of 2012 order dated 28.08.2018.

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(xiii) Latha Enterprises Vs. The Commissioner of Commercial Taxes and Another W.P.Nos.25418 to 25422 of 2014 order dated 03.12.2014.

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The decisions cited at the Bar are discussed briefly before I set out to draw my conclusions therefrom. Those relied upon by the petitioner are mainly in support of the proposition that where there is conflict between two entries, one specific and the other general, it is the former that will prevail. Per contra, the decisions cited by the revenue are in support of the proposition that classification of a commodity should be in line with the common parlance test. In other words, a product should be categorized as the common man understands and uses it. This are the only points canvassed in this writ petition by both the sides.

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Kanakaraj J states in Beardsell (supra), wherein a Division Bench of this Court examined the classification of nylon yarn in terms of the Tamil Nadu General Sales tax Act 1959 as follows:

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3……

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In State of Tamil Nadu v. Gopal Nair and Sons [1982] 51 STC 257 (Mad.) it is observed as follows:

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"The question as to whether a particular article or commodity falls within the scope of a particular expression used in the Sales Tax Act has to be determined with its nomenclature in commercial parlance. In commercial parlance, if a person goes and asks for soap, he would not be given shaving cream. The cream under consideration is commercially a different commodity. It, therefore, follows that the Tribunal, in so far as it held that the shaving creams fell within the scope of entry 37, is clearly wrong and therefore, the article could only be treated as coming within the multipoint levy."

¶115

In Union of India v. Gujarat Woolen Felt Mills the following observations are apposite:

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"The well-known rule in interpreting items in statutes like the one we are concerned with is that 'resort should be had not to the scientific or the technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense'."

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We need not go on multiplying the decisions on this point, because it is now well-settled principle of law that articles are not listed according to the source material out of which they are made and the items in the Schedule have, therefore, to be interpreted according to the popular meaning or the meaning attached to them by those dealing in them and resort should not be had to the scientific or the technical meaning of such terms.

¶118

It is a settled position that use/utility of a commodity is very relevant to decide classification for the purposes of a fiscal statute. Classification is thus dependent upon the product itself as well as the use to which it is put. Reliance upon dictionary or scientific meaning of the product, without the support of other redeeming features, has normally been eschewed by the courts in determining the classification of the commodity. In Ramavatar Budhaiprasad, a Constitution Bench of the Supreme Court considered the classification of ‘betel leaves’ as a vegetable. All commodities mentioned in the Schedules to the Central Provinces and Berar Sales Tax Act 1947 (CP&BSTA) were exempt from taxation and those that did not figure therein were liable to tax. Prior to 1948, there had been two entries in the CP&BSTA, one dealing with ‘betel leaves’

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(item 6) and the other with ‘vegetables – except when sold in sealed containers’ (item 36) and both the aforesaid commodities were exempt from the levy of tax. By Act XIV of 1948, item 36, betel leaves, was omitted. Notwithstanding the omission, the submission was that betel leaves would still stand covered under item 6 as they constituted fresh vegetables.

¶121

The submission was negated, the Bench stating thus:

¶122

Reliance was placed on the dictionary meaning of the word "vegetable" as given in Shorter Oxford Dictionary where the word is defined as "of or pertaining to, comprised or consisting of, or derived, or obtained from plants or their parts". But this word must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. It has not been defined in the Act and being a word of every day use it must be construed in its popular sense meaning "that sense which people conversant with the subject matter with which the statute is dealing would attribute to it." It is to be construed as understood in common language; Caries on Statute Law, p. 153 (5th Ed.). It was so' held in Planters Nut Chocolate Co. Ltd. v. The King (1). This interpretation was accepted by the High Court of Madhya Pradesh in Madhya Pradesh Pan Merchants' Association, Santra Market, Nagpur v. The State of Madhya Pradesh (Sales Tax Department) (2) where it was observed:

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"In our opinion, the word "vegetables" cannot be given the comprehensive meaning the term bears in natural history and has not been given that meaning in taxing statutes before. The term "vegetables" is to be understood as commonly understood denoting those classes of vegetable matter which are grown in kitchen gardens and are used for the table."

¶124

In Avadh Sugar Mills (supra), a three judge Bench of the Supreme Court considered the classification of ‘groundnut’, whether an oil-seed or otherwise. In a short judgement, the Bench states:

¶125

The petitioner in his writ petition has definitely stated that he purchased groundnuts mostly from cultivators for the manufacture of oil. Hence there is no doubt that he purchased groundnut for the purpose of manufacturing oil.

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¶127

We shall now proceed to consider whether groundnuts are seeds and further whether they are oil-seeds. In finding out the true meaning of the term “oil-seeds” found in the sales tax law in question, we are not to refer to dictionaries. We are to find out the meaning ascribed to that term in commercial parlance. (See the decision of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Jaswant Singh Charan Singh [AIR 1967 SC 1454 : (1967) 2 SCR 720 : (1967) 19 STC 469 (SC)] .) There can hardly be any doubt that in commercial circles groundnut is dealt with as an oilseed. The commercial journals and newspapers while quoting the market price of oil-seeds list groundnuts as one of the species of oil-seeds. From this, it is clear that in commercial circles groundnut is treated as oil-seed.

¶128

In Filterco and Another (supra), a Constitution Bench in 1986, considered the grant of exemption to ‘woolen felts’ in the light of an exemption granted to ‘All varieties of cloth manufactured in mills or on powerlooms or handlooms including processed cloth, but excluding hessian cloth’ under the Madhya Pradesh General Sales Tax act 1958. The Bench noted the process of manufacture of the felts in the following terms:

¶129

The process of manufacture of ‘felt’ adopted in the appellants' factory has been described in the order of the Commissioner of Sales Tax dated January 25, 1983. The raw material consisting of woollen fibres is first mixed thoroughly and thereafter carded on a carding machine, which process results in the laying of the fibres in a combed condition in a uniform direction. The combed fibres in the shape of a web layer are then subjected to the process of hardening in a machine having an eccentric motion; the carded webs are put through two layers of cloth and passed through a steam chest. This results in the web/wool layer being converted in the form of a sheet, which is then subjected to the process of milling to impart to it necessary tensile strength and shrinkage. For this purpose, the sheet is put in a machine, which has two rows of contra-rotating rollers to provide the necessary felting action to the sheet. The sheets run in the machine till the desired shrinkage and density are achieved. After this the sheet is dried and trimmed at the ends and thereafter subjected to the process of calendering and for this purpose it is passed through steam heated contra-rotating rollers. The resultant product is ‘felt’.

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¶131

From the above description it is clear that the woollen felt manufactured by the appellants is a material obtained by compressing woollen fibres and subjecting the same to heat and moisture. It is a nonwoven material.

¶132

Thereafter, calling to aid dictionary definitions, the Bench examined the process generally followed for manufacture of cloth in the following terms:

¶133

According to Oxford English Dictionary “cloth” means:

¶134

“A piece of pliable woven or felted stuff, suitable for wrapping or winding around, spreading or folding over, drying, wiping or other purpose; a swaddling or winding cloth, wrap, covering, veil, curtain, handkerchief, towel etc.”

¶135

(emphasis ours)

¶136

In Webster's New International Dictionary “cloth” is stated to mean:

¶137

“A pliable fabric, woven, felted or knitted from any filament, commonly fabric or woven cotton, woollen, silk, rayon or linen fabric, used for garments etc.” (emphasis ours)

¶138

Going by the meaning given in dictionaries as well as by its generally accepted popular connotation “cloth” is woven, knitted or felted material which is pliable and is capable of being wrapped, folded or wound around. It need not necessarily be material suitable for making garments because there can be “cloth” suitable only for industrial purpose; but nevertheless it must possess the basic feature of pliability. Hard and thick material which cannot be wrapped or wound around cannot be regarded as “cloth”. We are, therefore, of opinion that the Commissioner was perfectly right in his view that only those varieties of felt manufactured by the appellants which satisfy the test of pliability will constitute “cloth” so as to fall within the scope of Entry 6 of Schedule I of the Act.

¶139

Upon a comparison of the processes engaged in for the manufacture of cloth in general, and of felts, in particular, the Bench held against the assessee, to the effect that felts did not satisfy the pliability test, and thus would not be eligible for the exemption claimed.

¶140

In Indian Cable Co. Ltd, a three judge Bench of the Supreme Court considered the levy of excise duty on ‘PVC compound’ produced by the assessee from out of duty-suffered PVC

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¶142

resin, in the context of the Central Excises and Salt Act 1944 (CE&SA). Such levy was conditional upon the ‘marketability’ of the commodity, hinging upon the settled interpretation of the term ‘manufacture’ in Section 2(f) of the CE&SA that requires that the article/commodity in question be suitable for sale/saleable as a separate and distinct product as contradistinguished from the inputs. In conclusion, the matter was remanded to be heard afresh, the Bench observing that in construing a product, the authority must understand it as it is done in common parlance or in commercial or trade circles. The Bench states as follows:

¶143

….

¶144

Though the majority of the members of the Appellate Tribunal held that the process employed by the appellants amounts to ‘manufacture’ within the meaning of Section 2(f) of the Act, the dissenting Judicial Member held that it was not. We do not wish to pronounce finally, at this stage, regarding the correctness or otherwise of the rival views so expressed by the members of the Tribunal, since the matter requires a remit, for other reasons. But we would like to point out that in construing the relevant item or entry, in fiscal statutes, if it is one of every day use, the authority concerned must normally, construe it, as to how it is understood in common parlance or in the commercial world or trade circles. It must be given its popular meaning. The meaning given in the dictionary must not prevail. Nor should the entry be understood in any technical or botanical or scientific sense. In the case of technical words, it may call for a different approach. The approach to be made in such cases has been stated by Lord Esher in Unwin v. Hanson [(1891) 2 QB 115, 119: 60 LJQB 531: 65 LT 511] thus:

¶145

“If the Act is directed to dealing with matters affecting everybody generally, the words used have the meaning attached to them in the common and ordinary use of language. If the Act is one passed with reference to a particular trade, business, or transaction, and words are used which everybody conversant with that trade, business or transaction knows and understands to have a particular meaning in it then the words are to be construed as having that particular meaning, though it may differ from the common or ordinary meaning of the words.”

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¶147

Again, a Division Bench of the Supreme Court, in Krishna Carbon Paper Co (supra) in the context of the CE&SA, considered the levy of duty upon carbon paper and whether the term ‘papers’ would include ‘carbon papers’ as well. I extract the illuminating discussion. Though longish, I believe it is necessary to support the conclusion I will arrive at in due course. The Bench states thus:

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It is well settled, as mentioned before, that where no definition is provided in the statue itself, as in this case, for ascertaining the correct meaning of a fiscal entry reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the context and the trade meaning. In this connection reference may be made to the observations of this Court in CST v. S.N. Brothers, Kanpur [(1973) 3 SCC 496 : 1973 SCC (Tax) 254 : AIR 1973 SC 78] , at p. 80 Para 5 (SCC pp. 500-01, paras 4 and 5).

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The trade meaning is one which is prevalent in that particular trade where the goods is known or traded. If special type of goods is subject-matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word. Where, however, there is no evidence either way then the definition given and the meaning following (sic flowing) from particular statute at particular time would be the decisive test. 11. In the famous Canadian case in King v. Planters Nut and Chocolate Co. Ltd. [1951 CLR Ex 122] Cameron, J. observed that it is not botanist's conception as to what constitutes a fruit or vegetable ... but rather what would ordinarily in matters of commerce in Canada be included that should be the guide. Similarly, this Court has held in Union of India v. Delhi Cloth and General Mills Co. Ltd. [AIR 1963 SC 791] at p. 794 para 12 that the view of the Indian Standards Institute as regards what is refined oil as known to the market in India must be preferred in the absence of any other reliable evidence. It must be emphasised in view of the arguments advanced in this case that the meaning should be as understood in the particular trade. In this case, we are construing not paper as such but a particular brand of paper with a meaning attributed to it. Sub-item (2) of Item 17 as was the position in 1979 paper referred to all kinds of paper including paper or paper boards which have been subjected to various treatments such as coating, impregnating. So, therefore, if all kinds of paper including coated paper is the goods, we have to find

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out the meaning attributed to those goods in the trade of those kinds of paper where transactions of those goods take place.

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It is a well-settled principle of construction, as mentioned before, that where the word has a scientific or technical meaning and also an ordinary meaning according to common parlance, it is in the latter sense that in a taxing statute the word must be held to have been used, unless contrary intention is clearly expressed by the legislature. This principle is well settled by a long line of decisions of Canadian, American, Australian and Indian cases. Pollock, J. pointed out in Grenfell v. IRC [(1876) 1 Ex D 242, 248 : 34 LT 426 : 24 WR 582] that if a statute contains language which is capable of being construed in a popular sense, such a statute is not to be construed according to the strict or technical meaning of the language contained in it, but is to be construed in its popular sense, meaning, of course, by the words “popular sense” that which people conversant with the subject-matter with which the statute is dealing would attribute to it. The ordinary words in every day use are, therefore, to be construed according to their popular sense. The same view was reiterated by Story, J. in 200 Chests of Tea [(1824) 9 Wheaton US 435, 438] where he observed that the legislature does not suppose our merchants to be naturalists, or geologists, or botanists. See the observations of Bhagwati, J. as the learned Chief Justice then was, in Porritts & Spencer (Asia) Ltd. v. State of Haryana [(1979) 1 SCC 82 : 1979 SCC (Tax) 38] . But there is a word of caution that has to be borne in mind in this connection, the words must be understood in popular sense, that is to say, these must be confined to the words used in a particular statute and then if in respect of that particular items, as artificial definition is given in the sense that a special meaning is attached to particular words in the statute then the ordinary sense or dictionary meaning would not be applicable but the meaning of that type of goods dealt with by that type of goods in that type of market, should be searched. In the instant case, we have “all kinds of papers including papers subjected to coating, impregnating etc.” If there is a market meaning or trade meaning of that kind of a paper that should be adhered to. In this case, there is no direct evidence how these peculiar goods are dealt with in the particular market dealing with those goods. But there is evidence how these are to be understood in the light of the specifications of

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the Indian Standards Institute which we have mentioned before. It is instructive to refer in this connection a passage of the Tribunal's decision in Kores (India) Ltd. v. CCE [29 ELT 627], where the Tribunal observed that on the point whether carbon paper is understood as a coated paper in trade, there is authority of the Indian Standards Institute's publication “Glossary of Terms used in Paper Trade and Industry” — IS: 4661. Therefore, understood in the accepted notion of construing entries of fiscal statutes not from a technical or scientific point of view but from the point of view of the people in the trade dealing with that particular type of goods and having regard to the evidence of the Indian Standards Institute and in the absence of any other evidence to the contrary, the Tribunal was justified in holding that on the basis of the definition of paper as it was in the year 1976 carbon paper would come within Item 17(2) of the tariff items.

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The Bench also placed support upon the judgements in State of Uttar Pradesh v. Kores (India) Ltd. ((1976) 4 SCC 477), the observations of Lord Tenterden in Attorney General v. Winstanley ((1901) 6 ER 740) and the observations of Pollock, J. in Grenfell v. IRC [(1876) 1 Ex D 242, 248 : 34 LT 426 : 24 WR 582] to buttress their conclusion that the term ‘papers’, in the light of the entry in the schedule that encompassed all kinds of papers, would include carbon papers as well.

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In Tvl. Nilsin Industries, the question that was considered by a Division Bench of the Supreme Court was whether ‘Ultramarine Blue’ or ‘Neel’ fell within the ambit of the entry reading ‘pigment’ or the one reading ‘dyes or chemicals not otherwise specified’ as put forth by the assessee. After noticing the essential elements of a pigment as defined in the Condensed Chemical Dictionary, and also that Neel does not constitute a separate product by itself, but was a colourant, and that those that were conversant with and used it also understood it as one, the Bench rejected the contention that it was a dye or a chemical and held that it was a pigment. The tests laid down were (i) physical constituents (ii) various uses (iii) popular understanding and (iv) the language of the Entries under consideration.

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In K.V.Dhanuskodi (supra), a Division Bench of this Court considered the grant of exemption under the Madras Sales Tax Act 1959 to chicory and chicory seeds in the light of a Notification extending exemption from tax to ‘vegetable seeds, fruit, plants, flower seeds, and flower plants’. Applying the

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tests laid out in the paragraphs above, the Bench concluded that the commodity in question did not come within the ambit of the exemption notification.

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A Division Bench of the Gujarat High Court in Gujarat Distributors (supra) considered whether Aldrex, Dieldrex and Endrex qualify to be ‘chemicals’ covered by Entry 4/Schedule C or by residuary entry 22/Schedule E of the Bombay Sales Tax Act 1959. The former entry was itself a residuary entry that covered both ‘dyes and chemicals’ and the latter a further residuary entry covering those goods specified in Section 14B as well those not contained in Schedules A, B, C and D. The trade literature of the products was examined in detail as well as the composition thereof. The Encyclopaedia Brttannica was studied, and the Court observed that the chemical industry consisted of three classes of chemicals, basic chemicals, chemical products and finished chemical products. The use of the word ‘chemical’ along with the word ‘dye’ in the Entry that was being interpreted led to the conclusion, applying the doctrine of noscitur a sociis, that the chemicals contemplated in the Entry would take their colour from the word ‘dye’ and hence assume a narrow meaning. In conclusion, the Court held that the three commodities were not chemicals as contemplated in terms of Entry4/Schedule C. The reference was answered accordingly.

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The question as to whether cotton waste would be the same as raw cotton came to discussed in Sapt Textile Products (supra) and after reference to standard texts on the subject such as ‘Cotton’ by Brown and Volume 20 of the Textile Research Journal as well as taking into account the particular meaning that the commodity has acquired in the trade, the Court held that the two commodities are separate and distinct from each other.

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The Gujarat Division Bench, in B.Shah and Co, Surat (supra), considered whether ‘Nycil Medicated Powder’ was a toilet article or a ‘medicine’ under the Bombay Sales Tax Act 1959. In deciding the question, the Bench took into account the ingredients of the product, its nature, the dictionary meanings, its properties and its uses, concluding that the product would be categorized as a medicine only.

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In S.R.Brothers (supra), a Division Bench of the Allahabad High Court decided the question of whether food colour and essence manufactured by the assessee would fall within the sweep of a Notification issued by the Government of Uttar Pradesh levying tax of one anna per rupee on the turnover from the sale of several specified commodities. The list of commodities included inter alia ‘dyes and colours and compositions thereof’ and ‘scents and perfumes’. The case of the

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revenue was that products manufactured by the respondent/assessee would stand covered by both the entries set out aforesaid. For this purpose, reliance was placed upon their meanings in the Random House Dictionary, Encyclopaedia Brittanica and the Corpus Juris Secondum. Sole reliance upon the dictionaries and texts was rejected with the Court also taking specific note of the use to which the products were put to at paragraph 6 (SCC report). In conclusion, the argument of the revenue on this point stood rejected.

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The final decision relied upon by the revenue was in the case of S.Kannappa Mudaliar (supra) wherein the question was whether cocoanuts are classifiable as oil-seeds. Considering the ‘popular understanding’ test and the necessity to juxtapose and appreciate the real intent and purport of words used in common parlance and in a fiscal statute, the Bench held at paragraph 3 (SCC online) held that ‘care should be taken in interpreting the word for legal purposes, and particularly under the subject of taxation and while vivifying that word, the popular understanding of it should be rather pressed into service rather than its botanical, scientific or technological signification.’

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The unanimous and settled ratio laid down by the above judgements/decisions is that in classifying a product/commodity for the purposes of determining tax rate under a fiscal statute, no one test should be applied in isolation. With one voice courts have said that one should take into account the following parameters and tests and apply the same concurrently, depending on the facts and circumstances of each case (i) definition of the product from dictionaries as well as standard textbooks and commentaries (ii) detailed descriptions of the product including its composition (iii) nature of the product (iv) uses and applications of the product (iv) the common/popular parlance/understanding test.

¶168

Applying these tests to the facts before me, the following positions emerge. MSG is undoubtedly a chemical by composition. This is supported by the chemical equation that sets out its composition as well as the detailed write-up extracted in the earlier portion of this order (please see paragraphs 11 to 13). These particulars are not denied by the revenue in either the counter filed or in the oral arguments advanced. However the facts of a particular case are to be set in the context of the decisions in order to decide their applicability to a particular case.

¶169

It is true that MSG is used extensively and commonly to enhance the umami taste of food. Incidentally, it is stated that glutamic acid and MSG themselves do not contain the umami

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flavoring, but they only serve to activate glutamate receptors in the taste buds. This is not however, the sole use of the commodity, that also has other uses such as in the production of folic acid by pharma companies, plant growth promoters by agro chemical industries and in the production of Pyroglutamic acid used for processing chemical reactions. This position has also not been disputed by the revenue.

¶172

The existence of two conflicting entries would present a situation where one would have to examine which description is a better fit applying the test of common parlance, usage of the product and the description of the product itself. These parameters are equally relevant in a case such as the present, where a descriptive entry such as ‘acids and chemicals of all kinds’ is pitted against a non-descriptive residuary entry that encompasses all those goods that are not covered in any other Schedule entry. In such a case, in my considered view, the physical description/composition test would assume more significance. All the more in the present case when all the parameters are satisfied, that is, MSG is a chemical by composition and the varied uses of MSG as a chemical, apart from its use in the food industry has not been disputed, though specifically averred by the petitioner. The general entry must, in such cases, give way to the specific.

¶173

I draw support in this regard from the judgement of the Supreme Court in the case of AB Mauri India Pvt. Ltd. V. The Commissioner of Commercial Taxes and another (order dated 27.11.2017 in W.P.No.12363 of 2006). The Bench was concerned with the classification of ‘yeast’ either as a chemical or under the residuary entry as an ‘unclassified item’ in terms of the Uttar Pradesh Trade Act 1948, holding at paragraph 48 that in the event of a conflict between two entries, one, a descriptive entry and the other, a residuary entry, the former should be preferred.

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In the light of the above discussion, these writ petitions are allowed. No costs. Connected Miscellaneous Petitions are closed.

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Sd/-

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Assistant Registrar(CS VI)

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//True Copy//

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Sub Assistant Registrar

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Ska/sl

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The Secretary, Government of Tamil Nadu, Commercial Taxes and Registration Dept. Fort St. George, Chennai-600 009.

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The Commercial Tax Officer, Koyambedu Assessment Circle 426, P.H. Road Maduravoyal, Koyambedu, Chennai-600 095.

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The Commissioner of Commercial Taxes, Chepauk, Chennai-600 005 4. The Assistant Commissioner (CT) Sowcarpet II Assessment Circle, Chennai-1.

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+1cc to Mr.B.Rabu Manohar, Advocate in sr.no.98881 +1cc to Mr.S.Raveekumar, Advocate in sr.no.99005 +2cc to Special Government Pleader, in sr.no.99607

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W.P.No.28794 to 28796 of 2010 & 11461 of 2011

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NRJK(CO)

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CS/13/07/2020

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M/S. Ajinomoto India Pvt. Ltd. v. the State of Tamil Nadu

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M/S. Ajinomoto India Pvt. Ltd. v. the State of Tamil Nadu

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