2001(10)LCX0001

IN THE CEGAT, WEST ZONAL BENCH, MUMBAI

S/Shri J.H. Joglekar, Member (T) and G.N. Srinivasan, Member (J)

RAPTAKOS BRETT & COMPANY LTD.

Versus

COMMISSIONER OF C. EX., MUMBAI-VI

Order No. 2738/2001-WZB/C-II, dated 30-10-2001 in Appeal No. E/3660-R/99-Mum.

CASE CITED

Vijaya Packing v. Commissioner — 1993(07)LCX0073 Eq 1994 (071) ELT 0254 (Tribunal) — Distinguished. [Para 8]

Advocated By : S/Shri A. Hidayatullah, Sr. Advocate with V.S. Nankani, A. Shirazi and Ms. Shailaja Kher, Advocates, for the Appellant.

Shri J.M. George, JDR, for the Respondent.

[Order per : J.H. Joglekar, Member (T)]. - The dispute involved in this appeal is of classification of two products, namely “maltodextrin” and “maltodex”. Both these substances were forming part of the instant food preparations made by the appellants. Both products were made on hydrolysis of starch. Maltodex had Vitamin D-3 as one of the constituents. Maltodextrin was manufactured without such addition.

2. The appeal papers do not show when the product maltodextrin was first manufactured. It appears that in April, 1975 the department was advised of such manufacture. The jurisdictional Superintendent directed classification under tariff Item 15-C of the old tariff which was adopted under protest. In April, 1976 the sample of the product was drawn. In December, 1976 the Superintendent conveyed the opinion of the Dy. Chief Chemist that the product consisted of reducing sugars. It would appear that the goods in terms of this advice were classifiable under tariff item 1 of the then tariff. However, the Assistant Collector classified the product under Tariff Item No. 68 and even refunded duty earlier paid under Tariff Item 15C. This was because under Tariff Item 68 the benefit of Notification No. 118/75 was available on account of captive consumption of the goods. Up to the time of introduction of the new tariff this classification continued to prevail. After the introduction of the new tariff the assessee adopted classification under Chapter 19 but soon changed it to Chapter 29 (March, 1976). In August, 1986 the assessee claimed classification under Chapter 19 referring to a certificate given by the Drug Controller to the effect that maltodextrin was a bulk drug. Benefit of Notification 234/82 was claimed. Classification list was filed afresh. The sub-heading was changed from 29.42 to heading 29.13 in terms of budgetary changes in 1987. This was approved on 12-8-1987.

3. In April, 1988 the assessee stopped manufacture of maltodextrin and commenced manufacture of maltodex. In April, 1988 they claimed classification of maltodex under 19.01 holding that it was an end product covered under Notification 30/87. This classification was approved on 24-6-1988. In July, 1988 the officers visited the factory, recorded the statements of the technical employees of the assessee, seized stocks of maltodex and also infant food containing maltodex but latter released the same provisionally. The show cause notice was issued on 29-8-1988 alleging that both maltodextrin and maltodex were actually commercial glucose classifiable under sub-heading 1705.19. It was claimed that there was no difference between the two products. It was claimed that maltodextrin should have been classified under tariff item No. 1E of the old tariff and under sub-heading 1702.90 under the new tariff. It was claimed that by suppressing the fact that the goods were actually commercial glucose the assessee had taken unwarranted benefit of Notification 118/75 as also 234/86. It was pointed out that in certifying maltodextrin as bulk drug the FDA had deleted the words “BPC-49” from the certificate which fact was also suppressed from the department. It was alleged that the latter product maltodex was also similarly mis-classified. It was claimed that this enabled the assessee to take a wrong benefit of Notification 37/88. The assessee filed reply and also challenged the issue of the show cause notice in the High Court. Initially the proceedings were stayed. The petition was, however, dismissed by the High Court. The assessee's restoration application is pending but inspite of the pendency this appeal was pressed by the assessee.

4. The Commissioner heard the assessees. Subsequent to the hearing also the appellant continued to write to the Commissioner. In May, 1999 a test report dated 30-11-1992 was supplied to the present appellant which classified maltodex as other sugar. The appellant contested and requested for fresh drawal of samples. While this correspondence was on, the Commissioner passed the impugned order. He held that maltodextrin could not be classified as commercial glucose or liquid glucose inasmuch as the reducing sugar content expressed as dextrose therein was less than 20% and therefore would not merit classification under tariff item No. 1E of the old tariff. He classified it under tariff item No. 68 for the period September, 1983 to February, 1986 and dropped demand of Rs. 39,74,583/-. He then discussed the question of maltodextrin under the new tariff. He referred to the sub-notes given in the HSN which classified substances containing less then 10% of reducing sugar content under heading 35.05 and products containing more than 10% but less than 20% of such sugar under heading 17.02. He finalised classification under sub-heading 1702.29. He rejected the claim under Chapter 29 saying that maltodextrin was not a separate chemically defined organic compound. As regards maltodex he accepted the contention that maltodex and maltodextrin were different products. He referred to the test report of maltodex communicated to the assessee in January, 1993 and relying thereupon classified maltodex also under sub-heading 1702.29.

5. The Commissioner dealt with the aspects of limitation advanced by the assessee. He observed that although the Food and Drug Administrator had accepted “maltodextrin” as bulk drug it was described in the classification list as “Maltodextrin-BPC”. The Commissioner held that this amounted to suppression and confirmed the differential duty subsequent to March, 1986. He upheld the computation of value in terms of Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 in the face of the assessee’s claim that value of comparable goods was available. He denied the claim of Modvat credit on the duty confirmed saying that the duty was not paid. He held that the provisions of Section 11AB and 11 AC did not apply but imposed penalty on the assessee under Rule 173Q of the Central Excise Rules. The duty confirmed by him was Rs. 33,83,615/-. The penalty imposed was Rs. 40 lakhs. The fine prescribed for redemption of the prepared foodstuff of maltodex was Rs. 5,20,000/-. The appeal is directed against this order.

6. The appellant's case was argued by Shri A. Hidayatullah, Senior Advocate appearing along with S/Shri V.S. Nankani, A. Shirazi and Ms. Shailaja Kher, Advocates. Revenue's case was argued by Shri J.M. George.

7. Shri Hidayatullah consistently claimed that the two products were not identical. It was claimed that although both were prepared of hydrolysis of starch the addition of Vitamin D-3 to Maltodex before filtration caused calcium breakdown making Maltodex an entirely different product from Maltodextrin. Counsel also filed a chart statement showing the differences.

8. We have seen the statements of the technical personnel of the assessee unit, Shri Pinge in his statement dated 20th July, 1988 claimed that up to the stage of concentrate the process of manufacture of both products was identical. In Maltodex the vitamin solution was added just before spray drying. When using Maltodextrin in food supplements earlier such powder was added when blending Maltodextrin with milk powders, vitamins, etc. There was some fear that the quantities of Vitamin D-3 might be correctly added and therefore for the sake of better management, the vitamin was added to Maltodex. This statement shows that the point made by the learned Counsel as to the stage at which vitamin was added was wrong and therefore it has to be held that there was no change in the chemical properties of the two substances. The stage of addition was certified by Shri A.S. Phadnis also. Thus we find that both the products were identical in nature in spite of the presence of Vitamin D-3 in Maltodex. Counsel relied upon some judgments of the Tribunal to say that they were different products. We have perused the judgment of the Tribunal in the case of Vijaya Packing v. CCE - 1994 (071) ELT 254 and find that it has little relevance to the proceedings before us.

9. Under the new tariff Maltodextrin was sought to be classified by the assessee under tariff sub-heading 2913.00 in terms of the certificate dated 27-9-1986 of the Dy. Drugs Controller by filing classification list No. 6/86. This list is not on record but the next classification list namely 9/86 is on record, indicating its description, its classification and claiming benefit of Notification No. 234/86. The description was the same as in the certificate of the Drug Controller. The same occurs in the subsequent classification list such as 3/87. The list show that the term Maltodex was not qualified by addition of any suffixes.

10. The Commissioner in his order in paragraph 63 has mentioned that although the assessee had applied for classification as bulk drug of “Maltodextrin-BPC”, the authorities had issued the certificate for the bulk drug “Maltodextrin” and not “Maltodextrin BPC”. He has referred to the same letter dated 29-10-1986. The show cause notice did not show the date of the certificate. The assessees have placed on record a certificate dated 29-7-1986. On perusal of this letter, we find that this belief of the learned Commissioner was not well founded inasmuch as the phrase BPC did appear in the certificate as also in the subsequent classification list. Therefore the belief of the Commissioner expressed in paragraph 64 that this amounted to mis-declaration and the benefit of Notification 234/86 was wrongly claimed cannot be sustained. In terms of the certificate the goods would merit classification under Chapter 29 as claimed by the assessee up to the time it was covered under the certificate and therefore the demand of differential duty from March, 1986 to March, 1988 does not survive both on limitation and on merits.

11. We now come to the dispute relating to Maltodex. Its production commenced in April, 1988. Shri Pinge in his statement referred to earlier had brought out essential similarity between the two products. On being asked why the name was changed, he claimed it to be a management decision. Shri Jadhav who is not a technical person also made the same statement. He claimed that Maltodex not being a bulk drug no approach was made to secure a certificate or a licence from the Drug Controller's office. The reasons for these are not very clear on record. Apart from the statement made by S/Shri Pinge, R.K. Jadhav, who was carrying out the laboratory tests of these products also claimed that the same tests were applied to Maltodex as well as applied in Maltodextrin as far as the specifications were concerned.

12. The Commissioner has dealt with classification in paragraph 60 of his order. In settling upon the classification under Chapter 17 he has relied heavily upon the test report of the sample drawn on 15-6-1992. The test report opined that the product was other sugar. The Commissioner holds in this paragraph that this was communicated to the assessee on 19-1-1993 in a dated acknowledgement. He also mentions that they had not made any request for re-testing. On the other hand Shri Hidayatullah maintains that this test report was furnished to them by hand only on 28-6-1999. He refers to assessee's letter dated 9-7-1999 to this effect which was received by the department. The show cause notice was dated 21-9-1988. The sample was drawn much later. Therefore, even if the results were supplied in 1991-91 (sic) they could not form part of the charges levelled against the assessee. Shri Hidayatullah also claims that the copy of the test report was received in June, 1999 nearly five months after the personal hearing was concluded. The assessee protested against the method and the conclusion and requested for fresh samples to be drawn but by that time the Commissioner had concluded the adjudication proceedings.

13. As we have observed above the classification of Maltodex under Chapter 17 is solely on the basis of the report of the Dy. Chief Chemist. There is a contest on the date on which the test report was supplied to the assessee. If it is the assessee’s claim that they did not receive the letter in 1992 then the point that they did not ask for re-test cannot be alleged against them. Either way what emerges is that the material which is not included in the show cause notice was relied upon at a stage when effective counter could not be made by the assessee. Therefore, the orders of classification on this evidence become unsustainable.

14. There were two other issues before the Commissioner. The first was that similar products were available and therefore the valuation in terms of Rule 6(b)(i) of the Valuation Rules should be adopted in preference to that computed under Rule 6(b)(ii). The Commissioner did not deal with this point. The second point regarding availability of Modvat credit on the downstream product was also not considered by him properly.

15. During the hearing before us Shri Hidayatullah canvassed his argument that Maltodex was not a stable product. It was not marketable and therefore was not excisable. He claimed that although this point was not taken up at the time of hearing before the Commissioner being a point of law it could be taken up at the stage of appeal before us also. There is no denial of legality of this argument, although this argument would go directly counters to the claim that similar products were manufactured and cleared by others and therefore the basis of valuation should be changed.

16. In view of this analysis we find that the issue as to the classification of Maltodex has to be gone into afresh by the jurisdictional Commissioner. Since the report of the Dy. Chief Chemist has been supplied to the assessee although subsequent to the hearing, sufficient opportunity is to be given to them to rebut the same. They are free to contest the finding before the adjudicating officer. They are also free to claim the excisability or otherwise of Maltodex on the ground of non-marketability. They are also free to re-canvass the grounds of availability of Modvat credit, etc. They shall file sufficient grounds before the Commissioner. The Commissioner shall give an opportunity to them of being heard and shall pass appropriate orders.

17. We summarise our orders as below :

(a) The demand of duty on Maltodextrin is set aside.

(b) The question of classification of Maltodex as also the confirmation of short levy shall be decided afresh by the jurisdictional Commissioner in de novo proceedings in terms of our directions above.

18. The appeal thus succeeds in part.

Equivalent 2003 (154) ELT 116 (Tri. - Mumbai)