[Order per : A.K. Srivastava, Member (T)]. -  This appeal arises out of the Order-in-Original No. 13/Commissioner/GOA/CX/2007 dated 17-9-2007 (issued on 10-10-2007) passed by the Commissioner of Customs and Central Excise, Goa.

2. Brief facts of the case are that the appellant is engaged in the manufacture of Sugar Confectionery, Chocolates, Food Preparations containing Cocoa/Wafers & Waffles falling under Chapter 17, 18 & 19 of the Central Excise Tariff Act, 1985. One of the products manufactured by it is called “MILKYBAR CHOO”. The ingredients used in the manufacture of this product as shown in the wrapper are sugar, liquid glucose, milk solids, golden syrup, partially hydrogenated vegetable oils, cocoa butter, emulsifier (soya lecithin), colour, wheat protein, synthetic food colour and added artificial flavouring substances. The wrapper describes it Nestle Milky bar Choo - soft chewing fudge with white chocolayer. It is seen that the chocolayer is nothing but white chocolate. It is also seen that the fudge in the subject goods as well as white chocolayer are made up of the same ingredients. The appellant was clearing this product as sugar confectionery, not containing cocoa at a concessional rate of duty of 8% ad valorem vide Sl. No. 247 of Notification No. 6/2002-C.E., dated 1-3-2002, as amended and Sl. No. 16 of Notification No. 3/2006-C.E., dated 1-3-2006.

3. It appeared that the composition of the impugned goods conforms to the definition of ‘White Chocolate’ as per HSN Notes to Chapter 17. It was also found by the Deptt. that in trade parlance the impugned goods are also known as ‘White Chocolate’. The appellant was, therefore, served with a Show cause Notice dated 4-4-2007 seeking to deny the benefit of the notification and demanding duty of Rs. 98,89,138/- and Education Cess thereon of Rs. 1,97,783/- for the period March, 2006 to January, 2007. The notice also proposed to impose penalty on it under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002.

4. The appellant contested the Show cause notice. Vide its reply dated 21-8-07, it was, inter alia, contended that Milkybar Choo is not White Chocolate as known in the market as one of the ingredients of Milkybar Choo is hydrogenated Vegetable Oil which cannot be used as ingredient for White Chocolate in view of Rule 5 read with Sl. No. 25.03 of Appendix B of the Prevention of Food Adulteration Rules, 1955.

5. After hearing the appellant and considering its reply to the Show cause notice, the Commissioner has, vide his order dated 17-9-2007, confirmed the duty demand of Rs. 1,00,86,921/- inclusive of Education Cess together with interest. The Commissioner has also imposed an equal amount of penalty of Rs. 1,00,86,921/- on the appellant under Section 11AC of the Central Excise Act, 1944 read with Rule 25(1)(d) of the Central Excise Rules, 2002. Aggrieved by this order, the appellant has filed this appeal.

6. Appearing for the appellant, the ld. Counsel Shri V. Sridharan submitted that the undisputed fact is that Milkybar Choo contains hydrogenated vegetable oil as one of the ingredients. It cannot be marketed as White Chocolate. The Prevention of Food Adulteration Rules, 1955 prohibits use of vegetable oils in Chocolates. Hence, it cannot be treated as White Chocolate for the purpose of Central Excise Tariff and Sl. No. 16 of Notification No. 3/2006-C.E., dated 1-3-2006 which excludes White Chocolate from the purview of the exemption. In support of his submissions, the ld. Counsel relied upon the following judgments and contended that hydrogenated vegetable oils cannot be used in Chocolates or White Chocolate :

(i)      Little Star Foods Pvt. Ltd. v. CCE - (T).

(ii)    Nestle (India) Ltd. v. CCE - (T)

(iii)   CCE, Mumbai v. Britannia Industries Ltd. - (T)

(iv)   Food Specialities Ltd. v. Union of India - (P&H) which has been upheld by the Hon’ble Apex Court as reported in (S.C.)

7. Countering the arguments of the ld. Counsel for the appellant, Shri K.M. Mondal, the ld. authorized representative of the revenue submitted that the disputed product, i.e. Milkybar Choo is a White Chocolate notwithstanding the fact that it contains partially hydrogenated vegetable oils. Referring to the HSN Chapter Note to Chapter Heading 18.06, he submitted that Chocolate may contain vegetable oils. He also submitted that any dispute with respect to classification of any product has to be resolved on the basis of its description under the relevant chapter heading/sub-heading read with relevant Chapter Notes, if any, of the Central Excise Tariff which is based on the internationally accepted Harmonised System of Nomenclature (HSN). In support of this submission, he relied upon the Apex Court’s decision in CC, Bombay v. Business Forms Ltd. - (S.C.). Shri Mondal also submitted that definition of ‘Chocolate’ in the Prevention of Food Adulteration Rules, 1955 has no relevance for the purpose of classification of Chocolate under the Central Excise Tariff. He submitted that the object of the Prevention of Food Adulteration Act, 1954 and the Rules made thereunder is to prevent adulteration of food, while the object and purpose of the Central Excise Tariff Act, 1985 is to classify goods for charging Central Excise duty. The two Acts operate in different fields. He also submitted that it is well settled that a ‘word’ in a statute cannot be construed in accordance with its definition in another statute. In this connection, he relied upon the following judgments :

(i)      Kaira Dist. Co-op. Milk Producers’ Union Ltd. v. U.O.I. - (Bom.)

(ii)    MSCO Pvt. Ltd. v. U.O.I & Ors. - (S.C.)

(iii)   Commissioner of C. Ex., Cochin v. Tata Tea Ltd. - (S.C.)

(iv)   Zarafshan Chemicals Pvt. Ltd. v. CCE, Chandigarh - (T)

He also submitted that in trade parlance, Milkybar Choo is known as White Chocolate. In this connection, he referred to various web materials of the appellant from the paper book.

8. We have perused the relevant records and considered the submissions of both the sides including the written submissions. We observe that the issue involved in the appeal is whether the goods in question, namely, Milkybar Choo are sugar confectionery, not containing cocoa as claimed by the appellant or ‘White Chocolate’ as claimed by the Revenue. Both sides agree that White Chocolate is classifiable under sub-heading 1704.90 of the Central Excise Tariff. There is no dispute on that. The dispute is whether or not the impugned goods are White Chocolates. The appellant claims that the impugned goods are sugar confectionery only. Hence, it is eligible for concessional rate of duty @ 8% ad valorem under Notification No. 3/2006-C.E. vide Sr. No. 16 of the table appended to the notification. On the other hand, the Revenue claims that the impugned goods are White Chocolate and hence it is excluded from the purview of the notification.

9. For the sake of convenience and ease of reference, we may reproduce below the relevant entry from the Notification No. 3/2006-C.E. :

10. From the above, we find that White Chocolate has been excluded from the purview of the notification. We have, therefore, to see whether the impugned goods, namely, Milky bar Choo are White Chocolate or sugar confectionery. The main thrust of the arguments on behalf of the appellant was that the impugned goods, namely, Milkybar Choo is not White Chocolate as it contains partially hydrogenated vegetable oils as one of its ingredients. As ‘per definition of Chocolate in the Prevention of Food Adulteration Rules, 1955, Chocolate shall not contain any vegetable fat other than cocoa butter. Since White Chocolate is one of the varieties of Chocolate and it contains partially hydrogenated vegetable oil, it cannot be marketed as White Chocolate. Hence the impugned goods cannot be treated as White Chocolate for the purpose of the Central Excise Tariff and SI. No. 16 of Notification No. 3/2006-C.E. Ld. Counsel heavily relied upon the Tribunal’s decision in Little Star Foods Pvt. Ltd. v. CCE - (T) which, in turn, has relied upon the Tribunal’s decision in the case of Nestle (India) Ltd. v. CCE - and CCE v. Britannia Industries Ltd. - and submitted that use of vegetable oil is prohibited in Chocolates in terms of Prevention of Food Adulteration Rules, 1955.

11. We find that the wrapper of Milkybar Choo shows that the same is registered product of the appellant. Explanation (b) of Rule 37A (2) of the PFA Rules, 1955 reads as under :

(b) “Proprietary Food” means a food which has not been standardized under Prevention of Food Adulteration Rules, 1955.”

The applications dated 3-7-2001 and 8-10-2003 made by the appellant before the licensing and the local health authority of the Food and Drug Administration of the State of Goa, in respect of Milkybar Choo did not contain any declaration that the said goods were in conformity to the standards prescribed in the Appendix B to the PFA Rules, 1955. This appears for the reason that the Milkybar Choo were proprietary foods of the appellant within the meaning and comprehension of the explanation (b) to Rule 37(2) of the PFA Rules, 1955. The presence or absence of the partially hydrogenated oils in Milkybar Choo would also not make them the “adulterated foods” within the meaning and comprehension of Section 7 read with Section 2(a) of the Prevention of Food Adulteration Act, 1954 to invite any prohibition and penalties thereunder.

12. We have perused the Tribunal’s decision in Little Star Foods Pvt. Ltd. We find that the disputed product was called “BITES”. The Revenue sought to classify it under sub-heading 1905.31 as waffles and wafers coated with chocolate or containing chocolate as against the assessee’s claim under sub-heading 1905.39. The contention of the assessee was that the disputed product contained vegetable oil as one of the ingredients and hence it could not be considered to be chocolate as per the P.F.A. Act and the rules made thereunder. The Tribunal accepted the assessee’s claim. While doing so, it mainly relied on its earlier decision in the case of Nestle (India) Ltd. v. C.C.E., Mumbai - which has been maintained by the Hon’ble Apex Court by dismissing the Department’s appeal as reported in .

13. We have, therefore, perused the decision in Nestle (India) Ltd. We find that the disputed product in this case was called Kit-Kat. The revenue sought to classify this product under heading 18.03 as chocolates in any form, while the appellant claimed its classification under heading 19.05 of the Central Excise Tariff.

14. After detailed examination of the relevant Tariff entries under Chapter 18 & 19 of the Central Excise Tariff vis-a-vis the HSN Explanatory Notes, the Tribunal held that by applying these notes, these goods will be classifiable under heading 19.05 irrespective of the proportion of the chocolates by weight or value. For the sake of convenience and proper appreciation, we reproduce herein below paras 10 & 11 of the Tribunal’s order in Nestle (India) Ltd.

“10. In the light of this correspondence reference to the explanatory note in deciding the scope of the tariff is justified. The Supreme Court stated in paragraph 18 of its judgment CCE v. Wood Craft Industries Ltd. () that the structure of the Central Excise Tariff is based on the internationally accepted nomenclature in the HSN and therefore dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless a different intention in the statute is indicated by the Central Excise Tariff Act, 1985. The comparison between the headings in both the tariffs and the explanatory notes, when we have attempted does not show the presence of a different intention. On the contrary, the headings are closely aligned and in many cases are identical. Reference to the HSN explanatory  notes is therefore called for.

11. These notes are clear that biscuits and waffles covered with chocolate are to be classified under Heading 19.05. The 2nd edition of the Explanatory Notes provide at page 141, for exclusion from Heading 18.05, biscuits and other bakers’ wares covered with chocolates. These are shown as classifiable under Heading 19.05 and the note at page 153 under heading 19.05 includes the following goods under that heading :

“Waffles and wafers, which are light fine bakers’ wares baked between patterned metal plates. This category also includes thin waffle products, which may be rolled, waffles consisting of a tasty filling sandwiched between two or more layers of thin waffle pastry, and products made by extruding waffle dough through a special machine (ice cream cornets, for example). The water content must be 10% or less by weight of the finished product. Waffles may also be chocolate-covered. Wafers are products similar to waffles”.

By applying these notes it is clear that, irrespective of the proportion of the chocolate by weight or value, these goods would be classifiable under Heading 19.05.”

15. From the above, it is quite clear that the Tribunal classified the goods in question, Kit-Kat under heading 19.05 by applying the HSN Explanatory Notes. However, in para 14 of its order, it had observed that the appellant, in view of the provisions of the Prevention of the Food Adulteration Act could not, except by violation of law, have sold the goods as Chocolates. This is merely an observation which, we do not think, has any binding effect. The Tribunal has nowhere stated in the order that since the produce contains hydrogenated vegetable oils as one of its ingredients, it will cease to be chocolate.

16. In the case of CCE v. Britannia Industries Limited - , we find that the disputed products were Wafer Biscuits with chocolate cream placed in between two sliced wafer-biscuits. The revenue sought to classify the same under sub-heading 1905.31 as wafer coated with chocolate or containing chocolate as against the assessee’s claim for classification under sub-heading 1905.90 as it contains vegetable oil. The Commissioner (Appeals) accepted the assessee’s claim. Against this order of the Commissioner (Appeals), the revenue preferred an appeal to the Tribunal. The Tribunal upheld the order of the Commissioner (Appeals) rejecting the revenue’s contention that the classification of the product should be based on HSN Explanatory Notes and that the PFA Rules are not relevant for that purpose. We observe that this decision is per incuriam inasmuch as the Tribunal has not noticed the judgment of the Hon’ble Bombay High Court in the case of Kaira Dist. Co-op. Milk Producer’s Union Ltd. v. Union of India - (Bom) holding that for purposes of classification of food, resort to the definition of food contained in the Prevention of Food Adulteration Act is wholly unjustified. That Act deals with entirely a different subject. It is not a part of the family of the same laws, i.e. Indian Tariff Act, 1934. In view of this, the Tribunal’s decision in Britannia Industries Ltd. will have no precedential value.

17. Learned Counsel for the appellant also relied upon the judgment of the Hon’ble Punjab and Haryana High Court in the case of Food Specialties Ltd. v. Union of India - (P & H) which has been upheld by the Hon’ble Apex Court as reported in (S.C.) and submitted that for purposes of classification of a product or its exemption from payment of duty, Prevention of Food Adulteration Rules can be resorted to.

18. We have gone through the judgment. We find that the dispute in the case of Food Specialties Ltd. was whether partly Skimmed milk powder and skimmed milk power were separate marketable commodities. The Hon’ble High Court found that the Central Excise Tariff itself recognizes partially Skimmed milk and completely skimmed milk as separate identifiable commodities. The Hon’ble Court also found that as per Indian Standard Specifications for Milk Powder issued by the Indian Standard Institution, the Prevention of Food Adulteration Rules, 1955 and the International Standard of Milk and Milk Products issued by joint venture of FAO/WHO on Food Standard programme, partly skimmed milk powder and skimmed milk powder are also recognised as separate identifiable commodities. We do not find that the Hon’ble Court has held that one has to resort to the Prevention of Food Adulteration Rules to decide the classification of a product or its eligibility to exemption from payment of duty. This judgment, therefore, does not advance the case of the appellant.

19. At this stage, we may see the judgments cited by Shri Mondal to say that a ‘Word’ in a statute cannot be construed in accordance with its definition in another statute. In the case of MSCO Pvt. Ltd. v. Union of India & Ors. - (S.C.), we find that the petitioner had imported two consignments of Stainless Steel Plates under a conditional notification. One of the conditions was that the goods manufactured out of the imported stainless steel plates should be sold to Industrial units for their use. However, some goods were sold to hospitals and nursing homes which were not industrial units. While construing the word ‘industry’ in the Industrial Disputes Act, 1947, the Hon’ble Supreme Court held that the meaning given to the expression ‘industry’ in the Industrial Disputes Act, 1947 should be confined to the Industrial Disputes Act, 1947. In para 4 of the judgment, the Hon’ble Supreme Court held as follows :

“4. The expression ‘industry’ has many meanings. It means ‘skill’, ‘ingenuity’ ‘dexterity’, ‘diligence’, ‘systematic work or labour’, ‘habitual employment in the productive arts’, ‘manufacturing establishment’ etc. But while construing a word which occurs in a statute or a statutory instrument in the absence of any definition in that very document it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with the subject matter of the statute or statutory instrument understand it. It is hazardous to interpret a word in accordance with its definition in another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject. Craies on Statute Law (6th Edn.) says thus at page 164 :

“In construing a word in an Act caution is necessary in adopting the meaning ascribed to the word in other Acts.” It would be a new terror in the construction of Acts of Parliament if we were required to limit a word to an unnatural sense because in some Act which is not incorporated or referred to such an interpretation is given to it for the purposes of that Act alone “Macbeth v. Chislett - (1910) A.C. 220, 223.”

20. In the case of C.C.E., Cochin v. Tata Tea Ltd., the issue involved was whether ‘instant tea’ manufactured and exported by the respondent was ‘tea’ within the definition of Section 3(n) of the Tea Act, 1953 and liable to cess under Section 25 of the said Act. The Assistant Commissioner confirmed the demand, which was upheld by the Commissioner (Appeals). However, the Tribunal set aside the order of the Commissioner (Appeals) holding that ‘instant tea’ could not be considered as ‘tea’ within the meaning of Section 3(n) of the Act. Referring to Prevention of Food Adulteration Rules, 1955 and the Tea Waste (Control) Order, 1959, the Tribunal held that ‘instant tea’ is different from ‘tea’ and it fell outside the scope of Section 3(n) of the Act. However, the Hon’ble Apex Court found that ‘Instant Tea’ is only a variety of tea. It satisfies the definition of “tea” under Section 3(n) inasmuch as it is commercially known as ‘tea’ and it is made from the leaves of the plant of Camellia Sinensis (L) O. Kuntze. Hence the Hon’ble Apex Court held that the Tribunal ought not to have strained itself by referring to other enactments to construe ‘instant tea’ as the product not included within the definition of ‘tea’ under the Act.

21. In the case of Zarafshan Chemicals Pvt. Ltd., the dispute was with respect to classification of ‘liquid gold’. Lower authorities classified the product under Chapter heading 3207.90 as ‘ceramic colour’ as against the assessee’s claim under Chapter 71 as an ‘alloy of gold.’ The assessee’s claim was made based on a judgment of the Allahabad High Court given in the context of the U.P. Sales Tax Act, 1948 and not under the Central Excise Act. Upholding the contention of the Revenue, the Hon’ble Tribunal in para 11 of its Order held as follows :

“11.................. The dispute presently before us is in relation to classification of liquid god for purposes of the Central Excise Tariff Act. The interpretation given to an expression used in another statute or Rules made thereunder will not have binding effect on the authorities administering/adjudicating a matter under a different statute or Rules made thereunder. Any definition in any statute is primarily meant for the interpretation of the provisions of that statute. Even where the definition on per se may be in pari materia with a definition given in another statute, the interpretation given in the context of one statute can have only persuasive value in interpretating the definition in another statute for the obvious reason that each definition has to be seen and interpreted in the context of the legislation in which it occurs and each definition has to be read as part of the main legislation where it occurs and not in relation to another piece of legislation.”

22. Having regard to the foregoing rulings, we are unable to accept the appellant’s contention that since ‘Milkybar Choo’ does not conform to the definition of ‘Chocolate’ in the P.F.A. Rules, 1955, it cannot be considered to be ‘White Chocolate’ for the purposes of classification under the Central Excise Tariff Act and Sr. No. 16 of the Notification No. 3/2006-C.E., dated 1-3-2006.

23. We find that HSN Note to Chapter heading 18.06 gives composition of chocolate as follows :

“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 tor cocoa paste. Milk, coffee, hazelnuts, almonds, orange-peel, etc., are sometimes also added.”

24. From the above composition, there is no doubt that use of vegetable oil in chocolate will not take it out of the purview of chocolate. Since White Chocolate is one of the varieties of chocolate, presence of partially hydrogenated vegetable oil in it will not take it out of the purview of white chocolate. It will continue to be white chocolate as per HSN chapter notes to Chapter heading 18.06. We, therefore, confirm the Commissioner’s finding that presence or absence of partially hydrogenated vegetable oil in Milkybar Choo will not take it out of the purview of White Chocolate.

25. Moreover, it is now well settled by various decisions of the Hon’ble Apex Court that HSN Explanatory notes are not only of persuasive value, but are entitled to far greater consideration in classifying goods under the Central Excise and the Customs Tariff as held by the Hon’ble Supreme Court in the case of Collector of Customs, Bombay v. Business Forms Ltd - (S.C.) following its earlier decision in the case of CCE, Shillong v. Wood Craft Products Ltd. - (S.C).

26. We may now consider the claim of the appellant that in trade parlance, Milkybar Choo is not known as White Chocolate. We find that this claim of the appellant is belied by its various own web materials. Some of these web materials are discussed herein below to bring home the fact that the impugned goods are in trade parlance as “white chocolate’.

(i)      At page 57 of the Paper Book, the web page material reads as follows :

“Nestle (UK) - Milkybar choo - soft chewy fudge covered with white chocolate. Who says kids should have all the fun?”

(ii)    At page 70-74 of the Paper Book, there is a 4-page web material under the title ‘Chocolate Review’. In this web material, various names of Chocolate Bars are shown. Nestle Milkybar Choo is also shown as chocolate at page 72.

(iii)   At page 84 of the Paper Book, the web material says, inter alia as follows :

“The milkybar choo, the greatest Chocolate bar of all times.”

(iv)   At page 85 of the Paper Book, there is a web material under the title ‘Nestle Milkybar Choo - Read Reviews’. It says, inter alia, as  follows :

“Its CHOO good to be true. Review of Nestle Mikybar choo by James Brock.

Advantages : Delicious blend of white chocolate and fudge.  Disadvantages: They do’ not last very long.”

27. From the above web materials, it is clearly established that the appellant not only recognizes ‘Milkybar Choo’ as ‘white chocolate’ but also sells it in the market as ‘white chocolate’.

28. The contention of the appellant that ‘Milkybar Choo’ cannot be called ‘white chocolate’ because it contains partially hydrogenated oils is already disproved by the HSN notes to Chapter heading 18.06. The fact that ‘white chocolate’ may contain hydrogenated fats is also established from the independent web material, Wikipedia, the free encyclopedia (page 95 of the Paper Book). This web material, inter alia, says as follows :

“Some “white chocolate” is made from inexpensive solid or hydrogenated vegetable fats, and as such, is not at all derived from cacao. These preparations may actually be white in color (in contrast to white chocolate’s ivory shade) and will lack cocoa butter’s flavor”.

29. Ld. Counsel for the appellant made a submission that earlier the appellant was not using partially hydrogenated vegetable oil in ‘Nestle Milkybar’, another product manufactured by it in Mangalors Commissionerate. Hence the appellant was classifying it as White Chocolate. But now the appellant is using partially hydrogenated vegetable oil in it and hence it is not being classified as white chocolate. In support of this submission, he had shown, two wrappers of ‘Nestle Milkybar’ indicating the use of various ingredients. He also produced the copies of the invoices indicating payment of duty @ 16% in the former case and @ 8% in the latter case. We are not aware of the circumstances and the background in which it is being done and what is the stand of the Mangalore Commissionerate in this regard. Further, the classification of Nestle Milkybar and the applicability of the exemption Notification No. 6/2002-C.E. as amended or Notification No. 3/2006-C.E. is not an issue before us. Hence, we refrain from offering any comments in the matter. We have already held that the presence of the partially hydrogenated vegetable oil in Milkybar Choo will not take it out of the purview of White Chocolate and we have given detailed reasons and justifications for holding so.

30. In view of our foregoing findings, we hold that the Milkybar Choo is White Chocolate attracting duty @ 16% ad valorem and that it is not eligible to the benefit of Notification No. 6/2002-C.E. as amended () and Notification No. 3/2006-C.E. (Sl. No. 16). We, therefore, uphold the Commissioner’s order confirming the duty demand including education cess amounting to Rs. 1,00,86,921/- together with interest.

31. By the impugned order, the Commissioner has also imposed an equal amount of penalty of Rs. 1,00,86,921/- on the appellant under Section 11AC of the Central Excise Act, 1944 read with Rule 25(1)(d) of the Central Excise Rules, 2002. We find that this case is a case of pure interpretation of the Tariff entries vis-a-vis the exemption notification coupled with the earlier decisions of the Tribunal. Therefore, in the facts of this case, we do not think that the appellant could be alleged to be guilty of suppression of fact regarding the true nature of the product in question. We, therefore, set aside the penalty of Rs. 1,00,86,921/- imposed on the appellant under Section 11AC of the Central Excise Act, 1944 read with Rule 25(1)(d) of the Central Excise Rules, 2002.

32. Consequently, the appeal is partly allowed.

(Pronounced on 4-7-2008 in the court)