2006 (3) TMI 761 - AT - Central Excise

Classification of a product named BYTES manufactured on job work - classifiable under Chapter sub-heading 9005.39 which is a residuary entry instead of Chapter sub-heading 1905.31 which refers to coated with chocolate or containing chacolate for the residuary entry under sub-heading 1905.39? - benefit of concessional rate of duty - HELD THAT - It is clear from the decision in NESTLE (INDIA) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI 1999 (5) TMI 371 - CEGAT, MUMBAI that use of vegetable oil is prohibited in terms of PFA Act in manufacture of chocolates and in products of cocoa. In view of this position we are not agreeable with the revenue to classify the product under the heading 1905.31 as waffels and wafers coated with chocolate or containing chocolate carrying 16% duty. The ingredients used also does not bring the product under this heading. They are required to be classified only under the residuary entry Others under 1905.19. The wrappers of BYTES examined. The appellants are not marketing the item as chocolates or waffels and wafers coated with chocolate. They are marketing them as cadbury bytes crispy cocoa filled snack . Hence the department s contention to consider the item as waffels and wafers coated with chocolate or containing chocolate is required to be negatived by applying the Trade Parlance Test. Appeal allowed.

Issues Involved:
1. Classification of the product 'BYTES'.
2. Applicability of the concessional rate of duty.
3. Allegation of misclassification and suppression of facts.
4. Relevance of the Prevention of Food Adulteration Act (PFA) and Indian Standards (ISI) specifications.
5. Applicability of Harmonized System of Nomenclature (HSN) explanatory notes.
6. Determination of penalties and interest.

Detailed Analysis:

1. Classification of the Product 'BYTES':
The primary issue pertains to the classification of the product 'BYTES' manufactured by the appellant. The Revenue classified 'BYTES' under sub-heading 1905.31 of the Central Excise Tariff Act (CETA), which refers to products "coated with chocolate or containing chocolate," attracting a duty of 16%. The appellant classified the product under sub-heading 1905.39, a residuary entry with a concessional duty rate of 8%.

2. Applicability of the Concessional Rate of Duty:
The appellant argued for the applicability of the concessional rate under Notification No. 37/2003 dated 30th April 2003, which applies to sub-heading 1905.39. The Revenue's reclassification under sub-heading 1905.31 denied this benefit, leading to the demand for differential duty.

3. Allegation of Misclassification and Suppression of Facts:
The Revenue alleged that the appellant misclassified the product and suppressed facts to avail of a lower duty rate. The Commissioner upheld this allegation, asserting that the product should be classified under sub-heading 1905.31 due to its chocolate content.

4. Relevance of the Prevention of Food Adulteration Act (PFA) and Indian Standards (ISI) Specifications:
The appellant contended that the product, containing vegetable oil, does not qualify as chocolate under the PFA Act and ISI specifications. They argued that a product containing vegetable oil cannot be marketed as chocolate without violating the PFA Act, which would attract severe penalties.

5. Applicability of Harmonized System of Nomenclature (HSN) Explanatory Notes:
The Commissioner relied on HSN explanatory notes to support the classification under sub-heading 1905.31. However, the appellant cited previous Tribunal decisions, arguing that HSN notes should not override Indian laws like the PFA Act. The Tribunal in the case of CCE, Mumbai v. Britannia Industries Ltd. and Nestle India Ltd. had ruled that products containing vegetable oil should not be classified as chocolate under the relevant tariff headings.

6. Determination of Penalties and Interest:
The Commissioner imposed penalties under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002, along with interest under Section 11AB. The appellant disputed these penalties, arguing that there was no willful misclassification or intent to evade duty.

Tribunal's Findings:

1. Classification of 'BYTES': The Tribunal referred to previous judgments, including CCE, Mumbai v. Britannia Industries Ltd. and Nestle India Ltd. v. CCE, which held that products containing vegetable oil cannot be classified as chocolate under the relevant headings. The Tribunal concluded that 'BYTES' should be classified under sub-heading 1905.39, not 1905.31, as it does not meet the definition of chocolate under the PFA Act.

2. Concessional Rate of Duty: Given the classification under sub-heading 1905.39, the product is eligible for the concessional duty rate of 8% as per Notification No. 37/2003.

3. Allegation of Misclassification and Suppression of Facts: The Tribunal found no evidence of willful misclassification or suppression of facts. The product's classification under sub-heading 1905.39 was deemed appropriate based on its ingredients and the manufacturing process.

4. Relevance of PFA Act and ISI Specifications: The Tribunal upheld the appellant's argument that the product, containing vegetable oil, cannot be classified as chocolate under the PFA Act and ISI specifications. This reinforced the classification under sub-heading 1905.39.

5. Applicability of HSN Explanatory Notes: The Tribunal noted that while HSN explanatory notes can aid interpretation, they should not override Indian laws like the PFA Act. The product's classification should align with Indian standards, which do not consider products with vegetable oil as chocolate.

6. Penalties and Interest: The Tribunal set aside the penalties and interest, ruling that there was no willful intent to evade duty. The product was correctly classified under sub-heading 1905.39, justifying the concessional duty rate.

Conclusion:
The Tribunal allowed the appeals, classifying 'BYTES' under sub-heading 1905.39 and granting the benefit of the concessional duty rate. The allegations of misclassification and suppression of facts were dismissed, and the penalties and interest imposed by the Commissioner were set aside.

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