TMI Blog2006 (3) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... residuary entry Others under 1905.19. The wrappers of BYTES examined. The appellants are not marketing the item as chocolates or waffels and wafers coated with chocolate. They are marketing them as cadbury bytes crispy cocoa filled snack . Hence the department s contention to consider the item as waffels and wafers coated with chocolate or containing chocolate is required to be negatived by applying the Trade Parlance Test. Appeal allowed. - Dr. S.L. Peeran, Member (J) and Shri T.K. Jayaraman, Member (T) Shri M.P. Baxi, Advocate, for the Appellant. Shri K.S. Reddy, SDR, for the Respondent. ORDER [Order per : S.L. Peeran, Member (J)]. - All these appeals raise a common question of law and fact. Hence, they are taken up together for disposal as per law. The matter pertains to classification of a product named BYTES manufactured on job work by the appellant for M/s. Cadbury India Ltd., Mumbai. The anti-evasion wing of the Revenue took up investigation on gathering intelligence that the assessee are discharging duty at a lower rate in terms of Notification No. 37/2003 dated 30th April 2003 by adopting Chapter sub-heading 9005.39 which is a residuary entry instead of Chapter sub-headi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Bytes is a chocolate and consequently the said product CADBURY BYTES falls for classification under Chapter Heading No. 1905.31, and not under Chapter Heading 1905.39. That the entire SCN was based upon the preconception that the refined milk chocolate for Bytes/refined cocoa cream for Bytes is chocolate, and that the addition of palm oil, emulsifiers and flavours does not in any manner change the character of the same. That, what is contained in the said product CADBURY BYTES is not refined milk chocolate for Bytes refined cocoa cream for Bytes, but a product which is prepared by mixing palm oil, emulsifiers and flavoms with the said refined milk chocolate for Bytes/refined cocoa cream for Bytes, which is admittedly received by them in a powder form from Dr. Writer s Food Products Ltd., (DRW), a job worker for Cadbury India Limited. That the above preconception is incorrect and that in fact what is filled into the wafer pencil is a cream, which consists of refined cocoa cream for Bytes, which has been mixed with palm oil, emulsifiers and flavors. As set out in the captioned notice, refined milk chocolate/refined cocoa cream for Bytes is in a powder form. It is therefore, obvious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny penalty is imposable under Section 11AC of the Act or under Rule 25 of the Rules, 2002. That for the purpose of PFA Act and the Rules, a confectionery food articles, which contain cocoa, milk, sugar and vegetable oil are not considered to be chocolate. That if a product was not a chocolate in terms of the standard prescribed in the PFA Act and the Rules, the manufacture and description of the same as chocolate would result in the product being considered to be adulterated and attract stringent provisions of prosecution and penalty of not less than 3 years imprisonment in terms of the PFA Act against the manufacturer and the person controlling the business. They have further submitted that when a product cannot be considered to be chocolate for the purpose of the PFA Act and the Rules made thereunder and described as such on its label or in any form of advertising or promotion material, no manufacturer, trader or customer would term the same or deal with the same as chocolate. That it is evident not only from the process and description but also from the statements of Shri Sulaiman, Shri Kulkami, Shri Sanadi and Shri Ananthan, all of which were recorded under Section 14 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regard to quality of products manufactured in India, and it is precisely for this reason that the said refined cocoa cream could never have been described/regarded as chocolates in India without violating such standards prescribed by the PFA Act/Rules. They stated that the presence of vegetable/palmolein oil would definitely alter the definition of Chocolate , as the resultant product would not be considered as chocolate . They reiterated that they are obviously concerned with the manufacture of products in India, and the levy of excise duty in India, and it is therefore obvious that Indian standards alone would apply to such products. 22. With regard to explanatory notes of HSN, they submitted that the definition of cocoa and cocoa preparations and chocolate in any form given in the HSN are not relevant in the present context, as the HSN is admittedly an international nomenclature/code of classification, and has been adopted/adapted to suit the Indian Tariff Classification, therefore, the Explanatory Note, while being an aid to interpretation if required for classification purposes in India, are not sacrosanct, particularly when they are in conflict with Indian laws, such as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olations of Prevention of Food Adulteration Act 1954 and Rules. He has also rejected the assessee s contention that the definition of cocoa and cocoa preparations and chocolate in any form given in the HSN Explanatory Notes are not relevant in the present context, as the explanatory note being an aid to the interpretation if required for classification purpose in India, is not sacrosanct, when particularly there is a conflict with Indian laws such as Prevention of Food Adulteration Act and rules there-under. In this context the Commissioner has relied on the Apex Court judgment rendered in the case of CCE, Shillong v. Woodcraft Products Ltd., [1995 (77) E.L.T. 23 (S.C.)]. He has also upheld the charge of willful mis-declaration of the product with an intent to evade payment of duty by availing the benefit of concessional rate of notification. 4. We have heard learned advocate Shri M.P. Baxi for the appellants and learned DR Shri K.S. Reddy for the Revenue. 5. Learned counsel at the outset submitted that the classification of the item in a similar case of their competing unit has been decided by the Mumbai bench in their favour in the case of CCE, Mumbai v. Britannia Industries Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther drew our attention to the Mumbai Bench order rendered in the case of M/s. Nestle India Ltd. v. CCE (F.O. No C-II 1348/WZB/1999, dated 21-5-1999) [2000 (124) E.L.T. 898 (Tribunal)] which pertain to the classification of the item KIT KAT . Even in this case, the ingredients were almost same and it contained hydrogenated vegetable oil. The department had proceeded to classify this item under Chapter heading 18.03 with the description Waffels in any form including drinking chocolates. 18.04 is for other food preparations containing cocoa. Drawing strength from this judgment, learned counsel submitted that the judgment clearly held that for a product to be classified as a chocolate containing vegetable oil is prohibited under the PFA Act, the product has to satisfy the terms and definition of chocolate as per PFA Act and ISI specifications. He also submitted that Tribunal has referred to explanatory notes as well as to Apex Court judgment in the case of CCE v. Woodcraft Industries. Learned Counsel submitted that in view of the specific finding recorded in the above two judgments use of vegetable oil would not make the product a chocolate. Therefore, he submits that the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g cocoa solely on the ground that the product does not satisfy the definition of chocolate under Prevention of Food Adulteration Act and also ISI specifications. The Tribunal also considered the interpretative rules to HSN explanatory notes which was not in consonance with the tariff entry. The marketing pattern was also considered. The finding recorded by the Tribunal in Nestle s case, from para 7 to 22 are reproduced below. 7. The conflicting entries during the relevant period are as follows : Heading No. Sub-Heading No. Description of goods 18.03 1803.00 Chocolates in any form, whether or not containing nuts, fruit kernels or fruits, including drinking chocolates. 1904.10 Put up in unit containers and ordinarily intended for sale. 1904.90 Other 19.05 Bread, pastry, cakes, biscuits and other bakers wares, whether or not containing cocoa, communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products Biscuits; waffles and wafers: 1905.11 In or in relation to the manufacture of which any process is ordinarily carried on with the aid of power 1905.11 Other 8. The note to chapter 18 excluded at the relevant time, preparation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h chocolate or containing more than 8% by weight of cocoa be classifiable under Chapter 18. 9. This scheme of classification in the Central Excise tariff, follows closely that in the Harmonized System of Nomenclature. By and large., the headings in chapter 18 and 19 of the tariff and in the Explanatory Notes, tally except for minor differences. Heading 19.05 of the tariff tallies., word for word, with the same heading in the Explanatory Notes. Heading 18.03 of the tariff is for chocolate in any form and heading 18.06 of the Explanatory Notes is for chocolates and other food preparations containing cocoa. Note 2 to Chapter 18 of the tariff is identical in contents with note 2 Chapter 18 of the Explanatory Notes, except for the differences with the numbering in the tariff headings (18.03 and 18.06). Note 2 to Chapter 19 of the tariff tallies (except for the percentage of the cocoa) with note 4 to Chapter 19 of the Explanatory Notes. In fact, each of the heading of the Chapter 19 at the relevant time tallied word for word with the heading in the HSN except to the extent of difference in the percentage of cocoa powder (referred to in heading 19.01). The HSN used the word cocoa and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be 10% or less by weight of the finished product. Waffles may also be chocolate-covered. Wafers are products similar to waffles . By applying these notes it is clear that, irrespective of the proportion of the chocolate by weight or value, these goods would be classifiable under heading 19.05. 12. It is difficult to find the material on the basis of which the department alleges that the product is commercially known and sold as chocolate. It is not contended in any of the notices that the appellant advertised the product to its customers as chocolate. The representative of the department referred to what he called advertising brief prepared by one of the appellant s officers, to guide the advertising of the product. The brief in fact goes against the department s case. It describes the product as a delicious, light, crisp, wafer covered with milk chocolate snack it emphasised that the product draws from both the chocolate and biscuit markets. It further described the product as biscuit covered with chocolate snack . There is certainly some reference in the guidelines, with regard to storage and transport suggesting that the product must, for the purposes of ambient temperature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry and there is no conflict between the Tariff Entry and any other Entry requiring to reconcile and harmonise that Tariff Entry with any other Entry . The relevant headings in the tariff provides for classification on the basis of principles which may be contrary to the common or commercial understanding. The Explanatory Notes provides for classification of waffles and wafers containing chocolate in heading 19.05 and exclude their classification from chapter 18. The scheme of classification in the Central Excise tariff also follows closely the scheme in the Explanatory Notes. It is therefore on the basis of the principles incorporated in the Explanatory Notes and in the tariff that we must decide the classification and the test of common parlance and understanding would not apply. 14. It is also to be noted at this juncture that the appellant, in view of the provisions of the Prevention of Food Adulteration could not, except by violation of law has sold the goods as chocolate. We must also refer here to the decision of this Tribunal in Kirloskar Oil Engines Ltd. v. Union of India, 1995 (77) E.L.T. 479 and National Sales Corporation, 1995 (78) E.L.T. 653 to the effect that the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods in conformity with the terms of the tariff headings and the related chapter notes is that the most specific description is provided in the heading claimed by the appellant. It is not permissible to ignore the provisions of sub-rule (a) of rule 3 to proceed directly to sub-rule (b) of rule 3, since in our view sub-rule (a) itself provides the answer. Reference to sub-rule (b) is uncalled for. 17. On the basis of these discussions it has to be held that the goods are classifiable under heading 19.05. There is another aspect of the matter which requires consideration. This is the amendment carried out to heading 19.05 by the budget of 1998. By this amendment two new sub-headings have been created in heading 19.05, for wafers and waffles. Sub-heading 1905.31 for waffles and wafers coated with or containing chocolate earned a rate of duty of 18% (corresponding to the same rate of duty as was applicable to heading 18.03). Sub-heading 39 is other . It can hardly be disputed that wafers and waffles coated with or containing chocolate are classifiable, after the amendment under heading 1905.31. Now, in the amendment made in 1998, there has been no change in the wordings of heading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; a drink made from this. A shade of brown resembling the colour of this powder. Cacao: The seed of the tree Theobroma cacao, native to tropical America, from which cocoa and chocolate are made. 20. The Prevention of Food Adulteration Act, 1955 defines chocolate as a homogenous product obtained by an adequate process of manufacture from a mixture of one or more of the ingredients, namely cocoa (cocoa) beans, cocoa (cocoa) nib, cocoa (cocoa) mass, cocoa press cake and cocoa dust (cocoa fines/powder), including fat reduced cocoa powder with or without addition of sugars, cocoa butter, milk solids including milk fat and prohibited flavouring agents. That the Explanatory Notes also proceed this understanding that chocolate must contain cocoa is clear from the following extract in these notes in heading 18.06 at page 143 of the 1996 Explanatory Notes. chocolate is composed essentially of cocoa paste and sugar or other sweetening matter; usually with the addition of flavouring and cocoa butter; in some cases, cocoa powder and vegetable oil may be substituted for cocoa paste. Milk, coffee, hazelnuts, almonds, orange-peel, etc. are sometimes also added. 21. Thus while all chocolate must ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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