2026 (1) TMI 777 - AT - Central Excise

Classification of confectionery as sugar-based or coffee-preparation; held sugar confectionery under Tariff Heading 1704 9090 since sugar is principal ingredient

Dominant issue - classification of confectionery as CH 1704 9090 (sugar confectionery) or CH 2101 1200 (preparations based on coffee): Department bears ... Classification of goods - Kopiko - classifiable under Heading 1704 9090 or under Heading 2101 1200 or otherwise? - applicability of Rule 2 and Rule 3(a) are applicable or Rule 3(b) or Rule 3(c) are applicable for determining the correct classification? - HELD THAT:- If the Department intends to classify the goods under a particular heading or sub-heading, different from that claimed by the assessee, the Department is required to adduce proper evidence and thereby discharge the burden of proof. Reliance is placed on the decision of the Apex Court in HPL Chemicals Ltd versus CC Ex, Chandigarh [2006 (4) TMI 1 - SUPREME COURT], which relied on the earlier decision of the Apex Court in Union of India & others versus Garware Nylon Ltd & Ors [1996 (9) TMI 123 - SUPREME COURT] and Hindustan Feredo Ltd versus Central Excise, Bombay [1996 (12) TMI 49 - SUPREME COURT]. The respondent in support of their claim that the product ‘Kopiko’ is classifiable under CH 1704 9090 has produced sufficient evidence whereas the revenue while deviating from the said classification has not produced any evidence and have therefore not discharged the burden. The product being a food item has necessarily to be in conformity with the provisions of FSSAI and FSSR, whose primary objective is to regulate and monitor the manufacture, processing, distribution, sale, and import of food and to ensure that regulations have been framed governing the various food products with addition of even small doses of extracts, so as to enrich food products. Under FSSR, the candy manufactured is classified under Rule 2.7.1 as a sugar boiled confectionery and, therefore, the same is a relevant factor in determining the classification of sugar based confectionary with 2.5%/4.5% of coffee extract under Heading 1704, which is specifically for sugar confectionary and cannot be considered as a preparation with coffee extract or essence as the basis to be classified under Heading 2101. Further, the manufacturing process of the product as noted by the Commissioner conforms to Regulation 2.7.1 of FSSR to be called as sugar boiled confectionary. The Hyderabad Bench accepted that certification by FSSAI as a sugar confectionary does have persuasive value, but on the other hand, observed that it does not have binding effect on Central Excise Authorities, which actually is contrary to the principles laid down in this regard. The Apex Court in Kirloskar Oil Engines Ltd. versus Union of India [1995 (5) TMI 30 - SUPREME COURT] and National Sales Corporation versus Customs, Madras [1995 (5) TMI 31 - SUPREME COURT] held that IS specification is not ignorable in the absence of any material. Similarly, the Commissioner after quoting the information available on the website with reference to the subject product, took note of the specific description under Kopiko Cappuccino and Kopiko Espresso as ‘Candy’. The description of the two products specifically refers to it as a candy, which actually imparts its true characteristics as a sugar confectionery. Had it been a description with the basis of coffee extract, essences or concentrates, there would have been no relevance to incorporate the term ‘candy’ and the mixture would be quite unpalatable and unmarketable. The description of the product as ‘candy’ basically means a confectionary, which cannot be ignored, and it is where the Hyderabad Bench has fallen in error in agreeing with the Revenue. Both the advertisement as well as the website data has consciously used the term ‘candy’ and that is how it is known to the public at large. The discussion above leads to the determination that sugar forms the major ingredient which renders the main taste i.e., sweetness to Kopiko. Thus sugar constitutes the basis and coffee cannot be said to be the basis of preparation of sugar boiled confectionary as it just gives an aromatic effect in view of the decision of the Apex Court in Satnam Overseas [2015 (4) TMI 356 - SUPREME COURT] that mere addition of certain items would not change its essential character. The law laid down by the Ahmedabad Bench in the case of the appellant themselves [2024 (8) TMI 1668 - CESTAT AHMEDABAD] that the product ‘Kopiko’ Cappuccino and Kopiko Espresso is classifiable under Tariff Heading 1704 9090 as ‘sugar confectionery’ is the correct law and the same is hereby affirmed. The view taken by the Hyderabad Bench that the impugned goods are preparations based on coffee extract/essence and is, therefore, classifiable under chapter heading 2101 1200, has no merit and is, therefore, not sustainable - In determining the classification, it is Rule 1 and Rule 3(a), that is applicable. The papers may now be placed before the Division Bench of the Tribunal for deciding the appeal on merits. Issues: (i) Whether the product 'Kopiko' is classifiable under Tariff Heading 1704 9090 (sugar confectionery) or under Heading 2101 1200 (preparations with a basis of coffee). (ii) Whether classification is to be determined by reference to Rule 1 and Rule 3(a) of the General Rules for Interpretation (GRI) or by recourse to Rule 3(b) or Rule 3(c).Issue (i): Whether 'Kopiko' is classifiable under Heading 1704 9090 or Heading 2101 1200.Analysis: The product composition shows sugar and liquid glucose forming the dominant proportion (approximately 74%) while coffee extract constitutes a minor percentage (circa 1.57%4.5%). The Heading 1704 description specifically covers sugar confectionery including boiled sweets and candies suitable for immediate consumption. Heading 2101 refers to extracts, essences and concentrates of coffee and preparations with a basis of these products, requiring that coffee or its extract form the underlying or predominant material of the preparation. Evidence produced includes prior customs classification under Heading 1704, FSSAI/FSSR classification and trade/packaging descriptions identifying the product as candy. Precedents distinguishing preparations that merely contain an ingredient from those made on the basis of that ingredient were applied. The department did not adduce evidence to rebut the material placed by the manufacturer showing commercial identity, composition, regulatory classification and foreign import classifications.Conclusion: 'Kopiko' is classifiable under Tariff Heading 1704 9090 (sugar confectionery). This conclusion is in favour of the assessee.Issue (ii): Whether Rule 1 and Rule 3(a) of the GRI govern classification or whether Rule 3(b)/3(c) should be applied to place the product under Heading 2101 1200.Analysis: The terms of the headings and chapter notes are the primary basis for classification under Rule 1. Heading 1704 provides a specific description applicable to sugar-based confectionery; Heading 2101 is a more general provision for preparations based on coffee extracts. Rule 3(a) prefers the more specific description where applicable. Rule 3(b) (essential character) is relevant only if Rule 3(a) does not resolve classification, and Rule 3(c) (last in numerical order) applies only when 3(a) and 3(b) fail to determine classification. The facts show that Rule 1 and Rule 3(a) resolve the classification in favor of Heading 1704; recourse to Rule 3(c) by the department was therefore impermissible without first showing why Rule 3(b) is inapplicable.Conclusion: Classification is to be determined by reference to Rule 1 and Rule 3(a) of the GRI; recourse to Rule 3(c) is not warranted. This conclusion is in favour of the assessee.Final Conclusion: The product 'Kopiko' is rightly classifiable as sugar confectionery under Heading 1704 9090 and not as a preparation with a basis of coffee under Heading 2101 1200; the law laid down by the Ahmedabad Bench to this effect is affirmed.Ratio Decidendi: Where a tariff heading provides a specific description that fits the product and chapter notes/Rule 1 identify the product as such, that specific heading (applied with Rule 3(a)) prevails over a more general heading referring to preparations 'with a basis of' an ingredient; a minor proportion of an active/flavouring ingredient does not convert a sugar confectionery into a preparation 'with a basis of' that ingredient absent evidence that the ingredient forms the underlying or predominant material of the preparation.