1. In these two Appeals, filed by M/s. Connaught Plaza Restaurants Pvt.
Ltd. and Revenue, arising out of two Order-in-Original Nos. 12/2000 and 40/2001 both passed by the Commissioner, Central Excise, the issue involved is whether the process of conversion of 'soft serve mix' to 'soft serve' amounts to manufacture, whether the product 'soft serve' is classifiable under Heading 04.04 of the Schedule to the Central Excise Tariff Act (or Alternatively under Sub-Heading 2108.91) or under Heading No. 21.05 as Ice-cream as claimed by Revenue, and whether the benefit of Small Scale Exemption is available in respect of the impugned product.
2.1 Shri V. Lakshmi Kumaran, learned Advocate, submitted that M/s.
Connaught Plaza Restaurants Pvt. Ltd. (in short Connaught Plaza) are engaged in the business of selling burgers, nuggets, shakes, soft-serve, etc. through its fast foods restaurants, known as McDonalds Family Restaurants; that they procure soft serve mix and milk shake mix in the liquid form from M/s. Amrit Foods; that at Amrit Foods, raw milk is pasteurized, skimmed milk powder is added, thereafter the sweetening matter in the form of sugar or glucose syrup and permitted stablizers are added and then the mix is homogenized and stored at 0 to 4C in the liquid form and packed in polyethylene pouches which is transported to their factory under the same temperature control; that M/s. Amrit Foods ware classifying the soft serve mix under Heading 04.04 which was changed by the Department to Sub-Heading 1901.90 of the Tariff which has been upheld by the Appellate Tribunal vide Final Order No.262/2000-D, dated 13-11-2002 [2003 (153) E.L.T. 190 (Tribunal)]; that M/s. Amrit Foods have filed appeal against the said decision in the Supreme Court. The learned Counsel also mentioned that the milk fat content in the soft serve mix is 4.9% which at no point of time exceeds 6%; that a vending machine of Taylor make Model 8664 has been installed in each of the restaurants; that this vending machine can simultaneously dispense with milk shakes as also soft serves of different flavours; that the liquid mix is pumped into the machine where freezing takes place along with the incorpo- ration of air; that the semi-solid soft-serve is drawn through the nozzle into a wafer cone or a plastic cup and served to the customer on the spot; that similarly milk shake is drawn through the nozzle and served to the customer straightaway; that the Commissioner under Order No. 40/2001 for the period from April, 2000 to February, 2001, has held that the product 'soft serve' is classifiable under Heading 21.05 as 'ice cream'; the process undertaken by them that is conversion of 'soft serve mix' to 'soft serve' amounts to manufacture and as they were using the brand name McDonald, they were not entitled to small-scale exemption. Hence the appeal E/5/2002-D by them.
2.2 He also mentioned that on the other hand the Commissioner under Adjudication Order No. 12/2000 for the period from 1996-97 to 1999-2000, has classified the impugned product under sub-heading 0404.90 and has held that the process undertaken by them amounts to manufacture and extended period of limitation is not applicable as the Department was aware of the entire process since 1997. Hence the Revenue has filed appeal No. 1939/2001-D.3.1 The learned Counsel submitted that M/s. Connaught Plaza do not add any material additives or otherwise to the 'soft serve mix' bought by them from Amrit Foods; that they merely reduce the temperature through Taylor Machine; that thus process of merely changing the form of soft serve mix does not amount to manufacture; that there is no change in the name, characteristics or the use except change in the form; that further Central Excise levy is not intended to apply to foods prepared and served at fast food restaurants; that it is inconceivable that food stuffs prepared in restaurants should be treated as "manufacture" of goods. He relied upon the decision in Commissioner of Income-Tax v.Casino (Pvt.) Ltd. - 1973 (91) ITR 289 (Ker.) wherein the Kerala High Court held that conversion of raw materials into the food in hotel does not amount to manufacture with the following observations - "We do not think that it would be appropriate to refer, in the ordinary sense in which we understand in the English language, to the production of food materials in the assessee's hotel as manufacture. Any customer visiting a hotel would ask to be supplied with the food and beverages that are for sale and if the waiter is to tell the customer that his order is 'being manufactured', it is likely that the customer would feel something strange about it." He also mentioned that similar views have been taken by various High Courts; that the Kerala High Court has referred to the decision of the Punjab High Court in Raghbir Chand Som Chand v. Excise & Taxation Officer, (1960) 11 STC 149 wherein the scope of the term "manufacture" as given by the Supreme Court in DCM case was referred to. The learned Advocate, thus, contended that activity undertaken by them does not amount to manufacture.
3.2 He, further, submitted that Heading 21.05 covers 'Ice cream and other edible ice, whether or not containing cocoa'; that the Commissioner has classified the product 'soft serve' under the category of 'ice cream' on the basis of statements of two customers who had understood the product as ice cream and that the composition, process of manufacture and ingredients of the product exactly conform to the essential ingredients of ice cream described in the Authoritative Works like "Outline of Dairy Technology" by Sukumar De, "Ice cream" by W.S.Arbuckle and "New Encyclopaedia Brit-tanica". He contended that the soft serve cannot be cited as ice cream both under common parlance test as also of scientific or technical understanding that McDonald sell soft serve throughout the world not as ice cream but only ; as soft serve as a complement to the milk shake; that the world over ice cream is commonly understood to have milk fast content around 10% whereas soft serve does not contain milk fat of more than 5%; that the Commissioner in Adjudication Order No. 12/2000, has mentioned essential difference between 'ice cream' and soft serve in para 18.1; that main differences are that ice cream is a hard frozen daily product containing not less than 10% milk fat and 20% total milk solids and not weighing less than 539.18g per litre; may contain solid pieces i.e.
nuts or fruit; temperature minus 18 to 25C and hard whipped products with a fairly rough appearance whereas soft serve is classified as ice milk containing not less than 2% fat and not more than 7% fat, weighing not less than 0.1558g per litre, no addition of pieces, temperature minus 7 to minus 10C and soft smooth product. He emphasised that soft serve is consumed by the Customers by licking with tongue and not eaten using the teeth as in the case of ice cream. He also mentioned that the common parlance understanding of the term ice cream can be inferred by the definition of ice cream in Prevention of Food Adulteration Act, 1954 and the Rules made thereunder; that as per paragraph A.11.20.08 of Appendix B to the Rules, 1955 Ice cream shall contain not less than 10.0 per cent milk fat, 3,5 per cent protein and 36.0 per cent total solids except that when any of the aforesaid preparations contains fruits or nuts or both, the content of milk fat shall not be less than 8.0 per cent by weight; that in the case of State of Maharashtra v.Baburao Ravaji Mharulkar, AIR 1985 S.C. 104, the respondents were held to be liable for conviction as the ice cream sold by them was found to contain 5.95 per cent of milk fat as against prescribed 10% milk fat and as the product in question does not contain more than 5% of fat, it cannot be called "softy ice cream".
3.3 The learned Counsel also referred to IS : 2802 -1968 'specification for Ice cream' according to which milk fat per cent minimum is 10.0%; that according to Book "Ice Cream" by Robert T, Marshall & W.S.Arbuckle, Ice Cream is "a product containing at least 10% milk fat, 20% total milk solids, safe and suitable sweeteners, and defined optional "stabilizing, flavouring, and dairy derived ingredients"; that as per Kirk-Othmer Encyclopaedia of Chemical Technology, Third Edition, Volume 15 "Ice cream is a frozen food dessert prepared from a mixture of dairy ingredients (16-35%) sweetners (13-20%), stabilizers, emulsifiers, flavouring, and fruits and nuts. Ice cream has 8-20% milk fat and 8-15% non fat. solids with a total of 38.3% (36.43%) total solids: that in Table 25 of Chapter "Milk and Milk Products", composition of different frozen desserts have been given according to which Ice cream and soft serve are two different frozen desserts and the milk fat content is mentioned as under - 3.4 The learned Advocate submitted that soft serve is not ice cream and as such is not classifiable under Heading 21.05; that soft serve is a dairy product and, therefore it has to be classified under Heading 04.04; that Note 4 to Chapter 4 provides that Heading No. 04.04 applies, inter alia, to buttermilk, curdled milk, cream, yogurt, whey, curd, and products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter or flavoured or containing added fruit or cocoa and includes fats and oils derived from milk (e.g. milk fat, butterfat and butter oil), dehydrated butter and ghee; that the coverage of Heading 04.04 is very wide and soft serve is covered by the said Heading. Alternatively the classification will be under sub-heading 2108.91 as edible preparation, not elsewhere specified or included and the soft serve or its container does not have any brand name; that the Commissioner under Adjudication Order No.12/2000, dated 31-5-2000 (Para 34) has given his specific finding that "party was not using any brand name while selling soft serve"; that this finding has not been challenged by the Revenue while filing appeal against the said order.
3.5 He finally submitted that no penalty is imposable on the as-sessee as the Commissioner himself in their matter has held the product classifiable under Heading 04.04 of the Tariff.
4.1 Countering the arguments, Shri A.S. Bedi, learned SDR, submitted that the process undertaken by M/s. Connaught Plaza brings into existence a different commercial product; that the soft serve mix procured by them in liquid form undergoes a process of lowering of temperature so that it changes its form from liquid to semi-solid state; that, further, the process of incorporation of air results in producing of overrun; that the Commissioner, under Adjudication Order No. 12/2000, against which only Revenue has filed the appeal, has held that "the final product that emerges after the process undergone in the Taylor Vending Machine satisfies the twin test as laid down by the Hon'ble Supreme Court in as much as that the end product become a completely different item from the soft serve mix into the machine.
Secondly, the soft serve mix can serve no other purpose but for the process undertaken in the said vending machine." The learned SDR also mentioned that the decision in the case of Casino (Pvt.) Ltd. is not applicable as the Kerala High Court was considering the question as to whether the assessee is an "industrial company" within the meaning of definition in the Finance Act, 1968. At this point of time, the learned Advocate for M/s. Connaught Plaza, mentioned that he is not pressing the plea of manufacture.
4.2 The learned SDR, further, submitted that Shri Vikram Bakshi, Managing Director, in his statement dated 17-12-97 has deposed that one of the items prepared by them is ice cream with the help of Taylor Vending Machine; that again Shri Pradeep Jain, counsel of Shri Bakshi, submitted, under letter dated 22-12-97, documents including sale figures of ice cream prepared and sold from their restaurants; that it was also mentioned in the said letter that the process undertaken in their restaurants for making ice cream did not amount to manufacture; that in his letter dated 23-12-97, Shri Bakshi only retracted his statement to the extent that preparation of soft serve softy ice cream did not amount to manufacture; that it was only under letter dated 14-9-98 and 30-3-98 that Shri Bakshi mentioned that the item manufactured in their restaurants was 'soft-serve', distinct from ice cream. The learned SDR also mentioned that enquiries revealed that the product was known as ice cream in the common trade parlance; that composition of ice cream varies in different localities and markets; that percentage of milk fat varies more than any other constituents; that all the ingredients used in the impugned product are essential for the manufacture of ice cream as laid down in the Book "outline of Daily Technology" by Sukumar De, in Encyclopaedia Americana, Indian Standard Specification for Food Engineering & Dairy Technology; that the soft serve mix manufactured by M/s. Amrit Foods has been classified by the Appellate Tribunal under Heading 19.01 vide Final Order No. 262/2002-D, dated 13-11-2002 [2003 (153) E.L.T. 190 (T)] and the final product manufactured by the Assessee cannot be classified in Chapter 4 of the Tariff. He also referred to the decision in Shree Badyanath Ayurved Bhavan Ltd. v. C.C.E., Nagpur, 1996 (83) E.L.T. 92 (S.C.) wherein the Supreme Court has held that scientific and technical meaning of the terms and expressions used in the tax law like Excise Act is not to be resorted to and goods are to be classified according to their popular meaning attached to them by those using the product; that the Apex Court in Indian Aluminium Cables Ltd. v. CCE, 1985 (21) E.L.T. 3 has also held that, the specifications issued by the Indian Standard Institutions are for ensuring quality control and have nothing to do with the class to which the goods belong in Tariff Schedule; that the term 'ice cream' and other 'edible ice' used in Central Excise Tariff is a wider term and does not have same connotation as in other Acts or Regulations; that different countries have different standards/specifications for ice cream even for its fat content and there are different varieties of ice cream and as such ISI Specifications cannot be applied; that, the identify of an article is associated with its primary function and utility and how the people dealing with or using the product identifies it. He contended that "soft serve ice cream", ''soft, ice cream" and "softies" as they are generally known in the trade parlance are one of the form of ice cream.
The learned SDR finally submitted that as the entire product is sold from outlets of McDonald, the entire product is of McDonald Brand; that it is not possible to always affix brand on the product, the brand in customer's mind is the sole factor; that accordingly they were using the brand name and as such are not eligible for SSI exemption.
5. We have considered the submissions of both sides. The first issue to be decided in this appeal is whether the process undertaken by M/s.
Con-naught Plaza amounts to manufacture. They get soft serve mix from M/s. Amrit Foods which is pumped into Taylor Model Machine where freezing takes place along with the incorporation of air and thereafter semi-solid soft serve is drawn from nozzle into wafer cone or a plastic cup and served to the customer on the spot. In both the impugned orders, the Adjudicating Authorities have held that the process amounts to manufacture as new commercial commodity comes into existence. As per Section 3 of Central Excise Act, the duty is leviable on the excisable goods which are produced or manufactured in India. The Supreme Court in the landmark decision in the case of Union of India v. Delhi Cloth & General Mills Co. Limited. - 1977 (1) E.L.T. J-199 has held that "the word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance,' and does not mean merely 'to produce some change in a substance,' however, minor in consequence the change may be." The Supreme Court, further, observed that "Something more is necessary and there must be transformation; that a new different article must emerge having a distinctive name, character or use." Similar views were expressed by the Supreme Court in the case of Empire Industries Limited v. Union of India, 1985 (20) E.L.T. 179 (S.C.) wherein it has been held that "if by application of labour and skill an object is transformed to the extent that it is commercially known differently it will suffice to say that manufacture has taken place for the purpose of Central Excise. The degrees of transformation and labour and skill spent are irrelevant". We therefore agree with the learned SDR that the process undertaken by the assessee brings into existence a new product and as such processes undertaken by them amount to manufacture. The decision in the case of Casino Private Limited is not applicable as Kerala High Court was interpreting the term 'manufacture' within the meaning of Section 2(6)(d) of the Finance Act, 1968 and to examine whether the assessee is an industrial company within the meaning of the definition contained in that section. The Kerala High Court has also held in the said judgment that "A hotel, according to us, is one such as it is mainly intended for trading and not for production or manufacture. The various items of foodstuffs and beverages produced in a hotel are intended for the trading and the conversion of the raw materials into foodstuffs is only a process in trading". The learned Advocate appearing for the assessee company has also not pressed the point as to whether the process undertaken by the assessee amounts to manufacture or not. We, therefore, hold that the process undertaken by the assessee amounts to manufacture.
6.1 The Second issue pertains to classification of the impugned product. The assessee wants to classify the product under heading 04.04 as "other dairy products" or alternatively under Sub-Heading 2108.91 as "edible preparations, not elsewhere specified or included" and not bearing brand name. On the other hand, the Revenue wants to classify the product under Heading 21.05 as ice cream. The Commissioner under the impugned order No. 40/2001 has classified the product as ice cream mainly on the ground that the composition, process of manufacture and ingredients of the products conform to the essential ingredients of ice cream described in the Authoritative Books written by Sukumar De, by W.S. Arbuckle and on the basis of the statements of two consumers who understood the product as ice cream and also on the basis of statement of the Managing Director of the assessee company. On the other hand, the learned Advocate for the assessee has referred to many books including ISI Specifications to show that the 'soft serve' manufactured by them and ice cream are two different products. We find substance in the submission of the learned Advocate as various Authorities have mentioned that the ice cream should contain 8-20% milk fat whereas the impugned product contain not more than 5% and this fact has not been controverted by the Revenue. According to Kirk-Othmer Encyclopaedia of Chemical Technology, there are a number of frozen desserts of which ice cream is most important frozen dessert. The other frozen desserts are 'ice milk' 'sherbet', mellorine. "About half of the ice milk is made as a soft-serve dessert." The said Encyclopaedia has also given the composition of frozen dessert according to which the soft serve contains milk fat 6% whereas premium ice cream contains 16% and average ice cream contains 10.5%. The learned Advocate has also referred to the specifications of ice cream as given in the ISI as also Prevention of Food Adulteration Act, 1954 and the Rules thereunder. He has also relied upon the decision in the case of Baburao Ravaji Mharulkar (supra) wherein the Supreme Court convicted the respondents as the ice cream made by them contained only 5.95% of milk fat as against minimum 10% prescribed by Paragraph A.11.02.08 of Appendix B of Prevention of Food Adulteration Rules, 1955. A perusal of the said judgment reveals that the respondents had taken the plea that it was impossible to attain the standard of purity prescribed by Rules as ice cream was but a preparation of milk and the standard of purity prescribed for buffalo milk was but a minimum 5% milk fat. The Supreme Court found it "unable to appreciate why the circumstance that the standard of milk fat for buffalo milk is 5% should render it impossible for ice cream to contain a minimum percentage of 10% milk fat." The Supreme Court has observed as under : "There are several ways by which the higher percentage of milk fat in ice cream be attained. The most elementary method is to heat the milk sufficiently to reduce the percentage of water and increase the percentage of milk fat. Another obvious method is to add cream containing a high percentage of milk fat separately to the milk before making ice cream out of it. We do not have to advise caterers and restaurateurs about how ice cream containing the minimum prescribed percentage of milk fat should be prepared." [emphasis supplied].
6.2 In view of the technical literature, ISI Specification and provisions made in Prevention of Food Adulteration Act, 1954 and Rules made thereunder, the impugned product cannot be classified as ice cream merely on the ground that the consumer understood the same as ice cream or the ingredients of both the products are same. The statement given by the Managing Director also cannot be a basis for determining the exact classification of the product in the Central Excise Tariff. The ratio of the decision in the case of Shree Baidyanath Ayurved Bhavan Limited case is not applicable to the facts of the present matter. The dispute in the said case was as to whether the 'Dant Manjan Lal' is Ayurvedic medicine or Tooth Powder'. In that context, the Supreme Court observed that resort should not be had to the scientific and technical meaning of the terms and expressions used but to their popular meaning which does not mean that if a particular product is not ice cream it can be classified as ice cream because some consumers treated it as ice cream. Accordingly, the product in question is not classifiable under Heading 21.05 of the Central Excise Tariff.
7. We, however, do not find any substance in the submission of the learned Advocate that the product is classifiable under Heading 04.04 of the Tariff as other dairy products. Heading 04.04 covers other dairy products; edible product of animal origin not elsewhere specified or included. Chapter 19 of the Central Excise Tariff covers preparation of Cereals, Flour, Starch, Milk, Pastry Cooks Products and Chapter 21 of the Tariff covers Miscellaneous Edible Preparations. According to the HSN Explanatory Notes, Chapter 19 covers a number of preparations, generally used for food, which are made either directly from the cereals of Chapter 10, from the products of Chapter 11 or from food flour, meal and powder of vegetable origin of other Chapters or from the goods of headings 04.01 to 04.04. According to the Kirk-Othmer Encyclopaedia, the soft serve is one of the frozen desserts. Ice cream and other edible ice which are also frozen desserts have been classified under Chapter 21 of the Tariff. The soft serve which is also a frozen dessert is a edible preparation and will therefore be classifiable under Heading 21.08 and not under Heading 04.04. This brings us to the question as to whether the soft serve is bearing a brand name so as to deny the benefit of the small scale exemption. It is not the case of the Department that cup or cone in which the soft serve is served is bearing any brand name. The Commissioner, under the impugned order No. 40/2001, has treated the product as branded product as it is being sold from the outlets of McDonald. Merely because the product is sold from the outlets of McDonald, it cannot be claimed that it is bearing a brand name. For denying the benefit of the small-scale exemption notification, it is pre-requisite that the product should be bearing the brand name of another person. As it does not have brand name of any other person, the SSI exemption notification cannot be denied. The product will therefore be classifiable under Sub-Heading 2108.91 of the Central Excise Tariff.