2025 (3) TMI 1580 - AT - Central Excise

Classification of Kopiko Cappuccino and Espresso confectionery under HSN, referred for authoritative determination of applicable interpretive rule and heading

Classification dispute over coffee-based confectionery examines application of the General Rules of Interpretation for HSN. The analysis rejects sole ... Classification - demand on the grounds that their product viz 'Kopiko - Cappuccino and Kopiko - Espresso' - scheme of General Rules of interpretation for classification - HSN in the scheme of classification - Whether the product 'Kopiko - Cappuccino and Kopiko - Espresso' are classifiable under Chapter Heading 1704 9090 as claimed by Respondent or under Heading 2101 1200 as claimed by Department/Appellant. - HELD THAT:- Applying the general rule of interpretation, we find that as per Rule 2(b), the classification of goods consisting of more than one material or substance has to be in accordance with principles of Rule 3. Therefore, we find that since Rule 2(b), per se, cannot decide the classification, recourse will have to be taken to Rule 3. As per Rule 3(a), the heading which provides the most specific description is to be preferred to heading providing more general description, however, when two or more headings each refer to part only of the materials or substitutes contained in mixed or composite goods, then those headings are to be regarded as equally specific in relation to those goods, even if, one of them provides a more complete or precise description of goods. As discussed supra, while 1704 gives a general description of sugar confectionery including boiled sweets, Chapter Heading 2101 covers, interalia, coffee extract as well as preparations with a basis of extract of coffee. Therefore, clearly both these headings are not providing a very specific description to the impugned goods and they are only referring to a certain part of this mixture or composite good. While 1704 refers to the sugar part of it, 2101 refers to the coffee extract part of it. Therefore, even if one of the heading is giving a more complete or precise description, both the headings are to be regarded as equally specific. Thus, recourse will have to be taken to Rule 3(b), as Rule 3(a) does not help in classifying the product. We find that in the facts of the case, apart from having natural coffee extract/caffeine as an essential ingredient in the product in perceptible and palatable quantity, the fact that this aspect has also been highlighted while selling the products i.e. containing natural coffee extract as an ingredient and therefore it has to be considered as ingredient which imparts essential characteristics to the impugned goods and therefore going by Rule 3(b), the product may be classifiable under Heading 2101. At this juncture, it is also important to understand whether sugar, glucose and other ingredients are providing any other essential characteristics or otherwise to the impugned goods or not. The sugar, milk and other flavouring agents are equally responsible for providing unique characteristic i.e. velvety feel, sweetness etc., to this product and therefore it would not be possible to say whether the essential characteristic is coming only from the coffee extract or sugar/glucose or also from other ingredients. Therefore, even Rule 3(b) may not be of much help in finding the correct classification in the given factual matrix. In the present case, provisions of each of these rules have been examined and thereafter only application of Rule 3(b) or Rule 3(c) has been considered. The reliance placed by the Respondents on Tesa Tapes India Private Ltd., supra, is also not applicable for the reasons cited in foregoing paras as we feel that a decision under one statute cannot be, per se, be applied to decision under different statute. Moreover, in this case, the Tribunal decided the classification under Heading 8546.90 by holding that it is not necessary that an item has to be a part for getting covered within the ambit 8546.90 and thereafter by way of further they observed that why a classification under the Central Excise Act cannot be applied even to the Customs Tariff. Thus the ratio relied upon is also not applicable to the facts of the case. We also find that the Department has relied on many case laws primarily to support their contention that it is not the case of quantity or percentage of active ingredient but the essentiality of the ingredient to the final product, that would determine the classification. Their reliance on various case laws are therefore relevant and they have been taken into consideration to decide as to what constitutes a critical constituent in the case of impugned products. Therefore, to sum up, there is a merit in the appeal filed by the Department that in the given factual matrix, the appropriate rule should be Rule 3(b) or 3(c) for determining the classification and not Rule 2 or 3(a) as adopted by the Adjudicating Authority. We, however, find that in the identical factual matrix for the identical product, CESTAT, Ahmedabad Bench, decided the classification in favour of the Respondents, whereas, for the reasons discussed, supra, we find that the Departmental appeal has also merit in so far as the applicability of proper Rules of interpretation, which should have been adopted by the Adjudicating Authority for arriving at the proper classification and therefore we consider appropriate that the issue should be referred to the Larger Bench for the correct determination of the classification of the impugned product. It is also made clear that we have not examined the issue in so far as issue of limitation is concerned, pending determination of the issue of classification. Issues: (i) Whether the Memorandum of Cross Objections filed by the Respondent is maintainable under Section 35B(4) of the Central Excise Act; (ii) Whether the question of classification of the products Kopiko - Cappuccino and Kopiko - Espresso is to be finally determined by this Bench or referred to a Larger Bench for authoritative decision on applicability of Rules 2 and 3 of the General Rules of interpretation.Issue (i): Maintainability of the Memorandum of Cross Objections filed by the Respondent under Section 35B(4) of the Central Excise Act.Analysis: The memorandum of cross objections was filed despite the Adjudicating Authority having decided the demand wholly in favour of the Respondent. Established tribunal authorities hold that where the respondent has no grievance against the impugned order in their favour, such filings do not qualify as cross objections under the statutory provision and at best constitute a counter to the Department's appeal. The filing was examined against Section 35B(4) and relevant precedents on cross objections.Conclusion: The Memorandum of Cross Objections is not maintainable under Section 35B(4) of the Central Excise Act and is dismissed as a cross objection, but the same is permitted to be treated and considered as the Respondent's counter to the Department's appeal.Issue (ii): Whether this Bench should finally determine the classification of the impugned products under Heading 1704 9090 or Heading 2101 1200, and which General Rules (Rule 2 and Rule 3(a) or Rule 3(b)/3(c)) apply.Analysis: Both competing headings cover different parts of the composite goods and the General Rules for interpretation require careful application of Rule 3 where headings are equally specific. The factual matrix shows admitted presence of natural coffee extract (approx. 2.5% and 4.5%) and substantial sugar/glucose content. The competing legal questions include whether Rule 3(a) suffices or whether Rule 3(b) or Rule 3(c) govern classification, and whether the essential character test applies to the natural coffee extract in the given proportions. A coordinate bench has reached a different conclusion on identical products, and questions of precedent and statutory limits on reliance upon orders under Section 35R were considered. Given the factual and legal complexity and divergent tribunal decisions, the matter requires authoritative determination by a Larger Bench rather than a final decision by this Bench.Conclusion: The question of classification is not finally decided by this Bench and is referred to a Larger Bench for determination of (i) correct heading for the products and (ii) applicability of Rule 2 and/or Rule 3(a)/3(b)/3(c) for classification.Final Conclusion: The Tribunal dismisses the Memorandum of Cross Objections as not maintainable under Section 35B(4) but allows the content thereof to be considered as the Respondent's counter; the substantive classification dispute is not finally adjudicated and is referred to a Larger Bench for authoritative decision on the applicable General Rules and correct tariff heading.