1998 (11) TMI 247 - AT - Central Excise

Summary

Issues:
1. Waiver of deposit of duty and penalty for misclassification of goods.

Analysis:
The case involved an application for the waiver of deposit of duty amounting to Rs. 12.04 crores and an equal penalty. The dispute arose from the classification of goods by the Commissioner, who determined that the product, branded as Kitkat, should be classified under Heading 18.03 as chocolate, contrary to the applicant's claim under Heading 1905.11 for biscuits, waffles, and wafers. The product primarily consisted of wafers entirely covered in chocolate.

On the issue of limitation, the applicant argued that the notice issued for the period from September 1996 to August 1997 was time-barred. The applicant contended that various documents disclosed the product composition to the department, including declarations describing the goods as crisp wafer fingers covered with milk chocolate. The applicant also highlighted that the department had accepted these descriptions after verifying the manufacturing process, rendering the notice barred by limitation for a significant period.

Regarding the merits of the case, the departmental representative argued that the goods contained chocolate to a significant extent, around 70% by weight and 80% by value, making it appropriate for classification under Heading 18.03. The representative emphasized that the goods were known as chocolate and should not be classified under Heading 19.05 for goods containing chocolate, as the product was covered with chocolate, not containing it. The representative also pointed out that the applicant had not fully disclosed the proportion of chocolate during a market survey, indicating a deliberate omission.

The Tribunal considered both the limitation and merits arguments. They noted that the information provided to the department, including the classification list and ingredient details, should have been sufficient for the officer to understand that the product was chocolate-covered. The Tribunal found it unreasonable to expect the applicant to correct market survey descriptions that did not align with tariff classifications. Additionally, they found merit in the applicant's case, particularly in interpreting the term "contain" in Heading 19.05 to encompass products with any application of cocoa products, not just enclosed cocoa.

Ultimately, considering all aspects, the Tribunal decided to waive the deposit of duty and penalty and stayed their recovery. Both parties requested an early hearing due to the significant amount involved, and the Tribunal scheduled the appeal hearing for January 1999 to expedite the process.