1995 (4) TMI 158 - AT - Central Excise

Issues Involved:

1. Classification of Chocolate Eclairs under Tariff Item 1A(4) based on the Board's Tariff Advice.
2. Validity of the demand confirmed by invoking the extended period under the proviso to Section 11A of the Central Excises and Salt Act, 1944.

Issue-wise Detailed Analysis:

1. Classification of Chocolate Eclairs under Tariff Item 1A(4) based on the Board's Tariff Advice:

The appellants were licensed for the manufacture of confectionery under Tariff Item 1A and boiled sweets under Item 68 of the erstwhile Central Excise Tariff. Chocolate Eclairs were initially cleared under Tariff Item 68. However, after the issuance of Tariff Advice No. 114/81, dated 13-10-1981, which stated that Chocolate Eclairs containing more than 3.5% chocolate should be classified under Tariff Item 1A, the appellants were served with a show cause notice. The notice alleged that the Chocolate Eclairs manufactured by them, containing more than 3.5% chocolate, were classifiable under Tariff Item 1A. The Collector rejected the appellants' contention that their classification should remain unchanged, holding that the percentage of chocolate by weight in the disputed Chocolate Eclairs exceeded 3.5%, as revealed by reports from the Chemical Examiner and the Chief Chemist. The Collector classified the Eclairs under Tariff Item 1A(4).

Upon appeal, the Tribunal examined the historical changes in Tariff Item 1A and noted that the classification of Chocolate Eclairs had been a matter of dispute since 1969. The Tribunal referenced several judgments, including the Supreme Court's decision in the case of Collector of Customs v. Bhor Industries Ltd., which emphasized the relevance of trade parlance in classification matters. The Tribunal concluded that the Collector's order was not sustainable as it was based solely on a Tariff Advice issued by the Board and not on any independent inquiries into how the goods were known and treated by the trade. Therefore, the classification of Chocolate Eclairs under Tariff Item 1A(4) was deemed unsustainable.

2. Validity of the demand confirmed by invoking the extended period under the proviso to Section 11A of the Central Excises and Salt Act, 1944:

The Collector held that by not declaring the actual percentage of chocolate in Chocolate Eclairs, the appellants had suppressed facts, justifying the invocation of the extended period for demand under the proviso to Section 11A. The appellants argued that the composition of Chocolate Eclairs had remained unchanged since 1967 and that their classification under Tariff Item 68 had been accepted by the Department in previous proceedings. They contended that the adoption of the 3.5% chocolate content criterion was arbitrary and that the extended period could not be invoked on this basis.

The Tribunal, referencing the Supreme Court's judgment in the case of Indo-International Industries v. Commissioner of Sales Tax, U.P., held that in the absence of a statutory definition, the classification should be based on trade parlance. The Tribunal found that there was a long-standing practice of classifying Chocolate Eclairs as Confectionery under Tariff Item 68. Consequently, the Tribunal held that the demand confirmed by the Collector under the extended period was not sustainable, as it was based on an arbitrary criterion and not on any substantive change in the product or its classification.

Conclusion:

The Tribunal set aside the impugned order and allowed the appeal, holding that the classification of Chocolate Eclairs under Tariff Item 1A(4) and the demand confirmed under the extended period were not sustainable.

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