Per: P.G. Chacko:
This appeal filed by the assessee is directed against an order passed by the learned Commissioner of Central Excise in adjudication of show-cause notice dated 08/04/2005 wherein Central Excise duty of over Rs. 5 crores along with education cess was demanded from the assessee in respect of certain excisable goods (broadly called 'bakery improvers') cleared from their factory without payment of duty during the period from July 2003 to March 2005 and equal amount of penalty was also proposed under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002. The adjudicating authority confirmed the demand of duty to a reduced extent against the assessee and imposed on them equal amount of penalty. The demand of duty as raised in the show-cause notice and confirmed in the impugned order is consequential to classification of the said goods under SH 2108.99 of the CETA schedule coupled with its valuation under Section 4A of the Act. The assessee had classified the goods under SH 1905.90 of the said schedule attracting 'nil' rate of duty, which was rejected by the adjudicating authority, which classified the goods as noted above.
2. Before us, the whole case centers around the classification dispute. According to the assessee, the goods are not liable to be classified under a residuary entry like 21.08 of the CETA schedule unless classification under pre-existing specific entries of the Tariff is ruled out. In the present case, it is contended that, both in the show-cause notice and in the order-in-original, there was no attempt to examine classifiability of the goods under Chapters covering edible preparations. What was done was the exercise of classifying the goods straightaway under the residuary entry, 21.08, and, that too, by heavily relying on Explanatory Notes to HSN Headings. According to the appellant, it was not open to the department to rely on HSN Explanatory Notes in this case, inasmuch as neither heading 19.05 nor heading 21.08 of the CETA schedule was aligned with the HSN. The learned counsel for the appellant has, with reference to the very first Rule of Interpretation of the Tariff, submitted that the classification, in this case, could only be done with reference to the terms of the Tariff Headings read with any relevant Chapter Notes or Section Notes. For want of alignment of the Tariff Headings with HSN Headings, no reliance could be placed on anything contained in the Explanatory Notes. The learned counsel has cited case law in support of the above contentions of the appellant. He has also referred to the process of manufacture of the goods as well as to the end-use, in support of the assessee's claim of classification under Heading 19.05.
3. It has also been pointed out that, in respect of similar products manufactured by their sister-unit (at Pune), the adjudicating authority accepted classification under Heading 19.05. It is submitted that the said decision of the Assistant Commissioner was never reviewed. In this connection, the learned counsel has also raised the plea of limitation against the demand of duty. It is submitted that a major part of the impugned demand of duty is beyond the normal period of limitation and that the extended period of limitation provided under Section 11A(1) was invoked without valid grounds. It is submitted that the appellant had always been maintaining the bona fide belief that their products were classifiable under heading 19.05 and hence chargeable to 'nil' rate of duty. This belief, according to the appellant, was based on the Assistant Commissioner's classification of similar products of their sister-unit at Pune as well as on the fact that the ER-1 returns filed by the appellant at regular intervals during the period of dispute were verified by the proper officer of Central Excise and no objection whatsoever was ever raised in respect of the classification of the goods under Heading 19.05 or in respect of 'nil' payment of duty thereon. All the material facts were within the knowledge of the department. Nothing was suppressed by the appellant, let alone, with intent to evade payment of duty. For these reasons, the learned counsel for the appellant has pleaded time-bar against a major part of the demand of duty.
4. It is further pointed out that the appellant has, by way of alternative classification, contended that the 'Bakery Improvers' based on vegetable oils (mentioned in Annexure 'A' to the show-cause notice) may be classified under Heading 1508.90 and other Bakery Improvers based on wheat / soya flour (mentioned in Annexure 'B' to the show-cause notice) may be classified under Heading 11.01. This alternative claim is based on a judgment of this Tribunal vide Helios Food Additives (P) Ltd. vs. CCE, Pune - II 2006 (204) ELT 279 (Tri. Mumbai) wherein certain vegetable oil / fat-based cake improvers were held to be 'bakery shortenings' classifiable under Heading 15.08 and certain flour-based bread improvers were held to be 'products of milling industry' classifiable under Heading 11.01. Learned counsel submits that the Tribunal's decision in Helios Food Additives case (supra) was accepted by the department and that, the goods considered for classification in that case being admittedly similar exactly to the goods in question in the instant case, the said decision of the Tribunal is liable to be followed as a binding precedent. Contextually, learned counsel has referred to the show-cause notice wherein the products of M/s. Helios Food Additives Pvt. Ltd. were acknowledged to be 'exactly similar' to those of the appellant. The show-cause notice relied on an order-in-appeal which classified the products of M/s. Helios Food Additives Pvt. Ltd. under SH 2108.99. It was this order- in-appeal which was set aside by the Tribunal and classification ordered under Heading 15.08 in respect of vegetable oil / fat-based cake-improvers and under Heading 11.01 in respect of flour-based bread-improvers.
5. Learned counsel has also objected to the valuation ordered by the Commissioner. Assuming, without conceding, classification of the goods under Heading 21.08, he submits that the goods cannot be assessed in terms of Section 4A of the Act by virtue of the exemption available under Rule 34(a) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977. According to the learned counsel, as the goods in question were specially packed for industrial use and this aspect was clearly indicated on the product labels, they were exempted, under Rule 34, from the operation of other provisions of the said Rules with the result that Section 4A of the Central Excise Act was not applicable to the goods. In this connection also, the learned counsel has cited case law.
6. In the absence of suppression of facts with intent to evade payment of duty, it was not open to the adjudicating authority to impose any penalty on the appellant under Section 11AC of the Central Excise Act.
7. Learned Special Consultant for the Revenue has argued in support of the impugned order. He has also cited case law to show: (a) that HSN Explanatory Notes were validly relied on in the context of classification of the goods; (b) that the Assistant Commissioner's classification of similar goods manufactured by the sister-unit at Pune would not operate as res judicata against the impugned order; (c) that the appellant cannot be permitted to make out a new case for classification of the goods under a third entry in the Tariff at this appellate stage and, therefore, the reliance placed by them on the Tribunal's decision in Helios Food Additives case would be of no avail; (d) that the view taken by the adjudicating authority with regard to applicability of Rule 34 to the subject-goods is legally sustainable.
8. We have given careful consideration to the submissions. Case law cited by the learned counsel and the learned consultant will be discussed as and when the context demands. We would like to proceed issue-wise.
(a) Whether the HSN Explanatory Notes are reliable in the facts of this case and, if not, whether there is still a case surviving for the Revenue?
The rival entries considered by the lower authority are Heading 1905.90 and Heading 2108.99. The learned counsel for the appellant has argued that Heading 19.05 of the CETA schedule was not aligned with the corresponding HSN Heading during the period of dispute. He has similarly argued that Heading 21.08 of the CETA schedule was not aligned with Heading 21.06 of the HSN as claimed by the Revenue. Tariff Heading 19.05 as it stood during the period of dispute reads as under:
Bread, pastry, cakes, biscuits and other backers' wares, whether or not containing cocoa, communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products
-- In or in relation to the manufacture of which any process is ordinarily carried on with the aid of power
-- Cakes and pastry
- Waffles and wafers:
-- Coated with chocolate or containing chocolate
HSN Heading 19.05 reads as follows:
Bread, pastry, cakes, biscuits and other bakers' wares, whether or not containing cocoa, communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products.
- Gingerbread and the like
- Sweet biscuits; waffles and wafers:
-- Sweet biscuits
-- Waffles and wafers
- Rusks, toasted bread and similar toasted products
The description of the main Headings in the Tariff and the HSN are identical. But, when it comes to sub-headings, one can see significant differences. Under Tariff Heading 19.05, the main sub-headings are Biscuits; Cakes and Pastry; Waffles and Wafers; and other (vide single dash). On the other hand, the main sub-headings under HSN Heading 19.05 are Crispbread; Gingerbread and the like; Sweet Biscuits; Waffles and Wafers; Rusks, Toasted Bread and similar toasted products; other (vide single dash). In this scheme of classification, one can hardly say that the residuary sub-heading 1905.90 under Tariff Heading 19.05 and its counterpart under HSN Heading 19.05 are pari materia. It is pertinent to note that cakes and pastry which prominently figured in the description of goods against HSN Heading 19.05 did not have a sub-heading of their own, whereas these goods were expressly covered by a specific sub-heading under Tariff Heading 19.05. Under Tariff Heading 19.05, there was no specific sub-heading for Rusks, and Toasted products, whereas these items were exclusively put under a particular sub-heading under HSN Heading 19.05. It is, therefore, probable that rusks and Toasted products covered by HSN Sub-heading 1905.40 might get covered under the residuary sub-heading 1905.90 under the Tariff Heading 19.05. Similarly, cakes and pastry falling under Tariff sub-heading 1905.20 might get covered under the residuary sub-heading 1905.90 of HSN Heading 19.05. In other words, the classification under Tariff heading 19.05 cannot be said to be aligned with the classification under HSN heading 19.05.
According to the Revenue, Tariff Heading 21.08 is aligned with HSN Heading 21.06 inasmuch as the general description of goods against these headings reads in comparable terms, one reading "edible preparations, not elsewhere specified or included" and the other reading "food preparations not elsewhere specified or included". Here, again, we reproduce the two headings:
Edible preparations, not elsewhere specified or included
- Preparations for Lemonades or other Beverages intended for use in the manufacture of Aerated water
- Prasad or Prasadam
- Sterilised or Pasteurised Miltone
- Other :
-- Not bearing a brand name
Food preparations not elsewhere specified or included.
- Protein concentrates and textured protein substances
Looking at the texts of Tariff Heading 21.08 and HSN Heading 21.06, any prudent man can discern more differences than similarities. In the first place, it has not been shown that the expression "edible preparations" is synonymous with "food preparations". More conspicuously, while residuary food preparations are classified under two sub-headings of HSN Heading 21.06, residuary edible preparations get classified under as many as six sub-headings of Tariff Heading 21.08. "Protein concentrates and textured protein substances" classified under SH 2106.10 of HSN Heading 21.06 do not figure anywhere under Tariff Heading 21.08. If this is the case with sub-headings covering specific description of goods, we shudder to think, how could the Revenue align the residuary sub-heading 2108.99 of Tariff Heading 21.08 with the residuary sub-heading (2106.90) of HSN Heading 21.06. In our view, by no stretch of imagination can one say that classification under Tariff heading 21.08 is aligned with that under HSN heading 21.06.
The case law cited by the learned counsel in this context is to the effect that, where Tariff classification of goods is not aligned with the HSN, no reliance can be placed on HSN Explanatory Notes in the context of classifying excisable goods under the Tariff vide Camlin Ltd. vs. CCE 2008 (230) ELT 193 (SC). As rightly pointed out by the learned counsel, the show-cause notice heavily relied on HSN Explanatory Notes in support of the proposal for classification of the appellant's 'Bakery Improvers' under SH 2108.99. Relying on an Explanatory Note to HSN Heading 19.05, the department took the stand that the heading covered all bakers' wares and bakery improvers are only ingredients of some of the that bakers' wares. The same Explanatory Note was also relied on to justify the end-use of the appellant's products viz: bakery improvers. It was alleged that the bakery improvers served mainly to facilitate the working of the dough, hasten fermentation, improve the characteristics and appearance of the products and give them better keeping qualities. On this basis, it was alleged, the bakery improvers, which were only ingredients of bakers' wares, were not to be classified as any bakers' wares under Heading 19.05. In order to fix a place for bakery improvers under Heading 21.08, the Revenue, in the show-cause notice, relied on certain Explanatory Notes to HSN Heading 21.06. As per such Explanatory Notes, Heading 21.06 covered preparations consisting wholly or partly of food stuff, used in the making of beverages or food preparations for human consumption and the heading also included preparations consisting of mixtures of chemicals with food stuffs for incorporation in food preparation either as ingredients or to improve some of their characteristics. Relying on these Explanatory Notes, the show-cause notice alleged that the bakery improvers were essentially food stuffs mixed or blended with chemicals so that the resulting products could be incorporated in bakers' wares so as to improve the various characteristics of these final products of bakers. Thus, by and large, the show-cause notice relied on HSN Explanatory Notes not only to rule out the applicability of Heading 19.05 but also to classify the subject-goods under Heading 21.08 (SH 2108.99). The reliance placed on HSN Explanatory Notes to classify the goods under Heading 21.08 cannot be sustained in law. This, however, does not mean that the entire case made out in the show-cause notice should fall flat.
On a perusal of the show-cause notice, we find that vital information as to the method of manufacture of the goods, the ingredients contained therein, the intended use of the products, etc. was gathered from the statements of responsible functionaries of the company. We have also seen some of these statements on record. These statements contain specific averments which would constitute some basis for classification of the bakery improvers. The show-cause notice relied on these statements. It also relied on relevant provisions of the Tariff entries themselves. If the proposal in the show-cause notice to classify the goods under Heading 21.08 can independently stand on these materials, there is no reason to hold that the Revenue has no case in the show-cause notice shorn of all references to HSN provisions. The suggestion to the contra, made by the learned counsel, is not acceptable.
(b) Whether the Assistant Commissioner's order of classification of similar goods of the appellant's sister-unit at Pune would operate as res judicata ?
Our considered answer is no, as we are supported by binding judicial authorities. In the case of Swaraj Mazda Ltd. Vs. CCE 1995 (77) ELT 505 (SC), the Hon'ble Supreme Court held that this Tribunal was not precluded from deciding certain question on merits because of earlier decision relating to an earlier period. The adjudicating authority at Pune might have classified identical / similar goods under Heading 19.05 in respect of another unit of the same company and the department might have accepted that decision. It is settled law that there is no estoppel in taxation matters. If, in the present case, the Revenue is able to adduce adequate evidence in support of classifying the appellant's products under Heading 21.08, the classification has to be determined independently. The fact that the Pune Assistant Commissioner's order was not reviewed by the department will not per se preclude the Revenue from revising the classification of similar goods for another period on the strength of independent evidence. Even otherwise, the Pune Assistant Commissioner's order of classification cannot bind this Tribunal. The issue is accordingly held against the appellant.
(c) Whether the appellant is entitled to claim classification of the goods under a third entry at this stage?
This issue is also squarely covered by a decision of the Hon'ble Supreme Court vide Warner Hindustan Ltd. vs. Collector 1999 (113) ELT 24 (SC). In the said case, the assessee wanted to classify their products as ayurvedic medicines under SH 3003.30, the original authority classified them as 'P or P' medicines under SH 3003.19, the first appellate authority classified the goods under SH 3003.30 as claimed by the assessee and, on an appeal filed by the department, this Tribunal classified the goods as confectionary under Heading 17.04. The civil appeal filed by the assessee was allowed by the apex court holding that it was not permissible for the Tribunal to consider a case laid for the first time in appeal and that the only course open to the department was to issue a fresh show-cause notice if otherwise permissible in law proposing classification of the goods under heading 17.04. It appears, the case law cited by the learned consultant is apposite to the present context. The assessee classified the goods under SH 1905.90, the Revenue wanted to classify them under SH 2108.99 and the assessee now comes up with an alternative proposal to classify the goods under Chapters 11 and 15. This plea of the appellant cannot be entertained in view of the above ruling of the apex court.
Apart from the above position of law, we note that the appellant has heavily relied on the Tribunal's decision in Helios Food Additives case (supra). In that case, certain vegetable oil / fat-based cake improvers were classified under heading 15.08 and held not classifiable under Heading 21.08. Similarly, certain flour-based bread improvers were classified under heading 11.01 and held not classifiable under heading 21.08. The decision was rendered in appeals filed by the party against an order of the Commissioner (Appeals) classifying the goods under SH 2108.99. The appellate Commissioner's order was relied on in the show-cause notice involved in the present case, wherein the department described the bakery improvers of the appellant as "exactly" similar to the products of M/s. Helios Food Additives Pvt. Ltd. Before us, both sides at the bar have accepted the products of M/s. Helios Food Additives Pvt. Ltd. and the bakery improvers of the appellant to be "exactly similar products". Nevertheless, the learned consultant for the Revenue has made an attempt to distinguish the case of Helios Food Additives (supra) vsi-a-vis the appellant's alternative plea for classification of the subject goods under Chapter 11 / 15. We are not impressed with his bid to distinguish the two cases in this manner inasmuch as the subject goods were acknowledged to be "exactly similar" to the products of M/s Helios Food Additives and the decision of the Tribunal was accepted by the department. May that as it may, the alternative claim of the appellant to get the bakery improvers classified under Heading 11.01 in respect of Annexure 'B' goods and under Heading 15.08 in respect of Annexure 'A' goods is equally unimpressive inasmuch as it is the consistent case of the appellant that nothing contained in the HSN should be relied on (the Tribunal's decision in Helios Food Additives was based on HSN Explanatory Notes) and the appellant is precluded from making such alternative plea at this appellate stage as per the apex court's ruling.
(d) What should be the correct classification of the goods?
We have already stated adequate reasons as to why the decision of the Commissioner is not sustainable in law. The reasons stated by us hereinbefore would call for a remand of the classification dispute to the Commissioner who must duly decide the classification of the goods on the basis of the records without reference to anything contained in the HSN. Needless to say that the assessee should be given a reasonable opportunity of being heard.
(e) Are the goods liable to be assessed under Section 4 or under Section 4A?
It needs to be mentioned that this issue will be relevant only in the event of classification of the goods under SH 2108.99. Hence this issue will also have to be addressed by the Commissioner.
Both sides have relied on case law in this context also. The learned consultant for the Revenue has claimed support from Jayanti Foods Processing (P) Ltd. vs. Commissioner 2007 (215) ELT 327 (SC). Interestingly, certain observations contained in this judgment of the apex court have been relied on by the learned counsel also. The learned consultant has relied on this judgment in support of his proposition that the goods in question were hit by the proviso to Rule 34(a) of the Standards of Weights and Measures (Packaged Commodities) Rules and, therefore, the manufacturer cannot claim exemption under Rule 34(a) and consequently the goods are liable to be assessed to duty in terms of Section 4A. It has been submitted that the appellant was clearing the goods in quantities ranging from 500 gms. and that, even where they were cleared in higher quantities (example 20 kgs), each container (carton) contained smaller packages of 1 kg each. It is submitted that each of such smaller packages was labelled with the description of the goods as well as MRP. The learned counsel has not accepted these factual submissions in toto. In this scenario, we are of the view that the applicability of Rule 34(a) or other relevant rules to the subject clearances needs to be determined after proper verification of facts, which again calls for a remand of the matter to the adjudicating authority.
(f) Whether the extended period of limitation is applicable in this case ?
Learned counsel has been able to make out a good case on this front. It is not in dispute that a sister-unit of the appellant, at Pune, was also manufacturing and clearing similar products and that the classification thereof was determined by the Assistant Commissioner under Heading 19.05 and further that his decision was not reviewed by the department. That decision of the Assistant Commissioner was rendered as early as on 30/06/2000. Naturally, the appellant was emboldened to classify their products under the same Heading and they did so. They filed periodical returns showing payment of duty at 'nil' rate as applicable to SH 1905.90 during the period of dispute. There was no whisper against this self-assessment of the appellant, in the departmental circles. In this scenario, the plea of bona fide belief in favour of classification under Heading 19.05 appears to be cogent and valid. Therefore, it cannot be said that the appellant suppressed any material fact before the department with intent to evade payment of duty. The extended period of limitation, therefore, is not invokable in this case. Consequently, in the remanded proceedings, it will not be open to the Commissioner to work-out any demand of duty against the assessee for the period beyond the normal period of limitation. It goes without saying that there shall be no penalty on the assessee under Section 11AC of the Act.
9. In the result, we set aside the impugned order and allow this appeal by way of remand with a request to the learned Commissioner to undertake de novo adjudication of the case within the parameters of this order and in accordance with law after giving the assessee a reasonable opportunity of being heard.