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TMI Blog2009 (12) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacture of beverages. However they claim that the Customs exemption Notification No. 76/86-Cus., dated 17-2-1986 explains about “the compound alcoholic preparations”. There is no doubt that the flavours in dispute comprise of two or more elements, to call them “a compound”. Further, M/s. GIPL have admitted that such flavours are used in beverage industry and the alcoholic strength therein by volume exceeds 0.5%. Accordingly the imported flavours in this case satisfy all the criteria to call them compound alcoholic preparations. M/s GIPL have not advanced any other argument to substantiate their claim that the imported flavours are not compound alcoholic preparations. The imported flavours impugned in the show cause notice are compound alcoholic preparations and the same are not entitled to concessional rate of duty as provided in Notification No. 21/2002-Cus., dated 1-3-2002 and accordingly, M/s GIPL are liable to pay the differential duty in respect of those flavours. Commissioner may examine if the appellant was aware of the misdeclaration involved and yet did not bring the same to the notice of the authorities and facilitated misdeclaration of the description of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dispute the classification of the impugned goods u/h 33.02. After due process of law, the Commissioner of Customs demanded the undue exemption availed at the time of import of these goods to the tune of Rs. 2,74,31,460/- and imposed equal penalty on GIPL u/s 114A. Penalties were imposed on GIPL, their employees and the CHA, Shri Veeresh Gowda. GIPL, their executives and the CHA, Shri Veeresh Gowda are in appeal before us. Penalties imposed on the individuals are as follows: (1) Shri Ajith Pal : Rs. 1, 00, 000/- (2) Shri Mohan Surana : Rs. 1, 00, 000/- (3) Shri Prakash Ullal : Rs. 1, 00, 000/- (4) Shri Veeresh Gowda : Rs. 1, 00, 000/- (5) Shri Krishnamurthy Bhat : Rs. 1, 00, 000/- 2. In the impugned order, the Commissioner found that GIPL imported 21 flavours of which 8 were used for the manufacture of alcoholic beverages by the buyers and others in for use in other industries such as pharmaceutical industry and tobacco industry. The customers of GIPL included manufacturers of biscuits, chocolate, cola etc. The flavourist of GI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts liquors and other spirituous beverages; compound alcoholic preparations (known as concentrated extracts) for the manufacture of beverages, falling under heading No. 22.08 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India, from the whole of the additional duty leviable thereon under section 3 of the said Customs Tariff Act. This notification shall come into force on the 28th day of February, 1986. The compound alcoholic preparations (CAPs for short) were concentrated extracts. The impugned goods had to be added with sugar, dextrose, colouring matter, raw spirit etc. to make them compound alcoholic preparations used in the manufacture of beverages. Goods of CH 33.02 also covered odoriferous substances or mixtures of odoriferous substances in alcohol. Therefore presence of alcohol did not shift the impugned goods from the first half to second half CH 33.02, namely, other preparations based on odoriferous substances, of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valorem (1995). 6. It is submitted by the Revenue that the impugned order invoked larger period validly and submitted the following :- (i) In respect of 10 Bills of Entry, GIPL misdeclared the goods to be essential oils and thereby had them classified u/h 33.01 and availed of less duty in tariff itself. (ii) In respect of 23 Bills of Entry, the goods were misdeclared as not containing alcohol and in respect of 6 Bills of Entry, the goods were declared to be not used in food industry. (iii) In their letters, numbering more than 30, addressed to Customs, they deliberately misdeclared that the compound alcoholic preparations imported by them did not contain alcohol and/or not used in food and beverage industry to avail of the duty concession. (iv) At the time of clearance of the goods, GIPL deliberately did not produce to the Customs, the Certificates of analysis or the material safety data sheets or the ingredient declarations which indicated the correct content of alcohol in the products. (v) In respect of 5 consignments, GIPL had fabricated the Certificates of Analysis to suppress the alcohol content. These facts were not refuted by the employees of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncio 8. Impact IMP KN 9. Tab Flue cured KN 10. Tab Flue cured KN 11. Citra Fresh Lime Essence 12. Orange Flavour 13. Cranberry 14. Cranberry 15. Tab Flue cured KN 16. Tab Cig MC 17. Top Flv IZ 18. Tab Top Flv BKN 19. Tab Top Rose Latakian KN 20. Tab Tap Note KN 21. Cherry Flavour The following is the composition of each flavour compound involved according to GIPL. S. No. Description Ingredients 1. Vanilla Flavour Ethyl Alcohol 94.5% Water 4% Flavour compounds 2. Berry Flavour Ethanol 95.8% Flavour compounds 3. Tabac Top Note KN Propylene glycol E1520 34 - 39% Nature Identical flavouring substance - Levulinic acid 29 - 34% Ethyl alcohol 8 - 13% Flavour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltol 2% 10. Tab Flue cured KN Ethyl alcohol 56 - 61% Propylene glycol E1520 37 - 42% Nature identical flavouring substance - Vanillin 2% Flavouring preparation (natural) - Immortelle extract 2% Artificial falouring substance - Ethyl maltol 2% 11. Citra Fresh Lime Essence Ethyl alcohol 47 - 52 Water 42 - 47 Natural flavouring 2-7 12. Orange Flavour Ethyl alcohol 46 - 51% Iriacetin E1518 37 - 42% Flavouring preparation (natural) - Orange oil 3 - 8% Natural flavouring substance - Limonene 1 - 5% Polysorbate 60 E435 2% Nature identical flavouring substance - Octanal 2% BHA E320 0.1% Alpha - Tocopherol E307 0.1% 13. Cranberry Cranberry juice concentrate 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 - 5% Benzyl alcohol 2% Nature flavouring substance - Proline 2% 19. Tab Top Rose Latakian KN Propylene glycol E1520 65 - 70% Water 14 - 19% Invert sugar 5 - 10% Sugar 2 - 7% Ethyl alcohol 1 - 5% Rum 2% Caramel color E150 2% Flavouring preparation (natural) - Licorice extract 2% Nature identical flavouring substance - Maltol 0.1% Sodium benzoate E211 0.01% 20. Tab Top Note KN Propylene glycol E1520 57-62% Water 22-27% Flavouring preparation (natural) - Prune extract 5 - 10% Ethyl alcohol 1 - 5% Triacetin E1518 1 - 5% Benzyl alcohol 2% Nature identical flavouring substance Isoprophyl alcohol 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, M/s GIPL themselves have admitted that all the items in dispute are correctly classifiable under chapter heading 3302-10. Hence, the dispute is only with reference to the applicability of concessional rate duty under Notification No. 21/2002-Cus dated 1-3-2002 to the subject goods. It is the contention of M/s GIPL that at the time of import, the items in question are to be treated as raw materials and only after subjecting those processes explained above they become compound alcoholic preparations. For the sake of convenience and proper appreciation of the issue, Sl. No. 119 of Notification No. 21/2002-Cus dated 1-3-2002 is extracted below : Sl. No. Tariff heading Description of goods 119 3302.10 All goods (excluding compound alcoholic preparations of a kind used for the manufacture of beverages, of an alcoholic strength by volume exceeding 0.5 per cent volume determined that to call an item compound alcoholic preparation at 20 degrees centigrade.) On a careful reading of the exclusion clause of the notification, it would be clear to qualify for exemption three conditions are to be satisfied i.e., (i) it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lavour themselves can be taken as concentrated extracts, since the alcoholic strength in those flavours is more than the prescribed limit. Thus, there is no substance or merit in the above argument of M/s GIPL. On the other hand as discussed above, the imported flavours satisfy all the three conditions stipulated in the exclusion clause of the exemption Notification No. 21/2002-Cus., dated 1-3-2002 to treat a particular item as a compound alcoholic preparation i.e., (i) the flavours are compounds, (ii) they are used for the manufacture of beverages and (iii) the alcoholic strength by volume (in those flavours) exceeds 0.5 per cent determined at 20 degrees centigrade. As per the concise oxford dictionary, the word in noun form means, a thing composed of two or more separate elements; a substance - formed from two or more elements chemically united in fixed proportions. In the instant case, there is no doubt that the flavours in dispute comprise of two or more elements, to call them a compound . Further, M/s. GIPL have admitted that such flavours are used in beverage industry and the alcoholic strength therein by volume exceeds 0.5%. Accordingly the imported flavours in this case sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted prior to 1996. This entry was transferred verbatim to CSH 210690 in 1996; this EN cannot be relied on to understand the scope of compound alcoholic preparations of CH 33.02.10 post 1995 appearing in Sl. No. 119. 8.2 The notification 76/86-Cus., dated 17-2-86 relied on by GIPL relates to CH 2208 prior to 1996. This notification contained the meaning of the expression compound alcoholic preparations in brackets as concentrated extracts . Such a parenthesis does not figure in the current notification. If the intention of the legislature were to similarly exclude only concentrated extracts from Sl. No. 119, the same language would have been employed in the notification. Therefore we find it unsafe to rely on this obsolete notification to find the meaning and intent of the entry in question. 9. We find from the tariff ruling that the expression compound alcoholic preparation of a kind used for the manufacture of beverages was moved verbatim from CSH 2208.10 in 1996 to CSH 210690.12. EN on this entry CSH 2208.10 used to be - The heading also covers compound alcoholic preparations of a kind used in the manufacture of various beverages (e.g., aperitives, liqueurs and non-al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hol. All the impugned beverage flavours invariably contain flavours and alcohol, in certain cases also water or a carrier or preservative like ethylene glycol. As compounds of alcohol, these are similar to the beverage sweetener of NY(A)80165 except that these are based on odoriferous substances. They are preparations containing 0.5% or more alcohol. They are therefore compounds of alcohol. Notification excludes from exemption alcoholic compounds of odoriferous substances containing above 0.5% alcohol by volume of CH 33.02, of a kind used for the manufacture of beverages. As the beverage flavours are used in the manufacture of beverages they do not fall under Sl. No. 119 of the notification and are not entitled to exemption. 9.1 The ruling HQ 959587 dated April 9, 1998 of United States International Trade Commission relied on by GIPL in support of the claim that the impugned goods were not CAPs, concerned peppermint flavour and peach flavour. Peppermint flavour consisted of water, modified food starch, peppermint essential oil, citric acid and sodium benzoate. The peach flavour consisted of propylene glycol, ethyl alcohol, fruit essences, ethyl acetate and other organic esters, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dients which characterize a particular beverage (covered under heading 22.08 ICT as it existed prior to 1-1-96). The revised entry therefore does not make any substantial change as far as compound alcoholic preparations containing odoriferous substances are concerned. The impugned goods are similar to compound alcoholic preparations of erstwhile CH 22.08 in that both categories of goods yield a beverage on dilution with alcohol , wine or water. 10.1 The assessee s case is that the impugned goods need to be added with spirit and water to make them CAPs. CAPs yield beverages on addition of alcohol, wine and water. Therefore the beverage flavours get converted into beverages on addition of alcohol, wine and water. The beverage flavours are therefore CAPs not eligible for the exemption to goods at Sl. No. 119 of Not No. 21/02. 11. As regards the claim that the goods involved were not tested for alcohol content at 20 degrees C, we find that GIPL had not canvassed such a case before the adjudicating authority. In any case, since the assessee had claimed the benefit of the entry Sl. No. 119 it is for the assessee to show that the impugned goods satisfied the description of the entry. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny case relied on by GIPL dealt with the question of manufacture of flavours involved in the activity impugned before the Tribunal and their valuation. That decision has no bearing on the instant dispute. 15. The appellants, S/Shri Ajith Pal, Prakash Ullal and Mohan C. Suvarna are responsible functionaries of the assessee company. They were familiar with the composition of the impugned goods imported. However, they suppressed the fact that impugned goods of CH 33.02 contained more than 0.5% alcohol and fraudulently claimed exemption, thus evading considerable amount of duty due to the exchequer. They had admitted the offending transactions committed by them during the investigation. These were not retracted. An amount of Rs. 2.10 Crores short paid was also paid following such admission by the executives of the assessee. GIPL short paid this amount by mis-declaring description of the impugned goods for which the appellants were instrumental and thereby rendered the goods liable for confiscation under Section 111(m) of the Act. The Commissioner has rightly held that the appellants are liable for penalty under Section 112(a) of the Act. As regards the employees of GIPL, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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