2017 (2) TMI 764 - AT - Central Excise

Classification of manufactured item - Katha - classified as Indian Katha under Tariff item No. 14049050 or as Katha substitute under Tariff item No. 32019090 - common parlance test - Held that - Original Authority has decided classification of the goods under question on the basis of composition and on the basis of Standard of quality in Rule 5 of Prevention of Food Adulteration, 1955 - the Hon ble Supreme Court has laid down the principle that the manner in which the trade concerned with the goods understands the goods should be taken into consideration while deciding the classification and not the provisions of other statue - The Original Authority has nowhere establish that the goods under question are understood in the trade as tanning extracts whereas the learned consultant for the appellant has brought to our notice the invoices issued by the appellant, describing the goods as Indian Katha . The goods manufactured by the appellant during the relevant period are classified under 14049050 as Indian Katha - demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of the product 'Indian Katha'.
2. Applicability of Central Excise duty rates.
3. Interpretation of trade parlance and legal definitions.
4. Reliance on Prevention of Food Adulteration Rules.
5. Consideration of Supreme Court rulings and common parlance test.

Issue-Wise Detailed Analysis:

1. Classification of the product 'Indian Katha':
The primary issue was whether the product manufactured by the appellant, a mixture of extracts from Acacia Catechu, Cashew Husk, and Catechin derived from imported Gambier extract, should be classified under Tariff Item No. 14049050 as 'Indian Katha' or under Tariff Item No. 32019090. The Original Authority classified it under 32019090, considering it a "Katha substitute" rich in Tannin substances. However, the appellant argued that the product should be classified as 'Indian Katha' under 14049050, emphasizing that Catechin, not Tannin, gives the essential character to their product.

2. Applicability of Central Excise duty rates:
The classification directly impacted the applicable Central Excise duty rate. Under Tariff Item No. 14049050, the duty was 5% ad valorem, whereas under 32019090, it was 10% ad valorem. The differential duty calculated for the period from 01.03.2011 to 31.12.2011 amounted to ?2,07,20,109/-. The Original Authority confirmed the demand for the differential duty based on the classification under 32019090.

3. Interpretation of trade parlance and legal definitions:
The appellant contended that the product was known as 'Indian Katha' in common trade parlance, supported by invoices and customer correspondence. They argued that the essential character of the product was provided by Catechin, not Tannin, and thus should be classified under 14049050. The Tribunal considered the Supreme Court ruling in CCE, New Delhi Vs. Connaught Plaza Restaurant (P) Ltd., which emphasized that fiscal statutes should be interpreted based on common parlance and contemporary understanding rather than technical definitions.

4. Reliance on Prevention of Food Adulteration Rules:
The Original Authority relied on Rule 5 of the Prevention of Food Adulteration Rules, 1955, which defines 'Katha' as a dried aqueous extract prepared from the heart-wood of Acacia Catechu. The Authority concluded that only products made solely from Acacia Catechu could be classified as 'Indian Katha'. The appellant argued that this reliance was misplaced, as the Prevention of Food Adulteration Rules were not intended to define excise classifications.

5. Consideration of Supreme Court rulings and common parlance test:
The Tribunal noted the Supreme Court's principle that trade understanding should guide classification decisions. The appellant's evidence, including trade inquiries and product descriptions in invoices, supported the classification of the product as 'Indian Katha' under 14049050. The Tribunal found that the Original Authority failed to establish that the product was understood in the trade as tanning extracts.

Conclusion:
The Tribunal held that the goods manufactured by the appellant were 'Indian Katha' classifiable under Tariff Item No. 14049050. Consequently, the demand for differential duty and the associated penalty were set aside. The appeal was allowed, and the impugned order was modified accordingly, dropping the demand raised through the show-cause notice dated 20.03.2012.

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