Levy sugar classification under Central Government control remains under Heading 1701.31 despite later dispatch adjustments.

Sugar cleared by manufacturers under Central Government directions in the levy sugar control regime was treated as levy sugar under Heading 1701.31, because the assessees had no discretion and were bound to supply the specified quantities under the regulatory order. Later adjustment of excess or short dispatches in subsequent seasons did not alter the character of the clearances for the relevant period. On that basis, the differential duty demand raised by reclassifying the goods as free sale sugar under Heading 1701.39, and the related penalty, were not sustainable.

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Issues: Whether sugar cleared by the manufacturers pursuant to Central Government directions under the levy sugar control regime was classifiable under Heading 1701.31 as levy sugar or under Heading 1701.39 as other sugar, and whether the differential duty demand and penalty could survive.

Analysis: The tariff entries distinguished only between sugar required by the Central Government to be sold under clause (f) of sub-section (2) of section 3 of the Essential Commodities Act, 1955 and other sugar. The material showed that the assessees had no discretion but to supply the disputed quantities as levy sugar under the regulatory control order. The fact that excess or short dispatches were adjusted in later seasons did not change the character of the clearances for the relevant period. The Tribunal relied on the earlier view that sugar diverted under Government direction remained levy sugar for classification purposes and that the demand could not be sustained merely by recharacterising those clearances as free sale sugar.

Conclusion: The disputed clearances were leviable as levy sugar under Heading 1701.31, and the demand raised by classifying them as free sale sugar under Heading 1701.39 was not sustainable.

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