McD Case Study on Excise Duty | Global Taxation |

McD Interesting Case Study Indian TaxationIn followup to our previous post on Parachute Hair Oil, We are here providing another similar case law, where McDonalds has been turning around the Law in India to avoid Excise Duty. This Article and Case Study on McD was written by Megha Sreeram.

I am sure many of us would have heard of McDonalds. They are a chain of fast food restaurants selling burgers and soft drinks. We might also be aware of the range of ice creams that they serve there, named McSwirl/ Soft serve etc.

Now, This particular case deals with the way that ice-cream range is being classified.

For those who are not familiar, Excise duty is a duty that is levied on “manufacture” of goods. It means that once you manufacture something, you are liable to pay excise duty on them before you take it out of the factory to sell to the customers.

The law also has specified the rates applicable to different categories of goods and accordingly some goods are exempt and some have higher rates of duty to be paid. This is logically determined by the utility and safety of consumption of that particular commodity. For example Cigarettes have a higher Excise Duty rate while Dairy produce have low rates of duty levied on them.

In the above context, ICE CREAMS are subject to a higher rate of duty when compared with DAIRY PRODUCTS (In fact, Dairy produce have Nil rate of duty , as far as I can remember).

In the above context ICE CREAMS are subject to a higher rate of duty

So this company had classified their SOFT SERVE range of products as “Dairy Produce” and were selling it without paying excise duty on them. The department sought them to pay duty on those, since they are essentially ice creams and are liable for the levy of duty.

The arguments placed on record by McDonalds was that

These are not “technically” ice creams since they don’t fall under the category of ice creams based on the fat content that is supposed to be there in the product.

While the department contended that, although technically it might not fall under the category of “ice creams”, in a general/consumer parlance, people view and consider this as ice creams

one and hence that is supposed to be considered vital in classification of this product.

The case went up until the Honorable Supreme Court and the court ruled in favour of the department.

The SC judgement, in its essence, said that despite taking shelter under the technical and scientific definitions, there is something called consumer perception. Where a product is seen and used as something by the general public, the manufacturers cannot really take the route of escape by mere technicality.

This is also an example of the idea of “Substance Over Form”.

Updated: April 15, 2018 — 5:54 pm

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  1. FYI-Well this case went to supreme court & MCD has lost the case. Apex court has held soft serves as ice creams.

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