TaxTMI 
TaxTMI 
2009 (12) TMI 786
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....those that met the description 'compound alcoholic preparations of odoriferous substances with alcohol content exceeding 0.5% by volume of a kind used for the manufacture of beverages. They also misdeclared similar consignments as essential oils of CH 3301 and evaded duty due. Documents recovered during investigation from the premises of the importer and the CHA who processed the import documents showed that GIPL had issued instructions to the suppliers not to describe the goods as 'food flavours ' in the related airway bills and to the CHA not to declare the classification in the Bills of Entry without getting clearance from it. It was found that some documents such as material data sheets had been manipulated and that GIPL was in possession of documents such as certificates of analysis and ingredient declarations which indicated composition of the impugned goods to be different from that reflected in documents produced to the authorities. Every time a consignment was imported, GIPL wrote to the Deputy Commissioner of Customs justifying the exemption wrongly claimed. The executives of GIPL and the CHA gave confessional statements admitting that they had misdeclared or suppressed t....
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....or various industries. They belonged to the first limb of the entry 33.02 which is as follows : "Mixtures of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more odoriferous substances of a kind used as raw materials in the industry". Entry added to CH 33.02 in 1996 read as follows : "other preparations based on odoriferous substances, of a kind used for the manufacture of beverages". Prior to reorganization of the entries in 1996, compound alcoholic preparations for the manufacture of beverages were excluded from CH 33 [(note 1(a)] and were covered by CH 22.08. Explanatory Notes (EN) clarified this provision as follows : "These products are generally a complex mixture of distillates, tincture, alcoholates and natural or synthetic essences, contain (in whole or part) aromatic principles and sometimes other constituents which characterize a particular beverage. As a result of which the beverage in question can be obtained simply by diluting the preparation with water, wine or alcohol" These carried a higher rate of duty compared to goods of CH 33.02. Notification No. 76/86-Cus. excluded these goods from the exemption allow....
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....the mistake of the assessing officer. He relied on a ruling of the United States International Trade Commission - HQ 959587 dated April 9, 1998. The decision involved peppermint flavour and peach flavour which consisted of water, modified food starch, peppermint essential oil, citric acid and sodium benzoate. The peach flavour consisted of propylene glycol, ethyl alcohol, fruit essences, ethyl acetate and other organic estersm acetic acid and other organic acids, acetyl aldehyde and other organic aldehydes, essential oils, and miscellaneous organic flavour compounds. The peppermint flavour was classified in sub-heading 3302.10.10, HTSUS, the provision for "mixtures of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more of these substances, of a kind used as raw materials in industry: Of a kind used in the food or drink industries: Not containing alcohol," dutiable at 4.8 per cent ad valorem (1995). The peach flavour was classified in sub-heading 3302.10.30, HTSUS, the provision for "mixtures of odoriferous substances and mixtures (including alcoholic solutions) with a basis of one or more of these substances, of a kind used as raw materia....
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....rize a particular beverage. Revenue has relied on the following excerpt of a decision of the US Customs dated 30-10-02 (henceforth referred to as the 'tariff ruling ') in support of the stand taken in the impugned order to find that the flavouring compounds involved are compound alcoholic preparations : "Before 1996, heading 2208 covered alcoholic preparations which (1) were compound (2) had an alcohol content exceeding .5% volume, and (3) contained all of the odoriferous substances and favoring ingredients which characterize a particular beverage. Heading 3302 covered alcoholic preparations which (1) were compound (2) had an alcohol content exceeding .5% volume, and (3) contained odoriferous but not all of the favoring ingredients in a beverage." Revenue also relied on "Additional notes" in the Combined Nomenclature 2008 of Irish Customs which clarified that 'compound alcoholic preparations' of entry 2106.90 were preparations containing more than 0.5% alcohol by volume. 7. We have carefully considered the case records and the submissions both written and oral by both sides. The impugned flavour compounds are the following. Sl. No. Description 1. Vanilla F....
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.... Flavouring preparation Natural flavouring substances 8. Impact IMP KN Propylene glycol E1520 67 - 72% Nature identical flavouring substance - Levulinic acid 8 - 13% Ethyl alcohol 6 11% Water 2 - 7% Caramel color E150 1 - 5% Corn syrup solids <2% Glycerol E422 <2% Flavouring preparation (natural) Licorice extract <2% 9. Tab Flue Cured KN Ethyl alcohol 57 - 62% Propylene glycol E1520 37 - 42% Nature identical flavouring substance - Vanillin <2% Flavouring preparation (natural) - Immortelle extract <2% Artificial falouring substance - Ethyl maltol <2% 10. Tab Flue cured KN Ethyl alcohol 56 - 61% Propylene glycol E1520 37 - 42% Nature identical flavouring substance - Vanillin <2% Flavouring preparation (natural) - Immortelle extract <2% Artificial fa....
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....; Nature flavouring substance - Methoxy-4-vinylphenol <2% Flavouring preparation (natural) - Apple essence <0.01% 18. Tab Top Flv BKN Propylene glycol E1520 70 - 75% Nature identical flavouring substance - Methyl-pentonic acid 8 - 13% Flavouring preparation (natural) - Amyris oil 2 - 7% Benzyl alcohol 1 - 5% Smoke Flavour 1 - 5% Benzyl alcohol <2% Nature flavouring substance - Proline <2% 19. Tab Top Rose Latakian KN Propylene glycol E1520 65 - 70% Water 14 - 19% Invert sugar 5 - 10% Sugar 2 - 7% Ethyl alcohol 1 - 5% Rum <2% Caramel color E150 <2% Flavouring preparation (natural) - Licorice extract <2% Nature identical flavouring substance - Maltol <0.1% Sodium benzoate E211 <0.01% 20. Tab Top Note KN Propylene glycol E1520 57-62% ....
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....tion under chapter heading 3302-10 and that the Department also is not in dispute with respect to the goods being classified under sub-heading 3302-10. Nowhere in their reply, M/s. GIPL have claimed or justified the classification of any of the items under any heading other than chapter heading 3302-10. Thus, M/s GIPL themselves have admitted that all the items in dispute are correctly classifiable under chapter heading 3302-10. Hence, the dispute is only with reference to the applicability of concessional rate duty under Notification No. 21/2002-Cus dated 1-3-2002 to the subject goods. It is the contention of M/s GIPL that at the time of import, the items in question are to be treated as raw materials and only after subjecting those processes explained above they become compound alcoholic preparations. For the sake of convenience and proper appreciation of the issue, Sl. No. 119 of Notification No. 21/2002-Cus dated 1-3-2002 is extracted below : Sl. No. Tariff heading Description of goods 119 3302.10 All goods (excluding compound alcoholic preparations of a kind used for the manufacture of beverages, of an alcoholic strength by volume exceeding 0.5 per cent volum....
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....processes to obtain the compound alcoholic preparations. In such circumstances, I am unable to understand as to the basis on which M/s GIPL claim that only after the processes, the imported flavours become the compound alcoholic preparations. In my view, the imported flavour themselves can be taken as concentrated extracts, since the alcoholic strength in those flavours is more than the prescribed limit. Thus, there is no substance or merit in the above argument of M/s GIPL. On the other hand as discussed above, the imported flavours satisfy all the three conditions stipulated in the exclusion clause of the exemption Notification No. 21/2002-Cus., dated 1-3-2002 to treat a particular item as a compound alcoholic preparation i.e., (i) the flavours are compounds, (ii) they are used for the manufacture of beverages and (iii) the alcoholic strength by volume (in those flavours) exceeds 0.5 per cent determined at 20 degrees centigrade. As per the concise oxford dictionary, the word in noun form means, a thing composed of two or more separate elements; a substance - formed from two or more elements chemically united in fixed proportions. In the instant case, there is no doubt that the fl....
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....ling held that compound alcoholic preparations of erstwhile CH 2208.10 (pre 1996) were such products which yielded a specific beverage on dilution with alcohol, wine or water. The appellant has relied on EN in support of its case. The EN referred to relates to CH 2208.10 as it existed prior to 1996. This entry was transferred verbatim to CSH 210690 in 1996; this EN cannot be relied on to understand the scope of compound alcoholic preparations of CH 33.02.10 post 1995 appearing in Sl. No. 119. 8.2 The notification 76/86-Cus., dated 17-2-86 relied on by GIPL relates to CH 2208 prior to 1996. This notification contained the meaning of the expression compound alcoholic preparations in brackets as 'concentrated extracts'. Such a parenthesis does not figure in the current notification. If the intention of the legislature were to similarly exclude only concentrated extracts from Sl. No. 119, the same language would have been employed in the notification. Therefore we find it unsafe to rely on this obsolete notification to find the meaning and intent of the entry in question. 9. We find from the tariff ruling that the expression 'compound alcoholic preparation of a kind use....
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...., alcohol (11.5%) and a sugar additive had been classified as CAP of CSH 210690.12. In the tariff ruling this decision was revised as a food preparation as it was primarily a product containing sugar and did not contain the ingredients envisaged in CSH 210690.12; not because it was found later to be not a compound of alcohol. All the impugned beverage flavours invariably contain flavours and alcohol, in certain cases also water or a carrier or preservative like ethylene glycol. As compounds of alcohol, these are similar to the beverage sweetener of NY(A)80165 except that these are based on odoriferous substances. They are preparations containing 0.5% or more alcohol. They are therefore compounds of alcohol. Notification excludes from exemption alcoholic compounds of odoriferous substances containing above 0.5% alcohol by volume of CH 33.02, of a kind used for the manufacture of beverages. As the beverage flavours are used in the manufacture of beverages they do not fall under Sl. No. 119 of the notification and are not entitled to exemption. 9.1 The ruling HQ 959587 dated April 9, 1998 of United States International Trade Commission relied on by GIPL in support of the claim....
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....the manufacture of beverages, based on one or more odoriferous substances but not containing all of the flavouring ingredients which characterize a particular beverage (covered under 33.02 ICT as it existed prior to 1-1-96) and (ii) compound alcoholic preparations containing all of the odoriferous substances and other flavoring ingredients which characterize a particular beverage (covered under heading 22.08 ICT as it existed prior to 1-1-96). The revised entry therefore does not make any substantial change as far as compound alcoholic preparations containing odoriferous substances are concerned. The impugned goods are similar to compound alcoholic preparations of erstwhile CH 22.08 in that both categories of goods yield a beverage on dilution with alcohol , wine or water. 10.1 The assessee's case is that the impugned goods need to be added with spirit and water to make them CAPs. CAPs yield beverages on addition of alcohol, wine and water. Therefore the beverage flavours get converted into beverages on addition of alcohol, wine and water. The beverage flavours are therefore CAPs not eligible for the exemption to goods at Sl. No. 119 of Not No. 21/02. 11. As regards....
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....ority on interpretation of tariff accepted universally. EN reads the entries in the tariff. Exemption notifications are based on the language of the entries. We therefore overrule the objection of Revenue to reliance on EN to understand the scope of an expression used in a notification. 14. We find that the decision of the Tribunal in the McDowell & Company case relied on by GIPL dealt with the question of manufacture of flavours involved in the activity impugned before the Tribunal and their valuation. That decision has no bearing on the instant dispute. 15. The appellants, S/Shri Ajith Pal, Prakash Ullal and Mohan C. Suvarna are responsible functionaries of the assessee company. They were familiar with the composition of the impugned goods imported. However, they suppressed the fact that impugned goods of CH 33.02 contained more than 0.5% alcohol and fraudulently claimed exemption, thus evading considerable amount of duty due to the exchequer. They had admitted the offending transactions committed by them during the investigation. These were not retracted. An amount of Rs. 2.10 Crores short paid was also paid following such admission by the executives of the asses....