Full Judgment
2. The issue relates to classification of residue obtained during the process of manufacture of instant, coffee which is sold by the respondents for being used for extracting oil.
3. Arguing for the Revenue the DR submits that the solid effluent which is spent coffee is sold as waste product by the respondents to M/s.
Agro Extracts, Bangalore who in turn extract oil and supply the same to soap industries as a raw material. In other words, the solid effluent is utilised in other industries as a raw material. It is liable to duty under Tariff Heading 0901.90 which covers all varieties of coffee and attracts duty @ 12%. The respondents, however, neither classified the spent coffee in their classification list filed on 28-2-1986 and 12-3-1986 nor had they been paying duty on this. Since Tariff Heading 0901 covers all varieties of coffee, the spent coffee which contained some amount of coffee would be rightly covered under that heading.
4. Arguing for the respondents, Ld. Consultant does not contest the excisability of the product but submits that the product clearly is not classifiable under Heading 0901 as coffee substitute as correctly held by the Collector (Appeals). However, he submits that the proper classification of the product is under Heading 2301.00 which covers residue and waste from food industries etc.
"Coffee, whether or not cured or roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion". It is the contention of the Revenue that since the spent coffee contains some coffee, it is covered under this heading even as substitute of coffee. We find that the Collector (Appeals) has adequately dealt with this question. We reproduce the relevant extract from his order : "I find that the classification by the Assistant Collector has been done without really understanding the meaning of the word 'coffee substitutes'. As per Concise Oxford Dictionary, V Edition page 1288 the word 'substitute' as a noun means "person or thing performing the same thing instead of another". Now the Tariff Heading 0901 reads "coffee whether or not cured or roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion". The word 'coffee' is also defined in the Concise Oxford Dictionary which means drink made from seeds of a shrub roasted and ground". Therefore, the word coffee used in the Tariff in the absence of a specific definition is to indicate a drink as per the meaning in the Dictionary. The word coffee substitute therefore has to necessarily mean that the item is drinkable beverages; though it is not coffee, it takes the place of coffee and coffee is contained in the same substitute in any proportion. Taking this definition of coffee substitute, the classification of the Assistant Collector is completely wrong because it is nobody's case that the waste matter acquired by appellants are taken as a drink or they are used as a concentrate or a powder to prepare coffee. The use has been clearly stated in the order in para 2 which states that the buyers in turn are extracting oil and supplying the same to soap industries as raw material. Therefore, the classification of the waste matter cleared by appellants under T.I. 0901.90 is not correct".
We do not find any infirmity in the reasoning adopted by the Collector in arriving at the conclusion that it cannot be considered as coffee substitute and the product such as residue in this case cannot be covered under Tariff Item 0901.
6. Having ruled out 0901 however, the Collector (Appeals) has not considered the alternative classification pressed before the authorities below i.e. 2301.00. Ld. Consultant on behalf of the respondents pleaded before us that admittedly the goods are marketable but they would be properly classifiable under Heading 2301 as residue and waste from food industries and would be eligible to exemption under Notification 113/86 at the material time. HSN Notes under Heading 2308 refer to vegetable materials and vegetable waste and vegetable residues specifically [covered], under foot note-7 : "Residues left after the preparation of coffee substitute (or extracts thereof) from cereal grains or other vegetable materials".
In view of this we consider that Tariff Heading 2301 is more specific in relation to the impugned product. In view of this we hold that while the products are not covered under 0901 as coffee substitute they would be correctly classifiable as residue under 2301 and would be entitled to exemption under Notification 113/86 at the material time.