The Hindu Business Line : The answer lies somewhere between conversation and chocolate

WHEN Kellogg India Private Ltd went to the Bombay High Court recently, with the Excise Department in and `Chocos' in tow, the dispute was not about sharing of the crispy eats. It was about the classification of the company's product — whether under 1904.10 or 1804.00 of the Tariff Act.

On www.cbec.gov.in you can find that `1804 00 00' reads `cocoa butter, fat and oil'. And that 1904 is about "prepared foods obtained by the swelling or roasting of cereals or cereal products (for example, cornflakes); cereals [other than maize (corn)] in grain form or in the form of flakes or other worked grains (except flour, groats and meal), pre-cooked or otherwise prepared, not elsewhere specified or included."

Sub-head 1904.10 is about `prepared foods obtained by the swelling or roasting of cereals or cereal products'. A note explains that heading 1904 does not cover "preparations containing more than 6 per cent by weight of cocoa calculated on a totally defatted basis or coated with chocolate or other food preparations containing cocoa of heading 1806," which in turn reads, `chocolate and other food preparations containing cocoa'.

A cocoa primer

The genus Theobroma originated millions of years ago in South America, to the east of the Andes, informs www.icco.org, the site of International Cocoa Organization. "It is the Maya who have provided tangible evidence of cacao as a domesticated crop. Archaeological evidence in Costa Rica indicates that cacao was drunk by Maya traders as early as 400 BC," chronicles the site.

It seems that linguistical investigations show that the word cacco was also used by the Olmec in around 1000 BC, and that the current name is traced to Linnaeus (1753). The origin of the word chocolate, which refers to products made from beans of the cocoa tree, is not known. "It may come from Maya verb chokola'j meaning `to drink chocolate together', or from the Yucatec word chocol haa meaning `hot drink'," guesses ICCO.

"The first outsider to drink chocolate was Christopher Columbus who reached Nicaragua in 1502, searching for a sea route to the spices of the East. But it was Hernan Cortés, leader of an expedition in 1519 to the Aztec empire, who returned to Spain in 1528 bearing the Aztec recipe for xocoatl (chocolate drink) with him. The drink was initially received unenthusiastically, and it was not until sugar was added that it became a popular drink in the Spanish courts."

Taste of test

Returning to the excise spat that engaged the friendly bear of Kellogg, one learns everything was going on okay till the Department's Deputy Chief Chemist analysed Chocos. His test reports (of March 1996) recorded that the content of cocoa in Chocos exceeded the 6 per cent limit as stipulated in the chapter note of the Tariff Act. Accordingly, Excise officials reasoned that Chocos should be classified under 1804, and not under 1904.10 as sought by Kellogg.

"After about 20 years of marriage, I'm finally starting to scratch the surface of what women want. And I think the answer lies somewhere between conversation and chocolate," said Mel Gibson. Between the test report and the case before the High Court, there were things that the Department wanted. A show-cause notice was one such.

In response, Kellogg wrote to the Department in January 2000 challenging the test reports. The company said that cocoa content was merely 5.16 per cent by weight, and sought details of the test reports to understand the nature of the test carried out by the Deputy Chief Chemist. "The petitioners, thus, sought an opportunity to cross-verify the test reports and also requested for personal hearing," reads the text of the judgment.

When the dispute reached the appellate authority and the Commissioner (Appeals), the decision went in favour of the Department. At the Tribunal, however, the matter was remanded to the adjudicating authority for consideration afresh. "Where the classification of a commodity depends upon its corresponding to a specified chemical composition, the manufacturer is entitled to be told of the methodology of analysis by which the Department concludes that the product conforms to the composition on the basis of which classification is proposed," observed the Tribunal. To emphasise the need for the info, the Tribunal cited the inability of CFTRI (Central Food Technological Research Institute www.cftri.com) to directly determine the cocoa content.

"Researchers have discovered that chocolate produces some of the same reactions in the brain as marijuana. The researchers also discovered other similarities between the two but can't remember what they are," reads an entertaining quote of Matt Lauer. But the Kellogg case should have been hardly entertaining for the Department, especially after the Tribunal stated that the company should be indicated the methodology by which the Deputy Chief Chemist concluded the cocoa content to be in excess of 6 per cent. "After this is communicated to the appellant, if it desires to cross-examine the Deputy Chief Chemist, that should also be permitted. After doing so and giving the appellant and the Department an opportunity to produce evidence, the classification should be decided afresh," read the order.

Second round

After the Tribunal's order, there was this `second round of proceeding', when the Department gave Kellogg, in March 2005, photocopies of "some of the pages of the book known as The Chemical Analysis of Foods, by David Pearson, 7th Edition". Kellogg was obviously not satisfied with the `four pages' and `demanded full text of the book referred as also copies of the test reports'. It wanted to know the `methodology followed for determination of cocoa content and prayed for an opportunity to cross-examine the Deputy Chief Chemist'. The prayers, though, were in vain, because the Department went ahead with an order in July 2005, and served a notice of demand on the company. Kellogg approached the High Court.

In September, the petition came up for hearing, when A. Hidayatullah, arguing for Kellogg, alleged breach of principles of natural justice, and of the terms of remand order passed by the Tribunal, since the Department had not supplied copies of the test reports. B. A. Desai, Additional Solicitor General appearing for the Department, "reluctantly handed over the copies of the test reports". Hidayatulla sought time to go through the same.

On October 13, when the case came up again, Desai, "took a very strange stand". He said that the petition "should not be entertained under Article 226 of the Constitution of India in view of the availability of alternate remedy by way of appeal under the Central Excise Act, 1944".

Hidayatullah submitted to the court that the four pages from Pearson's book spoke about `four methods to find out cocoa content'. That had left Kellogg wondering which of the methods the Department used, said Hidayatullah, insisting on why the test reports were needed for a better appreciation of `actual methodology employed'. Hidayatullah criticised the Department's approach as `a game of hide and seek'. No useful purpose would be served by proceeding with the cross-examination of the Deputy Chief Chemist in the absence of material particulars with respect to the methodology of analysis employed and the material particulars of the test reports, he reasoned, in view of `the heavy stakes of the petitioners involved in the matter'.

Since copies of the test reports had been given during hearing, Hidayatullah prayed that the matter be remanded to the original authority, fixing time-schedule, for disposal with direction to permit Kellogg to cross-examine the Deputy Chief Chemist.

A rap for the Department

Justices J. P. Devadhar and V. C. Daga of the Bombay High Court, who heard the case, observed that the Department's failure to supply copies of the test reports earlier was "nothing but an act which was clearly in breach of principles of natural justice," and so there was no bar on Kellogg to seek the alternate remedy of knocking the court's doors.

"The rules of natural justice are the minimum standards of fair decision-making imposed on persons or bodies acting in a judicial or quasi-judicial capacity. Where the relevant person or body is required to determine questions of law or fact in circumstances, where its decisions will have a direct impact on the rights or legitimate expectations of the individuals concerned, an implied obligation to observe the principles of natural justice arises," said the court.

"One of the shades of the rules of natural justice is a right to fair hearing. The right to fair hearing required that an individual shall not be penalised by a decision affecting his rights or legitimate expectations unless he has been given prior notice of the case against him and a fair opportunity to answer the same and to present his own view point," it added, as a lesson for the Department.

Right to cross-examine or to have opportunity to effectively exercise that right is an essential part of principles of natural justice, explained the court, about the case that could have been `avoided had the things been seen in the proper perspective by the Revenue.'

Having examined the case `on the touchstone of breach of principles of natural justice,' the court remitted the matter back to the adjudicating authority "with direction to permit the petitioners to cross-examine the Deputy Chief Chemist". After that, "it would be open for the adjudicating authority to hear the petitioners, giving them reasonable time to make their submissions and to dispose of the adjudication proceedings in a fixed time-schedule," ruled the court. "The adjudicating process must be completed with expeditious despatch, at any rate, within eight weeks i.e., on or before December 10, 2005," directed the court.

What if the adjudication order were to go against Kellogg? "The same shall stand stayed for four weeks subject to furnishing bank guarantee within four weeks from the date of communication of the adverse order to secure the Revenue for the liability that may be determined in the adjudicating order," the court said.

A quote of Charles M. Schulz for the Department, before wrapping up: "All you need is love. But a little chocolate now and then doesn't hurt."

Tailpiece

"Since there was no place in the office for the new FBT staff... "

"You didn't hire them?"

"No, we accommodated them on the fringe. There, on the sunshades!"

Detaxification@TheHindu.co.in

D. Murali

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

More Stories on : Taxation | Detaxfication

Stories in this Section
Protecting the patient

What Jehanabad means

The price of `fee' ill-defined

Is there a perpetual liability to pay Customs duty?

The answer lies somewhere between conversation and chocolate

GATS' Mode 4 rule — Imperative that India takes firm stand

Hegemons versus rest of the world