Holding

Yeast is a chemical within the meaning of Entry 21 of the Uttar Pradesh Sales Tax Notification, so it cannot be taxed as an unclassified item.

Summary

Mauri Yeast India Pvt. Ltd., a manufacturer of yeast, had long classified its product as a "chemical" under Entry 21 of the Uttar Pradesh Sales Tax Notification and paid tax accordingly. In 2005 the assessing officer re‑classified yeast as an "unclassified item" and imposed a higher tax, a decision upheld by the appellate authority and the High Court. The Supreme Court examined whether yeast falls within the meaning of "chemical" for tax purposes, the relevance of the onus of proof under Section 101 of the Evidence Act, and the doctrine of executive construction. Relying on the chemical composition of yeast, its long‑standing classification, and principles of interpreting fiscal statutes, the Court held that yeast is a chemical and the revenue could not arbitrarily shift it to the residuary entry. Consequently, the High Court’s judgment was set aside and the appeals were allowed with costs.

Issues considered

Whether yeast should be classified as a "chemical" under Entry 21 of the Uttar Pradesh Sales Tax Notification or as an "unclassified item" under the residuary entry.
Whether the onus of proof for classification rests on the assessee under Section 101 of the Indian Evidence Act.
Whether the executive notification issuing the tariff entry is a legislative act and the doctrine of executive construction applies.
Whether trade or commercial meaning and end‑use considerations are relevant in interpreting the fiscal entry.
Whether the revenue, having accepted the classification for over twenty years, bears the burden of showing a justified change.

Legislation cited

Indian Evidence Act, 1872s. 101

Subjects

sales taxclassification of goodsfiscal statute interpretationchemical definitionexecutive constructiononus of proofUttar Pradesh Sales Tax Actyeast

Judgment

[2008] 6 S.C.R. 131

MIS. MAURI YEAST INDIA PVT. LTD. A
\I.
STATE OF U.P. AND ANOTHER
(Civil Appeal No. 2720 of 2008)
APRIL10, 2008
B
[S.B. SINHA AND HARJIT SINGH BEDI, JJ.]

Uttar Pradesh Sales Tax Act-Notification dated 7. 9. 1981
""" Entry 21 - Yeast liable to duty as a chemical and not as an
unclassified item. c
Tax/Taxation:
Two views - Held: One which favours assessee to be
adopted.
Classification accepted by revenue for long time - Onus D
on revenue to show classification under different heading -
Plea that under s.101 Evidence Act, onus would be on
assessee cannot be accepted as provisions of Evidence Act
not applicable.
Interpretation of statutes - Fiscal statute: E
Interpretation of word - Trade or commercial meaning or
end user context relevant factor for interpreting a word.
Classification of goods - Conflict between two entries -
One leading to opinion that goods fall under the purview of a F
-+-
particular tariff entry and another under the residuary entry -
Held: Former should be preferred - Doctrine of 'Executive
Construction'.
Legislation: Issuance of Notification - Executive act of
issuing Notification - Held: Is a legislative action. G
Appellants were carrying on business of
manufacturing and sale of yeast which was used for the
purposes of manufacturing bread etc. They had been filing
131 H
132 SUPREME COURT REPORTS [2008] 6 S.C.R.

A returns before the sales tax authorities treating 'yeast' as
'chemical' within the meaning of the Entry 21 of
Notification dated 7.9.1981 issued under U.P. Sales Tax
Act for a long time. The said returns were accepted and
orders of assessment were passed relying on or on the
B basis thereof.
On 10.3.2005, Assessing Officer rejected the
classification of sale of 'yeast' under the head 'chemical'
and imposed tax thereupon treating the same to be as
'unclassified item'. Appeals thereagainst were dismissed
C by Appellate authority and the Tribunal. On that basis,
notice was issued to appellant to show cause as to why
tax be not imposed on sale of yeast @ 10% as an
unclassified item. Writ petition was filed, which was
dismissed. Hence the present appeal.
D
Allowing the appeals, the Court
HELD: 1. 'Yeast' is a chemical. Chemical is defined
as compound of substances of definite molecular
composition. If 'yeast' has a definite molecular
E composition and is a single molecular species with a
definite molecular structure, it would answer the said
description. 'Yeast' has all the trappings of a chemical. It
has a definite composition or attributes of the properties.
A bye-chE~mical substance for the purpose of
F interpretation of an entry in a fiscal statute may also be
held to be a chemical. [Paras 38,39] [152-D-F]
2. The chemical composition of yeast as also its
chemical formula stand accepted by the respondent. The
yeast is mixture comprising of Ammonia, Diammonia Acid,
G Mono Ammonia Acid, Phosphorous Pentaoxide,
Potassium Oxide, Mangesium Oxide, Calcium Oxide etc.
In dried form, the yeast consists of Carbon 46 %, Oxygen
32 %, Nitrogen 8.50 %, Hydrogen 6.00 %, Ash 7 .50 %. It
also stands admitted that yeast is also used in baking,
H pharmaceutical industries and for domestic applications
MIS. MAURI YEAST INDIA PVT. LTD . .v. ST~TE OF U.P. 133
AND ANOTHER .

such as in bread making process. Yeast ferments simple A
sugar and produces carbon dioxide and alcohol. It is
capable of bringing about a chemical reaction or chemical
effect. (Paras 12, 13] (140-E, H; 141-A]
Concise Oxford Dictionary (1 Oth Indian Edition);
Encyclopedia Americana; Bakers Handbook on Practical B
Baking compiled by U.S. Wheat Associates, New Delhi;
Webster's Seventh New Collegiate Dictionary; Encyclopedia
Americana (International Edition) Vol. 29 - referred to.
3. In the year 1998 the rate of tax was increased from c
8% 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.
Submission 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%. It is now a well settled D
principle of law that in interpreting different entries,
attempts should 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 E
of last resort. (Paras 28-30] (149-E-G]
4.1 The entry 21 of Notification dated 7.9.1981 issued
under U.P. Sales Tax Act is of wide import. It takes within
its purview chemicals of all kinds. It does not make any F
distinction between an inorganic chemical and an organic
chemical. 'Yeast' may answer both 'chemical' as also
'fungi'. (Para 32] (150-A-C]
4.2 The meaning of the word 'of used in an item in a
fiscal statute must be considered having regard to the G
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. The Executive
act of issuing a notification is a legislative action. The
authorities are supposed to know the meaning of the H
134 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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. For the purpose of
s determining the question, the chemical composition of
yeast is relevant. 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
c colour from the object it seeks to achieve. [Paras 33, 34,
36, 37] [151-C-G]
Rallis India Ltd.. v. State of Tamil Nadu (1999) 112 STC
203 - referred to.
5.1. It is now a well settled principle of law that when
0
two views are possible, one which favours the assessee
should be adopted. 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
E 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. [Paras 40, 41] [152-G-H; 153-A]
Bihar State Electricity Board and Anr v. Mis. Usha Martin
F Industries and Anr (1997) 5 sec 289 - relied on.
Akbar Badrudin Giwani v. Collector of Customs (1990) 2
sec 203 - distinguished.
0. K. Play (India) Ltd. v. Commissioner of Central Excise,
G Delhi-I/I, Gurgaon (2005) 2 SCC 460 - held inapplicable.
CCE v. Acer Inda Ltd. (2004) 8 SCC 173; Commissioner
of Central Excise, Delhi v. Carrier Aircon Ltd. (2006) 5 SCC
596 - referred to.
5.2. The classification of 'goods' under a particular
H
M/S. MAURI YEAST INDIAPVT. LTD. v. STATE OF U.P. 135
AND ANOTHER

entry is a question of fact. However, in the instant case, A
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 B
..... the entries was not considered. Submission that having
regard to the provisions contained in s.101 of the 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, c
because the classification adverted to by the assessee
I 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
D
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. [Paras 44,45) [153-G, H; 154-A-D]
Krishna Steel Industries v. Collector of Central Excise, E
I Patna (2004) 11 SCC 239 - referred to.
I 6. 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 F
I . 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 G
the doctrine of 'Executive Construction'. If there is a
conflict between two entries one leading to an opinion
-..~f
that it comes within the purview of the tariff entry and
another the residuary entry, the former should be
preferred. [Paras 47,48) [155-F-H; 156-A] H
136 SUPREME COURT REPORTS [2008] 6 S.C.R.

A HPL Chemicals Ltd. v. Commissioner of Central Excise,
Chandigarh (2006) 5 SCC 208 - relied on.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2720 of 2008.

B From the final Judgment and Order dated 16.4.2007 of
the High Court of Judicature at Allahabad in C.M.W.P. No. 554/ .,..
2006
WITH

c CIVIL APPEAL No. 2721 of 2008
S.Ganesh, Amit Chadha, AlokAgaiwal, Sanjay S. Chhabra
and Garima Prashad for the Appellant
Krishnan Venugopal, Manoj Kumar Dwivedi, Vibha
D Dwivedi, Vandana Mishra, S. Wasim A. Quadri and Gunnam
Venkateswara Rao for the Respondents.
The Judgment of the Court was delivered by
S.8. SINHA, J. 1. Leave granted.
E 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 161h April, 2007 of the High Court of Judicature
at Allahabad in CMWP No. 554 of 2006 and CMWP No.98 of
2007.
F 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 ?'h September,
1981 prescribing description of goods, point of tax and rates
G thereof, Entry 21 whereof reads as under:-

SI.No. Description of goods Point of Tax Rate of tax
+·'
21 Chemicals of all kinds Mor I · 8%
including fuel gases.
H
M/S. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 137
AND ANOTHER [S.B. SINHA, J.]

In supersession of the said Notification, another notification A
was issued on 23rd November, 1998, Entry 22 whereof reads
as under:-
SI.No Description of goods Point of Tax Rate of tax

22 Chemicals of all Mori 10 % . B
kinds including fuel Provided that in the
gases. case of fuel gases if
the sale is by any of
the undertaking
registered as dealer
in the name and style
c
of M/s.1.0.C. Ltd.,
B.P.C. Ltd., H.P.C. Ltd.,
and l.B.P. Co. Ltd.,
the tax shall be levied
at the point of sale by D
such dealer to a person
other than any of the
aforesaid dealers.

Yet again on or about 151 March, 2003 a Notification was E
issued, entry (i) whereof is as under:-
SI.No. Description of goods Point of Tax Rate of tax

22 Chemicals of all kinds Mor I 4%

4. Before embarking on the question of law, we may notice F
the representative fact of the matter involved in the appeal arising
out of SLP (C) No. 11744 of 2007.
Appellants carry on business of manufacturing and sale of
yeast which is used for the purposes of manufacturing bread G
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 thereof.
H
138 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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
B Court in State of Kera/a 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
c 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
D Court in AM. 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
E cause why tax shall not be imposed on sale of 'yeast' @ 1O %
as an unclassified item.
8. Questioning the legality thereof, a writ petition was filed
by the appellant which, by reason of the impugned judgment
F has been dismissed by the High Court.
i- ,
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
G
consideration that the 'yeast' had all along been
treated to be a 'chemical'. It has been so classified
under the Central Sales Tax Act. . . .J ... . , .

2) The chemical composition of 'yeast' as also the
H purpose for which the same was used having been
M/S. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 139
AND ANOTHER [S.B. SINHA, J.]

accepted by the respondents in their counter-affidavit A
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'.
In any event, if 'yeast' is a plant, as has been held by B
3)
-•,,. the Kerala High Court, no tax would be payable
thereupon in view of the Entry No.25 of the Notification
dated 31 51 January, 1985.
10. Mr. Krishnan Venugopal, learned counsel appearing c
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 D
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.
E
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

.. 4)
opposed to the decision of the Gujarat High Court.
If in other Acts or Circulars, 'yeast' has been shown
F

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. G
5) A dictionary meaning, in a case of this nature, is
-·4- 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
H
140 SUPREME COURT REPORTS [2008] 6 S.C.R.

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
B 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 authority.

7) The question, admittedly being pending before the
c 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' :-
D
"Bakers' yeast contains (on a dry basis) about Carbon 46
%, Oxygen 32 %, Nitrogen 8.5 %, Hydrogen 6.0 % and
Ash 7.5 % (P 2 0 5 - 5.5 %). Based on this composition, the
Empirical formula is C8 H12 0 4 NP 0_1"

E (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 :-

F "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 :
G Carbon 46 %
Oxygen 32 %
Nitrogen 8.50 % +·.,..
Hydrogen 6.00 %
H Ash 7.50%"
M/S. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 141
AND ANOTHER [S.B. SINHA, J.)
,,..:
13. It also stands admitted that yeast is also used in baking, A
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 effect.
14. Harcourt Butler Technological Institute, in respect of 8
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' c
yeast contains (on a dry basis) about Carbon 46 %,
Oxygen 32 %, Nitrogen 8.5 %, Hydrogen 6.0 % and Ash
7.5 % (P 2 0 5 - 5.5 %). Based on this composition, the
Empirical formula is C8 H12 0 4 NP0.1 . It is produced on
commercial scale using fermentation of molasses (as a D
source of sugar). The following chemical equation
represents its synthesis based on sucrose :-
0.55 C12 H22 0 11 + 0.57 NH 3 + 2.51 0 2 + 0.02P 2 0 5 -
(Sucrose)
E
C3 .92 H6 .3 0 06 N057 P0.04 + 2.68 Co 2 + 3.83 H 20
(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 F
sugars and produces Carbon dioxide and alcohol as
shown by following equation.
C6 H 12 0 6 +Yeast - - 2 Co 2 + 2 C2 H5 OH
Glucose Carbon dioxide Ethanol
G
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 H
142 SUPREME COURT REPORTS (2008] 6 S.C.R.

A ii) Sugar for fermentation is gradually being liberated
from starch in the dough by the action of natural flour
enzymes.
The evolved carbon dioxide acts as a leavening agent,
which leads to the porosity of bread. The porosity is caused
B 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
c 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
D 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-
E 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
F 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."
G 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,
H (3) Flavouring agents, (4) yeast, and (5) other chemicals."
,
M/S. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 143
AND ANOTHER [S.8. SINHA, J.]
'
"" 17. Yeast has been defined in several dictionaries and
treatises in vcirious forms, some of which may hereafter be
A

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 B
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 c
to yeast.

Encyclopedia Britannica describes yeast as "any of certain
economically important single-celled fungi". It is further stated
1 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
D

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 baked." E
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 F
... 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 G
for its growth and reproduction. Yeast multiplies by budding.
'-1 -t 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 H
144 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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,
B 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
c small quantity of enzyme is capable of converting a very
iarge 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
0
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
E under suitable conditions.
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."
F
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 lnvertase, Maltase and Zymase."
G 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
H
M/S. MAURI YEAST !NOIA PVT. LTD. v. STATE OF U.P.'" 145
AND ANOTHER [S.B. SINHA, J.]

analyse the conflicting views taken by the Gujarat High Court A
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 B
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 Schedules. c
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. . D
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 E
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 F
"yeast" is a substance which is used in chemical operations
6r 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 G
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 H
'
146 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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
B 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 :-

c "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
0
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
E 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"
F and not the question as to whether "yeast" can be
appropriately classified as living micro-organism.
25. The Kerala High Court, on the other hand, was
interpreting Entry 29 of Kera la General Sales Tax Act, which
G reads :-
"Chemicals including caustic soda, caustic potash, soda
ash. sodium s11lphate, sodium silicate, sulphur, chemical
components and mixtures not elsewhere classified in this 1 ,,

Schedu'e.
L·
M/S. MAURI YEAST INDIA PVT LTD. v. STATE OF UP 147 .
AND ANOTHER [S.B. SINHA, J.]

It was in the context of the said Entry held by the High A
,,;.
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 B
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 c
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 D
yeast is a uni-cellular fungus. All the authorities referred to
f ><
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. E
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 F
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 ,~

D
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
H
148 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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
B 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 : [1999] 112 STC 203.
c 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
D 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 case. The
E 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 Kera la High Court. No attempt
was made to interpret the entry in question. Evidently the High
F Court did not answer the question as to whether the Kera la 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
G at some details by the appropriate authorities.

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:-
H
MIS. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 149
AND ANOTHER [S.B. SINHA, J.]

" The procedures for growing yeasts are fundamentally A
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), miperals and water of controlled acidity. As s
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. c
Yaast 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, D
· ale, spirits, wine, and industrial alcohol, however are the
byproducts, while the spen·t medium becomes the final
consumer product."
2.8. 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 · E
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 Venugopalthat the rate of
tax being the same, it was not necessary to do so cannot be ·. F
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 de so, recourse to G
the residuary entry should be taken by way of last resort.
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 H
150 SUPREME COURT REPORTS [2008] 6 S. C.R.

A 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
B 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 answe1 both
'chemical' as also 'fungi'. It is significant to notice that wrereas
fungi at one point of time was considered to be a plant and in
C 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
D 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
E 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
F 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
G
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 PROT/STS.)
H The mushrooms. by no means the most numerous or
M/S. MAURI YEAST INDIA PVT LTD. v. STATE OF U P 151
~.
AND ANOTHER [S.B. SINHA, J,]

economically significant of the fungi, are the most A
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 - & broad application of the Greek word for
·). mushroom, mykes. Fungi other than mushrooms are B
sometimes collectively called molds, although this term
is better restricted to fungi of the sort represented by
bread mold."
(Emphasis added)
c
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.
ry D
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
E
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 Kera la High Court itself opined that any substance
,.~· obtained by using a chemical substance can also be termed as F
"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 relevant.
G
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. H
152 SUPREME COURT REPORTS [2008] 6 S.C.R.
)..

A 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: [1999] 112 STC 203.
The question which arose for consideration therein was
as to whether the Appellate Tribunal being a fact finding body
B 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.

c 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
D
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
E 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
F 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.
Mis. Usha Martin Industries and another: (1997) 5 SCC 289.
G
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.
H 41. There cannot be any quarrel with the proposition that .
MIS. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 153
AND ANOTHER [S.B. SINHA, J.]
"' construction of the word is to be adopted to the fitness of the A
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.
r )'
It is equally true that the category of the persons using the B
same, as for example the boys using a particular item, would
not necessarily lead to the conclusion that they are 'toy' as they
may 9nswer the description of any other entry and in that view
of the matter the decision of this Court in O.K. Play (India) Ltd.
Vs. Commissioner of Central Excise, Delhi-Ill, Gurgaon : c
(2005) 2 sec 460, in our opinion, has no application to the fact
of the present case.

42. Strong reliance has been placed by Mr. Venugopal on
CCE vs. Acer Inda Ltd. : (2004) 8 SCC 173 wherein the question
D
)'); 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 E
Commissioner of Central Excise, Delhi vs. Carrier Aircon Ltd.
: (2006) 5 sec 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 F'
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.
G
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 H
154 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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
B 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
c 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
D 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
E 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:

F "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
G
now has to be classified either under Chapter 84 or under
Chapter 73. These balls cannot be classified under ~· ,,
Chapte~ 84 and thus necessarily have to be classified
under Chapter 73.

H 6. We are unable to accept the submission that it still
\

M/S. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 155
AND ANOTHER [S.B. SINHA, J.]
-'
continues to be a forged item and therefore must fall under A
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 B
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 c
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
r)r
D
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 E
does not deal with such types of balls. Thus, the circular
does not mention Chapter Note 6. The circular therefore
has no application.

4'- 47. Appellants had relied upon the circular dated 23th May, F
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
G
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 ifthere is a conflict
between two entries one leading to an opinion that it comes H
1'
156 SUPREME COURT REPORTS [2008] 6 S.C.R.

A 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
B sec 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
c of the chemical or allied industries, not elsewhere specified
or include.d" 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
D
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
E 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)
F
" 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
G
. 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."
H
MIS. MAURI YEAST INDIA PVT. LTD. v. STATE OF U.P. 157
~ AND ANOTHER [S.B. SINHA, J.]

50. In our opinion 'yeast' is a chemical within the meaning A
of the entry in question.
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 B
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).
D.G. Appeals allowed.
c