TaxTMI 
TaxTMI 
2006 (3) TMI 761
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....ng 1905.39, the duty is at concessional rate at 8% ad valorem while for the chapter heading adopted by the revenue under 1905.31 the duty is 16%. On the basis of allegation of suppression of facts, the demands for the larger period have been raised denying the benefit of concessional rate of duty available for sub-heading 1905.39 and the Revenue has reclassified the goods under sub-heading 1905.31 as 'coated with chocolate or containing chocolate'. 2. The contents and process of manufacture of 'BYTES' are as follows:-Contents: Wheat Flour, Edible Vegetable Oil, Milk Solids, Cocoa Solids, Edible Starches, permitted emulsifiers and Salt. Process: A batter of Wheat flour, sugar and starch is mixed in water with a small quantity of vegetable oil and emulsifier added into it. This batter is spread/sheeted on the drum surface of a rotary oven heated on the inside by a gas flame. The baked wheat flour sheet is then rolled into pencils and cream is pumped into the hollow portion within. The cream is cocoa based cream prepared by mixing milk solids, sugar, cocoa solids, flavors, vegetable oil and emulsifiers to get the desired viscosity. The centre-filled pencil is then passed be....
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....process of cream making, which is done in their factory. The refined milk chocolate in powder form as received from DRW, could not be directly inserted/injected into the said wafer pencils, and accordingly the same would have to be converted into the semi-solid cream before it can be injected into the said wafer pencil. It is for this reason that the said palm oil and emulsifiers are added. That the resultant product is completely different in all its properties such as consistency, feel, taste and fat content. It is this resultant product in the form of a cream, which is required to be a chocolate for the said product to be classifiable under Chapter Heading No. 1905.31, as proposed in the captioned notice. That the Department has not even sought to make out a case in the captioned notice, as to the effect that the said cream manufactured in their factory by mixing palm oil, emulsifiers and flavours to the said refined milk chocolates/cocoa cream for Bytes is a chocolate. Therefore, the notice is completely misconceived, misdirected and untenable, inasmuch as the entirety of the allegations in the captioned notice are directed towards refined milk chocolate/cocoa cream, a....
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....so-called refined milk chocolate for Bytes/refined cocoa cream for Bytes contains vegetable oil and therefore, ipso facto, cannot be considered to be chocolate. The entire case of the Department, which is based upon the allegation that the said cocoa cream is in fact chocolate is, therefore, patently fallacious and the captioned notice is required to be withdrawn on this ground alone. 19. They also submitted that after the said refined cocoa cream for Bytes is received in their factory the same is mixed with palmolein oil (a vegetable oil) and heated so as to convert the same into thick liquid cocoa cream which is filled into the wafer pencils. That after being mixed with palmolein oil and emulsifiers it definitely ceases to be chocolate for the reason, that, a product which contains vegetable oil cannot be manufactured and sold as chocolate, without attracting the penal provisions of the PFA Act and the Rules made thereunder. For this reason, the final product i.e., CADBURY BYTES, which admittedly contains a cream which is manufactured by mixing and heating the refined cocoa cream for Bytes received from DRW with palmolein oil, emulsifiers and flavours, can never be held ....
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....are in conflict with Indian laws, such as the PFA Act and Rules made thereunder. Therefore, they have stated that the said explanatory notes of HSN have no application to the facts of their case. 23. In view of the foregoing they have submitted that the notice required to be withdrawn in its entirety particularly the demand of Rs. 60,11,251/- and the proposal to charge interest under Section 11AB and penalty under Section 11AC as also under Rule 25 of the CE Rules, 2002 is also required to be withdrawn. 24. All the other three co-noticees, S/Shri Shaik Sulaiman, Managing Director, M/s. Little Star Foods (P) Limited, Jaiboy Phillips, Director - Operations, M/s. Cadbury India Limited and C.M. Kulkarni, Contract Manufacturing Manager, M/s. Little Star Foods (P) Limited, in their respective replies to Show Cause Notice have denied the allegation as to the manner in which they have breached the provisions of Rule 26. They have stated that since, there is no evidence established in any manner in support of the allegation made in the Show Cause Notice, they are not liable to be penalized under Rule 26 of CE Rules, 2002. 25. All the four noticees h....
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.... competing unit has been decided by the Mumbai bench in their favour in the case of CCE, Mumbai v. Britannia Industries Ltd. [2005 (183) E.L.T. 257]. He submits that the Tribunal has considered non-applicability of the explanatory notes of 'HSN' and also the Apex Court judgment in the case of CCE, Shillong v. Wood Craft Ltd. (supra). He has submitted that the Tribunal has taken a view in para 3 and 4 as follows : "3. Considering the material on record it is found that based on the classification of the Chocolate Cream placed between two sliced biscuits-wafers and the fact that the said Chocolate cream would be classifiable under heading 1803 taken irrespective of the fact of percentage of Cocoa in the entity, the ground taken that the decision relied upon by the Commissioner (Appeals) in the appellant's own case vide order No. 802/86, dated 3-9-1986 (26) E.L.T. 628 (T) was as regards the classification in case of Bourbon Cream manufactured by the respondents in the year 1986, which was under the erstwhile tariff and was based on the applicability of ISI specification for use of chocolate and that decision cannot be applied to the facts of this case as ISI and the Prev....
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....iew of the specific finding recorded in the above two judgments use of vegetable oil would not make the product a chocolate. Therefore, he submits that the department's contention to classify the item as Waffels and Wafers coated with chocolate or containing chocolate is required to be negatived and only it has to be classified in the residuary entry "Others" under chapter heading 1905.39 and extends the concessional benefit in terms of Notification No. 37/03 dated 30-4-2003. 7. Learned DR took us through the entire order and contended that the presence of cream prepared by mixing milk solids, sugar, cocoa solids and vegetable oil would make the product Waffels and wafers coated with chocolate or containing chocolate. He submits that both the cited judgments are clearly distinguishable. He further submits that the details had not been submitted and hence, the impugned order for larger period is required to be confirmed, as the impugned order relies on HSN explanatory notes which is binding on the bench in the light of Apex Court judgment rendered in the case of CCE v. Wood Crafts (supra). 8. On a careful consideration, we notice that the Tribunal has dealt with the ....
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....armaceutical use, sealing wafers, rice paper and similar products Biscuits; waffles and wafers: 1905.11 In or in relation to the manufacture of which any process is ordinarily carried on with the aid of power 1905.11 Other 8. The note to chapter 18 excluded at the relevant time, preparations of heading 04.04, 19.01, 19.04, 19.05, 21.05, 22.02, 30.03. These headings cover other diary product, edible products of animal origin not elsewhere specified or included (heading 04.04); malt extract, food preparations of flour, malt, etc. not containing cocoa powder in a proportion by weight of less than 50% not elsewhere specified; food preparations of milk or ghee not containing cocoa powder (19.01); or containing cocoa powder in a proportion by weight of less than 10% not elsewhere specified; prepared foods obtained by swelling or roasting of cereals or cereal products (19.04); ice-creams and other edible ice, whether or not containing cocoa (21.05) other than mineral water (21.05), medicaments (including veterinary medicaments) (30.03). Out of the products contained in any of these headings, we will exclude for....
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....to Chapter 19 of the tariff tallies (except for the percentage of the cocoa) with note 4 to Chapter 19 of the Explanatory Notes. In fact, each of the heading of the Chapter 19 at the relevant time tallied word for word with the heading in the HSN except to the extent of difference in the percentage of cocoa powder (referred to in heading 19.01). The HSN used the word cocoa and not cocoa powder as in the present tariff after its amendment in March, 1998. There is a difference in the arrangement of the chapter, in that any prepared cocoa in the form of pitments and shells is not classifiable under Chapter 18 in the tariff (unlike in the HSN) and processed cocoa base is also excluded from the chapter. Cocoa butter and oil in heading 18.01 of the tariff corresponds to the 18.04 of the HSN. Heading 18.02 with 18.05. Heading 18 of the HSN, chocolates and other food preparations containing cocoa, had been split up into two; 18.03 for chocolates in any form, whether or not containing nuts, etc. and 18.04 for other food preparations containing cocoa, in the tariff. 10. In the light of this correspondence reference to the explanatory note in deciding the scope of the tariff is ....
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....gainst the department's case. It describes the product as "a delicious, light, crisp, wafer covered with milk chocolate snack" it emphasised that the product draws from both the chocolate and biscuit markets. It further described the product as "biscuit covered with chocolate snack". There is certainly some reference in the guidelines, with regard to storage and transport suggesting that the product must, for the purposes of ambient temperature, be considered to be chocolate "must care as for chocolate". There is incidentally a reference to caution in handling - "handle like eggs - with care". From that direction by itself, it would not be legitimate to draw a conclusion that the appellant marketed the product as chocolate or that any of the buyers purchased the same as chocolate, or that it is commonly considered as chocolate. 13. It might have been necessary, in view of the presence of chocolate, to refrigerate the product to prevent its melting or spoiling. That alone cannot justify the view that the product's essential character of the product has been conferred upon it by chocolate. There is nothing to show that the buyers of the goods bought as chocolate, not as....
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....cation and the test of common parlance and understanding would not apply. 14. It is also to be noted at this juncture that the appellant, in view of the provisions of the Prevention of Food Adulteration could not, except by violation of law has sold the goods as chocolate. We must also refer here to the decision of this Tribunal in Kirloskar Oil Engines Ltd. v. Union of India, 1995 (77) E.L.T. 479 and National Sales Corporation, 1995 (78) E.L.T. 653 to the effect that the Indian Standard Institute are good and reliable indication of the common parlance and understanding. We have noted that the ISI specifications for biscuits include biscuit covered or coated with chocolate. Even if the common parlance test was to be applied presence of the contents of ISI specifications would be in favour of the appellant. 15. The representative of the department relies upon the Supreme Court's judgment in CCE v. Wood Polymers Ltd. The bench of the Supreme Court, which delivered that judgment, was concerned with classification of decorative paper based laminating sheets. The Court did not accept the contention of the manufacturer of the goods that by applying the common ....
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....mendment two new sub-headings have been created in heading 19.05, for wafers and waffles. Sub-heading 1905.31 for waffles and wafers coated with or containing chocolate earned a rate of duty of 18% (corresponding to the same rate of duty as was applicable to heading 18.03). Sub-heading 39 is "other". It can hardly be disputed that wafers and waffles coated with or containing chocolate are classifiable, after the amendment under heading 1905.31. Now, in the amendment made in 1998, there has been no change in the wordings of heading 19.05 or of heading 18.04, nor there has been any change in any of the notes to the Chapter 18 and 19 with which we are concerned. The headings 19.05 and 18.03 and the notes, therefore remain unchanged before and after the amendment. That being the case, the effect of introduction of these two sub-headings would be only to carve a separate niche within the same heading for these products. This would mean that both before and after the amendment, waffles and wafer coated or covered with chocolate were classifiable under heading 19.05. 18. The representative's of the department contend that this amendment is not retrospective in nature for whi....
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...., milk solids including milk fat and prohibited flavouring agents. That the Explanatory Notes also proceed this understanding that chocolate must contain cocoa is clear from the following extract in these notes in heading 18.06 at page 143 of the 1996 Explanatory Notes. "chocolate is composed essentially of cocoa paste and sugar or other sweetening matter; usually with the addition of flavouring and cocoa butter; in some cases, cocoa powder and vegetable oil may be substituted for cocoa paste. Milk, coffee, hazelnuts, almonds, orange-peel, etc. are sometimes also added." 21. Thus while all chocolate must necessarily contain cocoa, it is not every cocoa product or preparation that is chocolate. The fact that heading 19.05 uses the word "cocoa" whereas sub-heading 1905.31 refers to chocolate, therefore it is not significant in considering classification of this product. The tariff itself reconises that chocolate must contain cocoa. Heading 18.03 is for "chocolates in any form . . . including drinking chocolates"; heading : 18.04 is for other food preparations containing cocoa. The other (emphasis ours) food preparation containing cocoa of heading 18.04 th....