Mauri Yeast India Pvt. Ltd. Vs. State of U.P. and another  INSC 621 (10 April 2008)
S.B. SINHA & HARJIT SINGH BEDI
REPORTABLE CIVIL APPEAL NO. 2720 OF 2008 (Arising out of SLP (C) No. 11744
of 2007) AND CIVIL APPEAL NO. 2721 OF 2008 (Arising out of SLP (C) No. 12775 of
2007) M/s.Kothari Fermentation and Biochem Ltd. Appellant Versus State of U.P.
and another . Respondents S.B. SINHA, J.
1. Leave granted.
2. Interpretation of an Entry in the U.P. Trade Tax Act, 1948 is in question
in these appeals which arise out of a judgment and order dated 16th April, 2007
of the High Court of Judicature at Allahabad in CMWP No. 554 of 2006 and CMWP
No.98 of 2007.
3. The State of Uttar Pradesh enacted the U.P. Sales Tax Act (for short,
"the said Act"). In exercise of its powers conferred upon it under
clause (d) of sub-section (1) of Section 3-A of the said Act, a notification
was issued by the State on 7th September, 1981 prescribing description of
goods, point of tax and rates thereof, Entry 21 whereof reads as under:-
________________________________________________________ Sl. No. Description of
goods Point of Tax Rate of tax
________________________________________________________ 21 Chemicals of all
kinds including M or I 8 % fuel gases.
In supersession of the said Notification, another notification was issued on
23rd November, 1998, Entry 22 whereof reads as under:-
________________________________________________________ Sl. No. Description of
goods Point of Tax Rate of tax ________________________________________________________
22 Chemicals of all kinds including M or I 10 % fuel gases. Provided that in
the case of fuel gases if the sale is by any of the undertaking registered as
dealer in the name and style of M/s. I.O.C. Ltd., B.P.C.. Ltd., H.P.C. Ltd.,
and I.B.P. Co. Ltd., the tax shall be levied at the point of sale by such
dealer to a person other than any of the aforesaid dealers.
Yet again on or about 1st March, 2003 a Notification was issued, entry (i)
whereof is as under :- ________________________________________________________
Sl. No. Description of goods Point of Tax Rate of tax
________________________________________________________ (i) Chemicals of all
kinds M or I 4 %
4. Before embarking on the question of law, we may notice the representative
fact of the matter involved in the appeal arising out of SLP (C) No. 11744 of
Appellants carry on business of manufacturing and sale of yeast which is
used for the purposes of manufacturing bread etc. They had been filing returns
before the sales tax authorities treating 'yeast' to be a 'chemical' within the
meaning of the aforesaid entry for a long time. The said returns had been
accepted and orders of assessment were passed relying on or on the basis
5. We may at the outset notice that, a Bench of the Gujarat High Court in
State of Gujarat vs. Bhagwati General Agency (Import) : 1991 (83) Sales Tax
Cases 347 held 'yeast' to be a 'chemical' within the meaning of Entry 9 of Part
A Schedule II of the Gujarat Sales Tax Act, 1969 and a Bench of the Kerala High
Court in State of Kerala vs. A.M. Jose : 2004 (137) STC 82 opined 'yeast' to be
a 'living organism' and, thus, not a "chemical"
interpreting Entry 29 of the Kerala General Sales Tax Act.
6. By an order dated 10th March, 2005 the Assessing Officer while accepting
the books of account as well as the disclosed turnover, rejected the
classification of sale of 'yeast' under the head 'chemical' and imposed tax
thereupon treating the same to be as "unclassified item". In support
of the said order, reliance was placed on the decision of the Kerala High Court
in A.M. Jose (supra). Appeals preferred thereagainst by the appellants before
the Joint Commissioner (Appeals) and the Trade Tax Tribunal were dismissed.
7. For the Assessment Year 2003-2004, a notice was issued to the appellant
on 9th March, 2006 directing it to show cause why tax shall not be imposed on
sale of 'yeast' @ 10 % as an unclassified item.
8. Questioning the legality thereof, a writ petition was filed by the
appellant which, by reason of the impugned judgment has been dismissed by the
9. Mr. S. Ganesh and Mr. Amit Chadha, learned Senior counsel appearing on
behalf of appellants, would submit :- 1) That the High Court committed an error
in passing the impugned order in so far as it failed to take into consideration
that the 'yeast' had all along been treated to be a 'chemical'. It has been so
classified under the Central Sales Tax Act.
2) The chemical composition of 'yeast' as also the purpose for which the
same was used having been accepted by the respondents in their
counter-affidavit and as would be evident from the other materials brought on
record including the certificates issued by the users thereof, it is clearly
borne out that 'yeast' is a chemical' and not a 'living organism'.
3) In any event, if 'yeast' is a plant, as has been held by the Kerala High
Court, no tax would be payable thereupon in view of the Entry No.25 of the
Notification dated 31st January, 1985.
10. Mr. Krishnan Venugopal, learned counsel appearing on behalf of the
respondents, on the other hand, submitted:- 1) In view of the fact that the
question whether yeast would be a plant or not being a mixed question of law
and the process for finding out the same having not been gone into, this Court should
not pronounce any judgment thereupon.
2) In any event 'yeast' being a 'fungi' is not a plant as has been noticed
in the New Encyclopedia Britannica Volume 19 page 59.
3) The 'dictionary' and the 'chemical meaning' of 'yeast' being 'living
organism' whereas the chemical being a non organism, the decision of the Kerala
High Court should be held to have laid down a correct law as opposed to the
decision of the Gujarat High Court.
4) If in other Acts or Circulars, 'yeast' has been shown to be a 'chemical' the
same should be held to be wholly irrelevant for the purpose of interpretation
of an 'Entry' in a fiscal statute which must be interpreted on its own.
5) A dictionary meaning, in a case of this nature, is required to be
considered with a view to reconcile and harmonise the tariff entry and only
because an article is exclusively used for manufacture of a particular item,
the same should not be held to be decisive.
6) Classification under a tariff entry being essentially a question of fact,
should be determined on the basis of relevant material by the authorities. Onus
of proof being on the assessee, it is for it to establish that 'yeast' is not a
'plant' and for the said purpose the matter should be remitted to the assessing
7) The question, admittedly being pending before the High Court in Tax
Revision Cases for the earlier years, a writ petition was not maintainable.
11. Before embarking on the questions raised before us by the learned
counsel for the parties we may notice the chemical composition of 'yeast' :-
"Bakers' yeast contains (on a dry basis) about Carbon 46 %, Oxygen 32 %,
Nitrogen 8.5 %, Hydrogen 6.0 % and Ash 7.5 % (P2 O5 - 5.5 %). Based on this
composition, the Empirical formula is C8 H12 O4 NP0.1"
(As per Harcourt Butler Technological Institute).
12. The chemical composition of yeast as also its chemical formula stand
accepted by the respondent in their counter-affidavit in paragraph 4 stating :-
"4. The yeast is mixture comprising of Ammonia, Diammonia Acid, Mono
Ammonia Acid, Phosphorous Pentaoxide, Potassium Oxide, Mangesium Oxide, Calcium
Oxide etc. In dried form, the yeast consists of the following ingredients :
Carbon 46 % Oxygen 32 % Nitrogen 8.50 % Hydrogen 6.00 % Ash 7.50 % "
13. It also stands admitted that yeast is also used in baking,
pharmaceutical industries and for domestic applications, for example, in bread
making process. Yeast ferments simple sugar and produces carbon dioxide and
alcohol. It is capable of bringing about a chemical reaction or chemical
14. Harcourt Butler Technological Institute, in respect of Bakers' yeast
states as under :- "Bakers' yeast is one of the biochemical industry
products consisting of cellular mass/biomass of living microorganisms
(Saccharomyces cerevisiae). Bakers' yeast contains (on a dry basis) about
Carbon 46 %, Oxygen 32 %, Nitrogen 8.5 %, Hydrogen 6.0 % and Ash
7.5 % (P2 O5 - 5.5 %). Based on this composition, the Empirical formula is
C8 H12 O4 NP0.1 . It is produced on commercial scale using fermentation of
molasses (as a source of sugar). The following chemical equation represents its
synthesis based on sucrose :- 0.55 C12 H22 O11 + 0.57 NH3 + 2.51 O2 + 0.02P2 O5
--- (Sucrose) C3.92 H6.3 O0.6 N0.57 P0.04 + 2.68 Co2 + 3.83 H2O (Bakers' yeast)
Yeast is widely used in baking, pharmaceutical industries and for domestic
applications. In bread making process and related sweet dough processes, yeast
ferments simple sugars and produces Carbon dioxide and alcohol as shown by
C6 H12 O6 + Yeast ----- 2 Co2 + 2 C2 H5 OH Glucose Carbon dioxide Ethanol
The fermentation is gradual, beginning slowly and increase in rate with time.
This is due to two conditions in dough :
i) Yeast wells are multiplying and their enzymes are becoming more active
while the dough is prepared and held, and ii) Sugar for fermentation is
gradually being liberated from starch in the dough by the action of natural
The evolved carbon dioxide acts as a leavening agent, which leads to the
porosity of bread. The porosity is caused by the carbon dioxide produced and
retained in the dough by the film forming properties of a pertain complex
present in the dough called gluten.
The bakers' yeast is available as compressed cake or in dried form as
powder, small granules, pellets or flakes. It should not be slimy or mouldy and
should not show any sign of deterioration or decomposition. It should be free
from adulterants and other extraneous materials."
15. In an order dated 28th May, 1999, the Yeast Controller and Excise
Commissioner, U.P. stated:- "After carefully consideration
application/representation of the Yeast Manufacturing Association of India, it
has been decided that yeast has been included in the category of Chemical
Industries in the current yeast session of 1998-99 because it is a bio-chemical
for yeast units. Out of 40% reserved for chemical units in the current yeast
year 1998-99, the share/quota of the yeast manufacturing units in the State is
hereby determined at 3,00,000 Quintals (Three lakhs quintals). Approval is
hereby accorded to the Yeast Units of the State to lift the balance yeast
within the prescribed quota/limit. However, yeast so lifted shall not exceed
more than 95% of the total capacity of the Yeast Units."
16. The Central Government in a circular issued on 12th November, 1958
issued under the Central Sales Tax Act prescribed in Form No. 6, while
categorizing 'Distilleries and Breweries', described 'Chemicals' as under :-
"Chemicals" (1) Sulphuric acid, (2) Ammonium sulphate, (3)
Flavouring agents, (4) yeast, and (5) other chemicals."
17. Yeast has been defined in several dictionaries and treatises in various
forms, some of which may hereafter be noticed.
Yeast is described in the Concise Oxford Dictionary (10th Indian Edition) as
"a microscopic single-celled fungus capable of converting sugar into
alcohol and carbon dioxide". The dictionary further gives the biological
description of yeast as "any unicellular fungus that reproduces
vegetatively by budding or fission".
The Medical Dictionary also attributes the same meaning to yeast.
Encyclopedia Britannica describes yeast as "any of certain economically
important single-celled fungi". It is further stated that "in food
manufacture 'yeast' is used to cause fermentation and leavening. The fungi feed
on sugars, producing alcohol (ethanol) and carbon dioxide; in beer and wine
manufacture the former is the desired product, in baking, the latter. In
sparkling wines and beer some of the carbon dioxide is retained in the finished
beverage. The alcohol produced in bread making is driven off when the dough is
Encyclopedia Americana describes yeast as "a tiny living plant".
"It makes the bread light and tender; it also adds flavour."
18. Sri. S.C. Dubey, a Baking Technician of repute of U.S. Wheat Associates,
New Delhi has done an extensive research on yeast and its functions. It is
profitable to refer to the following passage from his writing:- "Yeast is
unicellular microscopic plant. Its structure consists of cell wall, protoplasm,
and vacuole. It requires food (in the form of simple sugar), moisture and
temperature climate for its growth and reproduction.
Yeast multiplies by budding. When yeast cell is placed in a liquid medium at
optimum temperature (80-85F) containing simple sugar (dextrose or fructose),
then the cell starts growing buds on its cell wall which keep on growing until
daughter cells acquire the same size as mother's cell. Then the buds separate
from mother cell and start producing other buds.
The protoplasm of yeast contains certain enzymes by which fermentation
activity of 'yeast' is made possible. Enzymes are very minute substances
produced by living organisms, which, by its mere presence, are capable of
bringing about or speeding up certain chemical changes. For example, food is
digested through the action of certain enzymes, starch is converted into sugar
by the action of enzymes. Although an enzyme does affect chemical changes, a
very small quantity of enzyme is capable of converting a very large quantity of
substance from one form to another form, but enzyme itself is neither destroyed
nor changed. Hence, enzymes are known as catalytic agents."
19. Bakers Handbook on Practical Baking compiled by U.S. Wheat Associates,
New Delhi describes yeast as follows:- "Yeast is a microscopic one-celled
plant belonging to the fungus order, which ordinarily multiplies by a process
known as budding and which causes fermentation when placed under suitable
Fermentation is a general term which covers aerobic and anaerobic changes
brought about by micro-organisms and includes the production of carbon dioxide
gas, alcohols, acids and some other by-products."
It is further stated that in the said Handbook that "yeast is a very
potent source of supply of enzymes. An enzyme is produced by living cells,
either animal or vegetable............ The important enzymes in yeast are
Invertase, Maltase and Zymase."
20. Although strong reliance has been placed on some certificates issued by
various private organizations stating that in commercial parlance 'yeast' is
treated to be a chemical, we may for the purpose of the case ignore the same.
21. Keeping in view the aforementioned backdrop we may analyse the
conflicting views taken by the Gujarat High Court and the Kerala High Court.
22. The relevant entries, which were the subject matter of interpretation of
the Gujarat High Court are :-
________________________________________________________ Description of goods
Rate of sales Rate of purchase tax tax
9. Dyes and chemicals other Three paise in Three paise in than those
specified in any the rupee the rupee other entry in this or any other
13. All goods other than those Five paise in Three paise in specified from
time to time the rupee the rupee in Section 18 and in Schedules I and II and in
the preceding entries.
23. It was held that 'yeast' is a composition of chemicals and its
properties have chemical reaction through the process of enzymatic conversion
of carbohydrates into alcohol and carbon dioxide and thus capable of bringing
about a chemical reaction or chemical effect. It was held to be a
"chemical". In so opining the High Court referred to Webster's
Seventh New Collegiate Dictionary, stating:- " With the above meaning of
the word "chemical"
the question which is required to be answered is whether "yeast"
is a substance which is used in chemical operations or for producing chemical
effect in the manufacture of breads, pastries or other products resulting from
baking process. About the basis ingredients of it, viz., that it possesses
reactive properties of bringing about a chemical reaction, there is no dispute
and, therefore, it can be said to be a substance used for producing a chemical
effect. In that sense of the term, we find that yeast can be described as
"chemical". From the composition of yeast and its essential
characteristics, it is clear that it is a substance obtained by a certain
process and is used for producing certain chemical effect."
24. A contention was also raised before the High Court that 'yeast' is
generally used in baking process for bringing about fermentation which in turn
is brought about by the life activities of an unicellular plant,
microscopically small yeast cell. The process is fundamentally biological and,
therefore, yeast is primarily a biological agent and it is not a chemical.
The said submission was repealed holding :- "We are not in a position
to accept the submission of learned Assistant Government Pleader firstly, because
there is absence of any entry in any of the three Schedules dealing with living
micro-organisms or any biological product and, by this reference, we are not
called upon to decide as to whether yeast would more appropriately fall into
the description of biological product or not, secondly while construing an
entry in fiscal statute we shall have to keep in mind the fact that when there
is a specific entry in the description of which entry the product in question
can more appropriately fall, it is not permissible to have resort to a
residuary entry, thirdly, we have also reached a finding that by its
composition yeast can be described as chemical, fourthly we have found that
yeast is a substance having reactive properties and lastly we note that we are
called upon to decide as to whether yeast is "chemical" and not the
question as to whether "yeast" can be appropriately classified as
25. The Kerala High Court, on the other hand, was interpreting Entry 29 of
Kerala General Sales Tax Act, which reads :- "Chemicals including caustic
soda, caustic potash, soda ash, sodium sulphate, sodium silicate, sulphur,
chemical components and mixtures not elsewhere classified in this
It was in the context of the said Entry held by the High Court :- "10.
Though dictionaries are not generally meant for resolution of legal issues, yet
it is one source of information relating to an issue. It may be seen that the
expression chemical is generally attributed to mean a substance obtained in or
used for chemical operation.
Necessarily the substance is a chemical. It is one thing to say that a
substance is a chemical and yet another thing to say that an organism is
capable of chemical operation. A chemical process may be there in fermentation
since the fungi feed on sugars and produce alcohol and carbon dioxide. But it
is to be noted that the organism that is used in the process is fungus. It
needs no research to understand that fungus is a non-green plant and includes
such forms as mushroom, mould, rust and puffball. As we have already noted
above yeast is a uni-cellular fungus. All the authorities referred to above
have in unmistakable terms expressed that fungus is a living organism, a plant
which has its own mode of multiplication mainly by budding and occasionally by
fission. It is not a lifeless substance, but a living organism. Merely because
a living organism is used in a chemical process, it cannot be held that that
living organism is a chemical substance. It retains its characteristic as a living
organism even in the process."
Differing with the views of the Gujarat High Court, it was observed:-
"Thus the decision though heavily relied on by the learned Government
Pleader, is distinguishable on those two major counts: Firstly the court was
considering whether yeast powder obtained by a process using molasses and
ammonia is a chemical. We have already held that there cannot be any quarrel
that any substance obtained by using a chemical substance can be termed as
chemical. Secondly it has to be seen that the court was not deciding the
question as to whether yeast is a living micro-organism whereas in the instant
case the question which we have been analysing is as to what is yeast. In other
words, what we have tried to analyse is as to what is yeast and not what is
there in yeast. For the purpose of understanding an entry in a taxing statute
it is sufficient to understand as to what is the item."
The commercial parlance test was rejected, inter alia, relying upon the
decision of this Court in Rallis India Ltd. vs. State of Tamil Nadu : 
112 STC 203.
It was concluded :- "18. For the purpose of taxation of an article the
approach should be what is an article and not what is in it or what is it
capable of. Yeast may be capable of a chemical operation. But yeast is not a
chemical. It is a living organism. Hence by no stretch of imagination a living
organism can be classified as a chemical substance for the purpose of taxation
under the Act. 83 STC 347 does not apply in the facts and circumstances of the
The question as to whether yeast is a living organism was not considered at
all in the decision."
26. The authorities under the Act as also the High Court relied solely on
the decision of the Kerala High Court. No attempt was made to interpret the
entry in question. Evidently the High Court did not answer the question as to
whether the Kerala High Court decision can be taken to its logical conclusion,
keeping in view the nature of entry which was the subject matter of
interpretation. Yeast in all situations was held to be a plant. For the said
purpose, the question was required to be considered at some details by the
27. Encyclopedia Americana (International Edition) Vol. 29 at pages 657- 658
details the procedure for growing 'yeast'. It speaks of different 'yeasts'
grown to be used for different purposes, in the following:- " The
procedures for growing yeasts are fundamentally the same in each industry. A
pure culture is obtained by isolating a single yeast cell and growing it on a
nutrient medium consisting of sugars (molasses, starchy grains, potatoes), a
source of nitrogen (ammonia, grain steepwater), minerals and water of
controlled acidity. As growth proceeds, the culture is transferred to
successively larger batches of medium until the final batch often exceeds
100,000 gallons. When growth is completed, the yeast cells are separated from
the spent medium on which they grew.
Yeast grown for bread making, food, feed and medicinal purposes are the
primary product of the fermentation process and produce little alcohol. The
spent medium is the byproduct and is discarded after centrifuging out the yeast
cells. Yeasts grown during fermentations for beer, ale, spirits, wine, and
industrial alcohol, however are the byproducts, while the spent medium becomes
the final consumer product."
28. The rate of tax for 'yeast' was 8%. In the year 1998 the rate was
increased to 10%, whereas in the year 2003 it was brought down to 4%.
Strangely enough from 1981 to 2003 no attempt was made to classify 'yeast'
as a residuary item.
29. Submission of Mr. Krishnan Venugopal that the rate of tax being the
same, it was not necessary to do so cannot be accepted, as from 1998 to 2003
the rate of tax was 10%.
30. It is now a well settled principle of law that in interpreting different
entries, attempts shall be made to find out as to whether the same answers the
description of the contents of the basic entry and only in the event it is not
possible to do so, recourse to the residuary entry should be taken by way of
31. The interpretation of the entry which fell for consideration before the
Kerala High Court ex facie speaks purely of 'organism' and not of the man- made
chemical. It does not speak of an organic chemical.
32. The entry in question, however, is of wide import. It takes within its
purview chemicals of all kinds. It does not make any distinction between an
inorganic chemical and an organic chemical. The dictionary meanings of the
terms which have been noticed by Kerala High Court as also the Gujarat High
Court may not be of much relevance in the aforementioned context, although they
act as a good guide. 'Yeast' may answer both 'chemical' as also 'fungi'. It is
significant to notice that whereas fungi at one point of time was considered to
be a plant and in fact has been held to be so by the Kerala High Court, only in
the New Encyclopedia Britannica, it is not considered to be a plant, stating :-
"Fungi The kingdom Fungi (Mycota) comprises a large group of eukaryotic
organisms having two common characteristics: anantomically, their principal
mode of vegetative growth is through mycelium; physiologically, their nutrition
is based on absorption of organic mater.
Although historically included in the plant kingdom, fungi lack chlorophyll and
other structures common among true plants and have therefore been placed in a
separate kingdom. Fungi are the culmination of a major direction in evolution
distinctly different from that of plants or animals ; this evolutionary line
was established by organisms whose nutrition was based on absorption of organic
matter. Fungi are among the most widely distributed organisms on Earth and are
of great importance. The fungi include yeasts, rusts, smuts, mildews, molds,
mushrooms, and others. Many fungi are free-living in soil or water; others form
parasitic or symbiotic relationships with plants or animals, respectively.
(Slime molds, straddling the animal and plant worlds, are treated in the
article PROTISTS.) The mushrooms, by no means the most numerous or economically
significant of the fungi, are the most conspicuous members of the group; thus,
the Latin word for mushroom, fungus (plural fungi), has come to stand for the
whole group. Similarly, the study of fungi is known as mycology a broad
application of the Greek word for mushroom, mykes. Fungi other than mushrooms
are sometimes collectively called molds, although this term is better
restricted to fungi of the sort represented by bread mold."
33. The meaning of the word 'of' used in an item in a fiscal statute must be
considered having regard to the intention of the maker thereof. The court
shall, for the said purpose, put itself in the chair of the legislature. It
would presume the 'legislation' to be reasonable.
34. The Executive Act of issuing a notification is a legislative action. The
authorities are supposed to know the meaning of the word used therein.
'Yeast', admittedly, has a chemical composition. It has a chemical formula.
It was accepted to be a chemical by the assessing authority for a long time. It
not only takes within its sweep as to what it would be, but what it can be or
what it does.
35. The Kerala High Court itself opined that any substance obtained by using
a chemical substance can also be termed as "a chemical".
36. For the purpose of determining the question, the chemical composition of
yeast is relevant. Determination of and what is there in 'yeast' would also be
37. No test laid down by this Court i.e. common parlance test or user test
or any other test can be said to be decisive in a situation of this nature.
The word used in the statute, it is well settled, must take its colour from
the object it seeks to achieve.
38. The High Court as also Mr. Kishan Venugopal has placed strong reliance
on the decision of this Court in Rallis India Ltd. vs. State of Tamil Nadu :
 112 STC 203.
The question which arose for consideration therein was as to whether the
Appellate Tribunal being a fact finding body and having analysed the materials
on record and came to the conclusion that 'Gelatine' did not fall within the
meaning of 'chemical' which had attained finality between the parties, the High
Court should have re-opened the matter.
It is, however, significant to note that even for the said purpose the
opinion of the experts were relied upon. For the purpose of holding that
Gelatine is a protein obtained from collagen which originates from the animal
kingdom mainly from skin and bones with suitable pressure, opinion of the
expert was relied upon which stated that 'Gelatine' has no specific formula.
Yet again, another expert opined that chemical is defined as compound of
substances of definite molecular composition.
39. If 'yeast' has a definite molecular composition and is a single
molecular species with a definite molecular structure, it would answer the said
description. It has all the trappings of a chemical. It has a definite
composition or attributes of the properties. A bye-chemical substance for the
purpose of interpretation of an entry in a fiscal statute may also be held to
be a chemical.
40. It is now a well settled principle of law that when two views are
possible, one which favours the assessee should be adopted. [See - Bihar State
Electricity Board and another vs. M/s. Usha Martin Industries and another :
(1997) 5 SCC 289.
It is not a case where application of a commercial meaning or trade
nomenclature runs contrary to the context in which the word was used as was the
case in Akbar Badrudin Giwani vs. Collector of Customs : (1990) 2 SCC 203.
41. There cannot be any quarrel with the proposition that construction of
the word is to be adopted to the fitness of the matter of the statute. But for
determining the said question, several factors which would be relevant are
required to be gone into. The trade or commercial meaning or the end user
context would, thus, be a relevant factor.
It is equally true that the category of the persons using the same, as for
example the boys using a particular item, would not necessarily lead to the
conclusion that they are 'toy' as they may answer the description of any other
entry and in that view of the matter the decision of this Court in O.K.
(2005) 2 SCC 460, in our opinion, has no application to the fact of the
42. Strong reliance has been placed by Mr. Venugopal on CCE vs. Acer Inda
Ltd. : (2004) 8 SCC 173 wherein the question which arose for consideration was
whether a computer without software loses its character of a marketable
commodity. Therein it was held that it did not. Such a question does not arise herein
for our consideration.
43. Reliance has also been placed by Mr. Venugopal on Commissioner of
Central Excise, Delhi vs. Carrier Aircon Ltd. : (2006) 5 SCC 596 for the
proposition that for the purpose of classification, the relevant factors are
statutory fiscal entry, the basic character, function and use of the goods; and
for the said purpose, the end use to which the product is put to, cannot
determine the classification of that product. In that case as to in which entry
'chiller' should be put was in question. It was held that it would come within
the meaning of refrigerators, freezers and other refrigerating or freezing
equipment as the same is supported by the explanatory notes appended thereto.
44. Yet again there is no quarrel with the proposition that the
classification of 'goods' under a particular entry is a question of fact.
However, in the instant case, no disputed question of fact has been raised.
In fact, no attempt has been made to find out the fact. The authorities as also
the High Court, without assigning any reason blindly followed the Kerala High
Court decision. It did not pose unto itself the right question. The difference
between the entries was not considered.
45. Submission of Mr. Venugopal that having regard to the provisions contained
in Section 101 of the Indian Evidence Act, onus would be on the assessee,
cannot be accepted for more than one reason. Firstly, because the provisions of
the Evidence Act have no application. Secondly, because the classification
adverted to by the assessee had been accepted by the revenue for more than 20
years. A different construction to an entry cannot be resorted to only because
the rate of tax has been lowered. As the said classification had been accepted
by the revenue for a long time, the onus would be on it to show as to why a
different interpretation thereof should be resorted to particularly when no
change in the statutory provision has taken place.
46. Reliance has been placed by the learned counsel on Krishna Steel
Industries vs. vs Collector of Central Excise, Patna : (2004) 11 SCC 239
wherein having regard to the interpretation of Chapter Note 6, the
classification had been made either under Chapter 84 or under Chapter 73 and
the subject matter thereof having held to be not classifiable under Chapter 84,
was held to be classifiable only under Chapter 73 stating :
"5. The authorities below, have on the basis of Note 6 held that these
balls are classifiable under Tariff Item 73.08. We are in complete agreement
with the view taken by the Collector and the Tribunal. Even though earlier
these balls could have been classified under the then Tariff Item 26-AA, with
the incorporation of Chapter Note 6, the item now has to be classified either
under Chapter 84 or under Chapter 73. These balls cannot be classified under
Chapter 84 and thus necessarily have to be classified under Chapter 73.
6. We are unable to accept the submission that it still continues to be a
forged item and therefore must fall under Tariff Item 72.08 (which according to
counsel for the appellant, is equivalent to old Tariff Item 26-AA).
Such an argument, in our view, merely needs to be stated to be rejected. An
item has to be classified in accordance with chapter notes. The only reason
these balls were earlier classified under old Tariff Item 26-AA was because
there was no such chapter note. Once Chapter Note 6 was introduced, the
classification must be in accordance therewith."
It was in the aforementioned situation that the circular issued by the Board
prior to introduction of Chapter VI was held to be not applicable stating:-
7. It must also be mentioned that an attempt was made to rely on a Board
circular. We, however, find that the circular was not relied upon before the
Collector nor before the Tribunal. Material not presented before the lower
authorities and/or the Tribunal cannot be allowed to be relied upon for the
first time in this Court. Even presuming that the circular could be shown to
this Court, we find that the circular merely deals with forged items.
The circular does not deal with such types of balls. Thus, the circular does
not mention Chapter Note 6. The circular therefore has no application.
47. Appellants had relied upon the circular dated 28th May, 1999 issued by
the Yeast Controller and Excise Commissioner, Uttar Pradesh. They also referred
to a Circular dated 12th November, 1958 issued by the Central Government,
whereby, for the purpose of some other statutes, yeast has been considered to
be a chemical. A similar interpretation having been made to the entry in question
by the authorities themselves, they cannot be said to be wholly irrelevant,
particularly having regard to the doctrine of 'Executive Construction'
48. We, therefore, are of the opinion that if there is a conflict between
two entries one leading to an opinion that it comes within the purview of the
tariff entry and another the residuary entry, the former should be preferred.
49. Common parlance or commercial parlance test, we may notice, has been
applied recently in HPL Chemicals Ltd.. vs Commissioner of Central Excise,
Chandigarh : (2006) 5 SCC 208 stating :-.
"31. It was submitted by the learned Senior Counsel appearing for the
Revenue that the goods were classifiable under Heading 38.23 (now 38.24) as
"residual products of the chemical or allied industries, not elsewhere
specified or included" which was the last item covered by Heading 38.23.
The said Heading 38.23 is only a residuary heading covering residual product of
chemical or allied industries "
not elsewhere specified or included ". In the present case since the
goods were covered by a specific heading i.e. Heading 25.01, the same cannot be classified under the residuary heading at
all. This position is clearly laid down in Rule 3( a ) of the Interpretative
Rules set out above. As per the said Interpretative Rule 3( a ), the heading
which provides the most specific description shall be preferred to the heading
providing a more general description. This position is also well settled by a
number of judgments of this Court. Reference may be made to Bharat Forge and
Press Industries (P) Ltd. v. CCE 4 . It was observed in para 4 inter alia as
under: (SCC p. 534) " 4 . The question before us is whether the Department
is right in claiming that the items in question are dutiable under Tariff Entry
68. This, as mentioned already, is the residuary entry and only such goods as
cannot be brought under the various specific entries in the tariff should be
attempted to be brought under the residuary entry. In other words, unless the
Department can establish that the goods in question can by no conceivable
process of reasoning be brought under any of the tariff items, resort cannot be
had to the residuary item."
50. In our opinion 'yeast' is a chemical within the meaning of the entry in
51. For the views we have taken, it is not necessary for us to consider the
other contentions raised by the parties.
52. For the reasons abovementioned, the impugned judgment cannot be
sustained which is accordingly set aside. The appeals are allowed with costs.
Counsel's fee assessed at Rs.50,000/- (Rupees fifty thousand only).
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