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2025 (6) TMI 1875 - AT - Central ExciseClassification of manufactured goods - Perk ULTA Perk Perk Poppers and Wafer Uncoated Reject - classifiable under Excise Tariff Item 1905 32 11 of the Central Excise Tariff Act 1985 as claimed by department or under ETI 1905 32 90 as claimed by the appellant - Nature of Products and Definition of words communion Wafer and Wafer Biscuit - Benefit of exemption Notification - Interpretation of General Explanatory Notes HSN Explanatory Notes for Chapter 19 and amendment by the Finance Act 2023 - sub-classification of the (--) heading - Interpretation of dash markings in tariff entries - HELD THAT - For a product to qualify as coated with chocolate or containing chocolate under ETI 1905 32 11 the product should conform to the description of communion wafers . The Products of the appellant neither have the characteristics of communion wafers nor they are used in the Church for Eucharist purpose. The order passed by the Principal Commissioner holds that there is no indication of the HSN that communion wafers can be coated with chocolate or containing chocolate . This issue as noticed above has been decided by the Tribunal in Pepsico Holdings 2019 (10) TMI 762 - CESTAT ALLAHABAD (LB) wherein the Tribunal held that possibility of existence of chocolate coated communion wafers cannot be discounted. When the Products are wafer biscuits and it has been found that the classification of the Products would be under ETI 1905 32 90 the Products of the appellant would clearly be entitled to the benefit of the Exemption Notification. What is important to notice is that the show cause notice did not call upon the appellant to submit any reply on this aspect now sought to be contended by the learned special counsel for the department. The order passed by the Principal Commissioner also does not deal with this aspect. A new ground cannot be taken up by the department to defend the order in this appeal particularly when the department has not filed Cross Appeal. In any view of the matter the entries of the present Exemption Notification have to be examined to ascertain whether the Products of the appellant would fall under ETI 1905 32 90 and would be entitled to reduced rate of duty under the Exemption Notification. Conclusion - The Products of the appellant would fall under ETI 1905 32 90 and would be entitled to reduced rate of excise duty under the Exemption Notification as amended from time to time. The demand of excise duty confirmed by the Principal Commissioner in respect of the 25 show cause notices therefore cannot be sustained. Accordingly the recovery of interest and imposition of penalty cannot also be sustained. The impugned order dated 12.12.2019 passed by the Principal Commissioner therefore deserves to be set aside and is set aside - Appeal allowed.
The core legal question considered in this appeal is the correct classification of certain food products manufactured by the appellant under the Central Excise Tariff Act, 1985, specifically whether the products-Perk, Ulta Perk, Perk Poppers, and Wafer Uncoated Reject-are classifiable under Excise Tariff Item (ETI) 1905 32 11 as claimed by the department or under ETI 1905 32 90 as claimed by the appellant. This classification determines the applicable rate of excise duty and eligibility for exemption notifications providing concessional rates. The secondary issues include the applicability of exemption notifications, the interpretation of tariff sub-headings and explanatory notes, and the validity of the penalty and interest imposed on the appellant.
Issue-wise detailed analysis: 1. Classification of Products under ETI 1905 32 11 or ETI 1905 32 90 The legal framework involves the Central Excise Tariff Act, 1985, particularly Chapter 19 dealing with preparations of cereals, flour, starch or milk; pastrycooks' products. The competing tariff items are:
The department contended that the products are wafers coated with or containing chocolate and thus fall under ETI 1905 32 11, which does not qualify for exemption. The appellant argued that their products are "wafer biscuits" and not "communion wafers," and thus should be classified under ETI 1905 32 90, eligible for concessional duty. The Court examined the General Explanatory Notes of the tariff schedule, which explain the hierarchy of classification indicated by the number of dashes ("-", "--", "---", "----") preceding the description. The department relied on the interpretation that the (----) entry 1905 32 11 is a sub-classification of the (--) heading "waffles and wafers," not the (---) "communion wafers." The Principal Commissioner held that the appellant's products, containing wafers and chocolate, are better classified under 1905 32 11. The appellant challenged this, submitting that the (----) entry 1905 32 11 must be read as a sub-classification of the immediately preceding (---) entry "communion wafers," which has no tariff duty rate, and that reading it otherwise renders the (---) entry otiose. They relied on a Tribunal decision which held that an interpretation rendering a tariff entry without a rate meaningless cannot be accepted. The appellant also cited the amendment by the Finance Act 2023 to the General Explanatory Notes of the Customs Tariff, clarifying that (----) entries may be sub-classifications of the immediately preceding (---) entries, supporting their interpretation. The Court found this reasoning persuasive, holding that ETI 1905 32 11 applies specifically to "communion wafers coated with chocolate or containing chocolate," which are thin unleavened bread discs used in religious Eucharist ceremonies, not the appellant's products. The Court referred to dictionary meanings and HSN explanatory notes, confirming the religious connotation of "communion wafers." The appellant's products do not correspond to this description. The Court further relied on a Tribunal decision involving similar products, where it was held that classification under ETI 1905 32 11 was inappropriate because the products were not communion wafers. The Court also noted that the department had previously accepted classification of the appellant's "Perk" product under ETI 1905 32 90 in an earlier case, thereby estopping the department from taking a contrary position now. 2. Nature of Products and Definition of "Wafer" and "Wafer Biscuit" The Court examined the definitions of "wafer" and "wafer biscuit" from dictionaries and authoritative sources, including a High Court judgment. It was held that a "wafer" is a variety of biscuit, typically a thin, crisp cake or biscuit. The High Court had earlier held that wafers are a kind of biscuit and liable to excise duty accordingly. The appellant's products were found to be "wafer biscuits" and not communion wafers, supporting their classification under ETI 1905 32 90. 3. Whether the Products Contain "Chocolate" as per Legal Definition The department's classification under ETI 1905 32 11 depends on the products being "coated with chocolate or containing chocolate." The Court examined whether the products contain chocolate in the legal sense. It was noted that the appellant's products contain vegetable oil/fat, which disqualifies them from being "chocolate" under Food Safety and Standards Regulations, 2011, and prior judicial decisions. The Court accepted the appellant's contention that their products do not contain chocolate as legally defined, and thus the classification under ETI 1905 32 11 is not applicable. 4. Applicability of Exemption Notifications and Concessional Duty The appellant claimed benefit under exemption notifications providing concessional duty rates for wafer biscuits classified under ETI 1905 32 90. The department argued that the exemption was not applicable to the appellant's products, contending they are not wafer biscuits but wafers coated or containing chocolate. The Court held that the appellant's products fall under ETI 1905 32 90 and are wafer biscuits entitled to exemption. The department's new contention that the exemption notification was only for uncoated wafers was not raised earlier and could not be entertained in this appeal. The Court emphasized that the exemption notification must be strictly construed, but since the products are wafer biscuits under the correct tariff item, the exemption applies. 5. Penalty and Interest Since the Court held that the classification claimed by the appellant was correct and the demand of differential excise duty was not sustainable, the penalty imposed under Rule 25 of the Central Excise Rules, 2002, and the interest confirmed by the department could not be sustained. 6. Treatment of Competing Arguments and Precedents The Court carefully considered the department's reliance on the decision of the Tribunal in Dukes Consumer Care Ltd., which held that wafers containing chocolate fall under ETI 1905 32 11. The Court distinguished this decision, noting that the issue there was classification between ETI 1905 32 11 and ETI 1905 32 19, not ETI 1905 32 90, and that the religious nature of "communion wafers" was not considered. Thus, the decision was not applicable to the present facts. The appellant's reliance on the Tribunal decision in Pepsico Holdings Pvt. Ltd., which held that ETI 1905 32 11 applies only to communion wafers used for religious purposes, was accepted. The Court also relied on the Tribunal's decision in Little Star Foods Pvt. Ltd., where classification under ETI 1905 32 90 was upheld for similar products. The Court also examined the General Explanatory Notes and the amendment by the Finance Act 2023, which clarified the interpretation of dash markings in tariff entries, supporting the appellant's interpretation that the (----) entry is a sub-classification of the (---) "communion wafers" entry, not the (--) "waffles and wafers." Conclusions:
Significant holdings: "It means the Communion Wafer which is having '---' and the subheading 19053211 containing '----' i.e. coated with chocolate or containing chocolate both are sub headings of 'waffles and wafers' being immediately preceding description of the articles having '--'. Thus, it is clear that the reference made to 19053211 i.e. coated with chocolate or containing chocolate is in relation to Waffles and Wafers. Therefore, the conclusion drawn by the noticee that sub heading 19053211 covers only Communion Wafer Coated with chocolate or containing chocolate is completely misplaced and liable to be rejected." (Principal Commissioner's order, para 35) "Communion wafers are produced for religious purposes which is evident from the adjective proceeding 'wafer' in the sub-heading. 'Communion' is a rite specific to the ritual of 'mass' celebrated in churches. No other meaning is assigned to that phrase in common parlance." (Tribunal in Pepsico Holdings Pvt. Ltd.) "Wafer is a variety of biscuit... The Encyclopaedia Britannica defines wafer as a thin flat cake or biscuit. Thus, it leaves us in no doubt that wafer is a variety of biscuit. Once this position is accepted wafer being a variety of biscuit is liable to excise duty." (High Court in International Foods vs. Collector of Central Excise) "Where the description of an article or group of articles is preceded by '----', in addition to being a sub-classification of '-' or '--', the said article or group of articles may also be taken to be a sub-classification of the immediately preceding description of the articles or group of articles which has '---'." (Amendment by Finance Act, 2023) "The products of the appellant would fall under ETI 1905 32 90 which deals with 'waffles and wafers', other than 'communion wafers'." (Court's conclusion) "The demand of excise duty confirmed by the Principal Commissioner in respect of the 25 show cause notices, therefore, cannot be sustained. Accordingly, the recovery of interest and imposition of penalty cannot also be sustained." (Court's final determination)
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