Wafers are entitled to reduced rate of excise duty under exemption notification: CESTAT sets aside Order [Read Order]

M/s. Mondelez India Foods Pvt. Ltd, the appellant, challenged the order dated 12.12.2019 passed by the Principal Commissioner, CGST and Central Excise, Bhopal by which the demand of central excise duty proposed under twenty five show cause notices has been confirmed and ordered to be recovered with interest. A penalty has also been imposed on the appellant.

The issue involved in the appeal is whether Perk, ULTA Perk, Perk Poppers and Wafer Uncoated Reject manufactured by the appellant are classifiable under Excise Tariff Item 1905 32 11 of the Central Excise Tariff Act, 1985 as claimed by department, or under ETI 1905 32 90 as claimed by the appellant.

Tax Planning For NRIs Click here

The appellant claimed to be engaged in the manufacture of various food preparations containing cocoa, classifiable under Chapters 18 and 19 of the First Schedule to the Excise Tariff. According to the appellant, the manufactured Products are classifiable under ETI 1905 32 90 with duty @ rate of 16%/12.5% during the relevant period. Serial No. 19 of Notification No. 3/2006-CE dated 01.03.2006 (for period upto March 2012) and Serial No. 28 of Notification No. 12/2012-CE dated 17.03.2012 (for period from March 2012) prescribed reduced rate of duty of 8% on “Wafer Biscuits” classified under ETI 1905 32 90.

The appellant cleared the Products at the reduced rate of duty claiming classification under ETI 1905 32 90 and benefit of the Exemption Notification. One more intermediate product, namely, Real Milk Chocolate was classified by the appellant under ETI 1806 31 00 and was stock transferred on duty payment @ 12.5% without availing the benefit of the Exemption Notification.

On scrutiny of the ER-1 returns of the appellant, the department formed a view that the Products manufactured by the appellant are classifiable under ETI 1905 32 11 instead of ETI 1905 32 90. Accordingly, 25 periodical show cause notices were issued to the appellant for the period from November 2006 to July 2017 alleging that the Products manufactured by the appellant deserve classification under ETI 1905 3211 and would, therefore, not be eligible for reduced rate of duty under the Exemption Notification.

Tax Planning For Trusts and cooperation Societies Click here

The appellant filed a reply to the show cause notices and denied the allegations. The Principal Commissioner, by the impugned order dated 12.12.2019, rejected the submissions of the appellant and confirmed the demand of differential excise duty with interest and penalty.

It needs to be noted that the show cause notices and the impugned order include Real Milk Chocolate in the list of Products wrongly classified. However, the demand quantified in the impugned order does not include any demand for Real Milk Chocolate, as it had been cleared at full rate of duty without availing the benefit of the Exemption Notification.

The issue is whether the Products are classifiable under ETI 1905 32 11 as claimed by department, or under ETI 1905 32 90 as claimed by the appellant. To appreciate the issue involved in this appeal, it will be useful to reproduce the relevant portion of Chapter 19 of the First Schedule to the Excise Tariff.

The Exemption Notification dated 01.03.2006 was issued in exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944. It provides that the Central Government, on being satisfied that it is necessary in the public interest so to do exempts excisable goods of the description specified in column (3) of the Table from so much of the duty of excise specified thereon under the First Schedule to the Excise Tariff, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table and subject to the relevant conditions, if any, specified in the corresponding entry in column (5) of the Table.

Know Tax Planning Real Estate Transactions Click here

It would be seen that both ETI 1905 32 11 and ETI 1905 32 90 have 16% as the rate of duty under the Excise Tariff but the rate of duty for ETI 1905 32 19 or ETI 1905 3290 has been reduced to 8% by the Exemption Notification dated 01.03.2006. In terms of Exemption Notification dated 17.03.2012, effective for the period from March 2012, the duty for ETI 1905 32 19 or ETI 1905 32 90 has been reduced to 6%.

The order passed by the Principal Commissioner holds that there is no indication of the HSN that “communion wafers” can be “coated with chocolate or containing chocolate”. This issue, as noticed above, has been decided by the Tribunal in Pepsico Holdings wherein the Tribunal held that possibility of existence of chocolate coated “communion wafers” cannot be discounted.

A two member bench of Justice Dilip Gupta, President and Hemambika R. Priya, Member (Technical) observed that what is important to notice is that the show cause notice did not call upon the appellant to submit any reply on this aspect now sought to be contended by the learned special counsel for the department. The order passed by the Principal Commissioner also does not deal with this aspect. A new ground cannot be taken up by the department to defend the order in this appeal, particularly when the department has not filed Cross Appeal.

Affective Ways Of Tax Planning for HUF, Partnership Firm and Will Click here

In any view of the matter, the entries of the present Exemption Notification have to be examined to ascertain whether the Products of the appellant would fall under ETI 1905 32 90 and would be entitled to reduced rate of duty under the Exemption Notification.

The Tribunal held that the wafers Products of apellant would fall under ETI 1905 32 90 and would be entitled to reduced rate of excise duty under the Exemption Notification, as amended from time to time. The demand of excise duty confirmed by the Principal Commissioner in respect of the 25 show cause notices, therefore, cannot be sustained. The recovery of interest and imposition of penalty cannot also be sustained.

The impugned order dated 12.12.2019 passed by the Principal Commissioner, therefore, deserves to be set aside and is set aside.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates