2024 (2) TMI 1061 - AAAR - GST

Crackle candy with cashew nuts classified as Sugar Boiled Confectionery under SI. No. 32AA attracting 12% GST rate

The AAAR, Andhra Pradesh classified appellant's product 'Crackle' containing sugar (68-72%), cashew nuts (28-30%), butter, and glucose as Sugar Boiled ... Classification as Sugar Boiled Confectionery - preference of specific tariff entry over general or residual entry - application of the General Rules of Interpretation (Rule 3) of the Customs Tariff - relevance of FSSAI Regulations and Indian Standard IS 1008:2004 for product characterisation - rejection of 'immediate consumption' as a determinative criterion for classification under Chapter 1704Classification as Sugar Boiled Confectionery - relevance of FSSAI Regulations and Indian Standard IS 1008:2004 for product characterisation - Whether the product 'Crackle' manufactured and supplied by the appellant is classifiable as 'Sugar Boiled Confectionery' under the tariff heading 1704 and hence covered by Sl. No. 32AA of Schedule II of Notification No. 01/2017-CT(Rate). - HELD THAT: - The Authority examined the composition and manufacturing process as described by the appellant and the definitions and technical specifications contained in the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 and Indian Standard IS 1008:2004. The product contains 68-72% sugar and is produced by boiling sugar (caramelisation) with doctoring agents (butter, liquid glucose), followed by coating with nuts to form a solid product. Those features correspond to the definition and technical parameters of 'Sugar Boiled Confectionery' (including hard boiled confectionery, pan goods and toffees) set out in the FSSAI Regulations and IS 1008:2004. The Authority accepted the appellant's process and test report evidence and relied on those standards to characterise the product as sugar boiled confectionery. Applying the Interpretative framework made applicable by Notification No. 01/2017 (Rule 3 of the General Rules of Interpretation), the specific entry 'Sugar Boiled Confectionery' under Sl. No. 32AA of Schedule II is the appropriate tariff provision for the product described by the appellant. [Paras 5]The product 'Crackle' is a 'Sugar Boiled Confectionery' and is classifiable under Sl. No. 32AA of Schedule II of Notification No. 01/2017-CT(Rate).Preference of specific tariff entry over general or residual entry - application of the General Rules of Interpretation (Rule 3) of the Customs Tariff - rejection of 'immediate consumption' as a determinative criterion for classification under Chapter 1704 - Whether the AAR was correct in denying classification under Sl. No. 32AA on the basis that the product was not marketed for immediate consumption and was an industrial input used by ice cream manufacturers. - HELD THAT: - The Authority reviewed the AAR's reliance on HS Explanatory Notes and CBEC FAQs invoking 'immediate consumption' and found that the AAR's reasoning was flawed insofar as it treated 'immediate consumption' as a criterion applicable selectively to certain entries under Chapter 1704. Since Schedule I, II and III entries all fall under CH 1704, the immediate consumption notion cannot be applied to deny the benefit of a specific entry while leaving others intact. Moreover, having accepted on the facts that the product meets the definitional and technical characteristics of sugar boiled confectionery, the product falls squarely within the specific Schedule II entry. The Authority also noted that its finding is based on the appellant's submissions and literature; suppression or misrepresentation could be addressed under statutory provisions. [Paras 5]The AAR's negative ruling was set aside; the AAR's 'industrial input / not for immediate consumption' rationale cannot defeat the specific Schedule II entry and is therefore rejected.Final Conclusion: The Appellate Authority sets aside Advance Ruling No. 10/AP/GST/2023 dated 26.05.2023 and holds that the product 'Crackle' manufactured and supplied by the appellant is a 'Sugar Boiled Confectionery' classifiable under Tariff Heading 1704 and Sl. No. 32AA of Schedule II of Notification No. 01/2017-CT(Rate), attracting the 12% GST rate (6% CGST and 6% SGST). Issues Involved:1. Violation of Principles of Natural Justice.2. Classification of the product 'Crackle' under GST.3. Application of Common Parlance Test.Summary:1. Violation of Principles of Natural Justice:The appellant argued that the Advance Ruling Authority did not consider the main submissions and supporting documents provided, such as the manufacturing process, Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011, and the Food Testing Laboratory Certificate. The appellant cited judgments from the Supreme Court and High Courts emphasizing the necessity for quasi-judicial authorities to provide cogent, clear, and succinct reasons in their orders, ensuring the principles of natural justice are upheld.2. Classification of the Product 'Crackle' under GST:The appellant contended that 'Crackle' should be classified under tariff head 1704 as 'Sugar Boiled Confectionery' enumerated at Serial number 32AA of Schedule II of Notification No. 01/2017, dated 28-6-2017, and chargeable at 12% GST. They supported this claim with dictionary meanings, judicial interpretations, and technical specifications from FSSAI Regulations 2011 and Indian Standard IS 1008:2004. The appellant argued that 'Crackle' fits the definition of 'Sugar Boiled Confectionery' as it is a processed food article made from sugar with doctoring agents through a boiling process.3. Application of Common Parlance Test:The appellant emphasized that 'Crackle' is commonly known as 'Butterscotch Nuts' and used as toppings in ice creams and cakes. They argued that the classification should be based on the common parlance meaning, as supported by various Supreme Court judgments, which suggest that the trade or commercial meaning should be considered over scientific or technical definitions.Discussion and Findings:The Appellate Authority reviewed the submissions and found that the product 'Crackle' manufactured by the appellant is indeed a 'Sugar Boiled Confectionery' as per the descriptions in FSSAI Regulations and Indian Standard IS 1008:2004. The Authority noted that the AAR's ruling had an inherent flaw by not considering the specific entry for 'Sugar Boiled Confectionery' under SI. No. 32AA of Schedule II of Notification No. 01/2017-CT(Rate). The Authority concluded that 'Crackle' should be classified under Schedule II, SI. No. 32AA, chargeable at 12% GST.Conclusion:The Appellate Authority set aside the ruling of the Authority for Advance Ruling, Andhra Pradesh, and held that the product 'Crackle' should be classified under the Tariff Heading 1704 enumerated at Serial Number 32AA of Schedule II of Notification No. 01/2017-CT(Rate) as a 'Sugar Boiled Confectionery.'