SC dismisses excise dept's plea against Nestle India

The Supreme Court has dismissed a petition challenging a tribunal’s verdict that quashed the penalty of more than Rs 1 crore imposed by the excise department on Nestle India for “suppression of facts” on its chocolate brand ‘Milky Bar Choo’.

A Bench headed by Justice SB Sinha denied relief to the excise department, which alleged that the sectoral tribunal’s decision to set aside the penalty was contrary to the Central Excise Act, 1944.

Additional Solicitor General Mohan Parasaran alleged that Nestle was clearing its chocolate brand at a concessional duty rate of 8 per cent by declaring it as a sugar confectionery.

The authorities had issued showcause notice to the chocolate major in April 2007 asking the firm why it should be allowed to take benefit under notification 6/2002 of March 1, 2002. It had asked the company to pay the differential duty of more than Rs 1 crore in September 2007 and a penalty of an equal amount for “suppressing facts”.

Aggrieved by the demand order, Nestle had moved the Customs, Excise and Service Tax Appellate Tribunal, which held that the firm was not entitled to the benefit as Milkybar Choo attracted duty at the rate of 16 per cent ad valorem.

CESTAT confirmed the duty demand, including education cess, amounting to more than Rs 1 crore with interest.

However, it set aside the penalty on grounds that Nestle was not guilty of “suppression of facts” regarding the true nature of the chocolate as it was a pure interpretation of tariff entries vis-a-vis the exemption notification.

Nestle had argued that Milkybar Choo contained hydrogenated vegetable oil as an ingredient and cannot be marketed as white chocolate.

The Prevention of Food Adulteration Rules, 1995, prohibits the use of vegetable oils in chocolates, it stated before the tribunal.