Classification of salted potato chips and namkeen exemption turns on Chapter 20 treatment and packaging not defeating relief.

Salted potato chips sold in retail packs were treated as classifiable under Heading 2005 20 00 as prepared or preserved potatoes rather than under the residuary food-preparation heading, relying on the substance of Chapter 20, prior Board clarification, and High Court guidance on processed vegetables. Even on the alternative classification under Heading 2106 90 99, the goods were described as namkeen and remained covered by the exemption for ready-to-consume namkeens under Notification No. 3/2006-C.E. Packaging for retail sale did not by itself defeat the exemption. On that basis, the duty demand, interest and penalty were held unsustainable.

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Issues: (i) Whether salted potato chips sold in retail packs were classifiable under Heading 2005 20 00 as prepared or preserved potatoes, or under Heading 2106 90 99 as other food preparations. (ii) Whether, even if classifiable under Heading 2106 90 99, the goods were exempt as namkeens under Notification No. 3/2006-C.E. despite being sold in packaged form.

Issue (i): Whether salted potato chips sold in retail packs were classifiable under Heading 2005 20 00 as prepared or preserved potatoes, or under Heading 2106 90 99 as other food preparations.

Analysis: The tariff structure of Chapter 20 after 01.01.2005 was held to be materially the same in substance as the earlier tariff for the relevant entry, though more detailed. The Board's earlier clarification treating fried, salted potato wafers packed in unit containers as classifiable under Chapter 20 was treated as applicable. The decision of the Uttarakhand High Court holding potato chips to be processed vegetables, and not falling under the residuary entry, was found applicable on the facts.

Conclusion: The goods were held classifiable under Heading 2005 20 00 and therefore eligible for the Chapter 20 exemption.

Issue (ii): Whether, even if classifiable under Heading 2106 90 99, the goods were exempt as namkeens under Notification No. 3/2006-C.E. despite being sold in packaged form.

Analysis: The goods were treated as salted ready-to-eat food preparations answering the description of namkeen. The notification specifically granted nil rate of duty to sweetmeats, namkeens and similar edible preparations in ready for consumption form. The Board's circular clarified that such goods remained exempt even when sold in packaged form, and that clarification was applied.

Conclusion: The goods were held exempt under Sl. No. 29 of Notification No. 3/2006-C.E., and not dutiable merely because they were packed for retail sale.

Final Conclusion: The duty demand, interest and penalty could not survive, and the impugned order was set aside with consequential relief.

Ratio Decidendi: Salted potato chips, being processed vegetable preparations, fall within Chapter 20 rather than the residuary food-preparation entry; in any event, namkeens covered by the exemption notification do not lose exemption merely because they are sold in packaged form.

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