Kopiko Is Sugar Confectionery, Not Coffee-Based Product; 6%, Not 12%, Excise Duty Applies: CESTAT Hyderabad

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, answering a reference made after conflicting rulings by its Hyderabad and Ahmedabad benches, has held that Kopiko, the coffee-flavored candy sold in India, is classifiable as sugar confectionery under the central excise tariff and not as a coffee-based preparation.

As a result, the product falls under tariff heading 1704 9090, which attracts 6% excise duty, and not under heading 2101 1200, which carries a 12% duty.

The ruling was delivered by a coram comprising President Justice Dilip Gupta, Judicial Member Binu Tamta, and Technical Member Hemambika R. Priya, observed.

Explaining why Kopiko could not be treated as a coffee-based product, the tribunal said, “The description of the two products specifically refers to it as a candy, which actually imparts its true characteristics as a sugar confectionery. Had it been a description with the basis of coffee extract, essences or concentrates, there would have been no relevance to incorporate the term 'candy' and the mixture would be quite unpalatable and unmarketable. The description of the product as 'candy' basically means a confectionary, which cannot be ignored, and it is where the Hyderabad Bench has fallen in error in agreeing with the Revenue."

The case concerned Mayora India Pvt. Ltd., formerly known as INBISCO India Pvt. Ltd., which manufactures and sells candies, biscuits and chocolates in India. Among its products are Kopiko Cappuccino and Kopiko Espresso, which are hard-boiled sugar candies containing small quantities of coffee extract for flavour.

The company had been classifying Kopiko as sugar confectionery, while the excise department took the view that the presence of coffee extract meant it should be treated as a preparation based on coffee. Earlier, the Ahmedabad and Hyderabad benches of the tribunal had taken differing views on the issue.

While the Ahmedabad Bench held that Kopiko was classifiable as sugar confectionery, the Hyderabad Bench took the view that it was a coffee-based preparation.

The company argued that sugar and liquid glucose made up about 74% of the product and gave it its essential character, while coffee extract was present only in small quantities and served merely as a flavoring agent. The department argued that the product derived its identity from coffee and should therefore be classified under the coffee-based heading, even if the proportion of coffee was low.

Rejecting the department's stand, the Larger Bench observed that coffee did not form the basis of the product.

“If coffee is removed from the product, it will still be known as a candy, but if sugar is removed, the product will no longer be so as the content of sugar is 74% whereas coffee extract is merely 2.5%/4.5%,” the tribunal said.

Holding that sugar gave Kopiko its essential character, the larger Bench affirmed the Ahmedabad Tribunal's view and ruled that the product must be classified as sugar confectionery.