Som Flavour Masala Pvt Limited Vs C.G. & S.T-C.C.E. & S.T.-Rohtak (CESTAT Chandigarh)
Chandigarh CESTAT held that if the department intends to classify the goods under a particular heading different from that claimed by the assessee, the department has to adduce proper evidence and discharge the burden of proof.
Facts-
The Appellant started manufacturing chewing tobacco (without lime tube) under various names and filed necessary declarations with the department i.e. Form-1 and continued to declare during the period August 2015 to January 2016.
It was observed that single-track FFS pouch packing machines were to be installed/un-installed in the factory and were to be put into use for the production/packing of the chewing tobacco without lime tubes in terms of Notification No.11/2010-CE(NT) dated 27.2.2010 as amended vide Notification No.04/2015-CE(NT) dated 1.3.2015.
In order to verify the correct classification of the product, a sample of DB Royal Chewing Tobacco was drawn from the factory premises of the Appellants under panchnama dated 24.7.2015 and the same was sent to Central Revenues Control Laboratory (CRCL), New Delhi for testing on 28.7.2015 specifically asking the party has classified the product as Chewing Tobacco.
The department vide communication dated 7.10.2015 opined that the sample analyzed under reference has the characteristics of Zarda Scented Tobacco. Department confirmed the duty demand classifying the product as Jarda Scented Tobacco (heading 24039930) as against classification done by the appellant as Chewing Tobacco (heading 24039910).
Conclusion-
We find that in this case the department has failed to discharge its burden for changing the classification by adducing/ producing some material evidence. The Hon’ble Supreme Court in the matter of HPL Chemicals Ltd. vs. CCE, Chandigarh; 2006(197) ELT 324(SC) has laid down that classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the revenue. If the department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the department has to adduce proper evidence and discharge the burden of proof.
Held that the Revenue has not produced any material evidence on record to support the change of classification by them from ‘Chewing Tobacco’ under heading 24039910 to ‘Jarda Scented Tobacco’ under heading 24039930.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
These appeals have been filed impugning the Order-in-Original No. 23/CE/COMMR/VMJ/RTK/21-22 dated 14.07.2021 passed by the Commissioner of CGST, Haryana by which the learned Commissioner confirmed the change of classification of the product as zarda scented tobacco and accordingly confirmed the demand of central excise duty alongwith interest and equal penalty and also imposed penalty of Rs. One crore on Shri Indra Dev Tripathi, Director and of Rs. Twenty five lakhs on Shri Ashok Nahata, Manager.
2. The issue involved in this appeal relates to classification of the goods as to whether that product is Chewing Tobacco classifiable under heading 24039910 as claimed by the Appellants or its Jarda Scented Tobacco classifiable under heading 24039930 as claimed by the revenue?
3. The facts of the appeals in brief are as follows. The Appellant i.e. M/s. Som Flavour Malasa Pvt. Ltd. started manufacturing chewing tobacco (without lime tube) w.e.f. 23.7.2015 under various names and filed necessary declarations with the department i.e. Form-1 and continued to declare during the period August, 2015 to January, 2016. On perusal of the declarations filed in Form-I and Form-II in terms of Rule 6 of Chewing Tobacco & Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 as amended for the relevant period, it was observed that single track FFS pouch packing machine were to be installed/un-installed in the factory and were to be put into use for production/packing of the chewing tobacco without lime tubes in terms of Notification No.11/2010-CE(NT) dated 27.2.2010 as amended vide Notification No.04/2015-CE(NT) dated 1.3.2015. According to department, the appellants themselves declared that the maximum speed of all the pouch packing machines of chewing tobacco pouches are about 700 pouch per minute. In order to verity the correct classification of the product, a sample of DB Royal Chewing Tobacco was drawn from the factory premises of the Appellants under panchnama dated 24.7.2015 and the same was sent to Central Revenues Control Laboratory (CRCL), New Delhi for testing on 28.7.2015 specifically asking „the party has classified the product as Chewing Tobacco. kindly confirm the correct classification of the product‟ and Sh. P.K. Agarwal, Chemical Examiner Gr.-II, CRCL vide test report dated 26.8.2015 informed that “the sample is in the form of brown cut pieces of vegetable matter (bits of leaves) with pleasant odour. It is mainly composed of tobacco and flavorant. Moisture content = 25.95% (Twenty five point nine five). It does not contain added lime”. No classification was provided. The department vide letter dated 30.9.2015 again requested the CRCL to confirm the specific and correct classification of the samples submitted and the Chemical Examiner Gr.-II, CRCL vide communication dated 7.10.2015 opined that „the sample analyzed under reference has the characterstics of Zarda Scented Tobacco. Accordingly the classification may be decided at your end.‟ As per records the aforesaid test report was supplied to the Appellants on 1.12.2015 and thereafter the department recorded the statements of Mr. Ashok Nahata, Manager and Mr. Indra Dev Tripathi, Director of the Appellants.
4. The Department again visited the appellants‟ premises on 30.10.2015 and drew sample of product and sent the same for testing at CRCL again asking that „the party has classified the product as Chewing Tobacco. kindly confirm the correct classification of the product‟. The Chemical Examiner Gr.-II, CRCL reported that „The sample is in the form of brown coloured cut pieces of vegetable matter (bits of leaves) with pleasant smell. It is composed of tobacco, added lime with flavorant. Moisture Content (as such) = 29.4% by Wt. (Twenty nine decimal four) and Ash Content (on dry basis)= 19.2% by Wt. (Nineteen decimal two). It is the formulation of „Chewing Tobacco‟. So this report was in favour of the appellants.
5. Thereafter again the department visited the premises of the appellants on 3.12.2015 and drew 12 samples of the product and forwarded the same to CRCL for testing with the specific query that „Party has classified their product as Chewing Tobacco (without lime tube) under CETH No. 24039910. Kindly confirm whether the party has correctly classified their product or the product is appropriately classified under CETSH 24039930 (Jarda Scented Tobacco).‟ Purnima Mishra, Chemical Examiner Gr.-II, CRCL vide her 12 different test reports all dated 14.12.2015 opined that the „sample has the characteristics of Jarda Scented Tobacco‟. One thing was common in the all the 12 reports that the report only mentioned about the „content of calcium‟ which varied between 0.18% to 0.21% in all the test report. Content of „slacked lime‟ was not detected in any of the samples as per the test reports.
6. On the basis of the earlier test report of the samples drawn on 24.7.2015, the department issued two capacity determination orders both dated 4.12.2015, one for the months of July-September, 2015 and another from October-December, 2015. Since both the capacity determination orders were based on the test report dated 26.8.2015 of CRCL (of sample taken on 24.7.2015) the appellants after getting the test report on 1.12.2015 requested for re-testing of the aforesaid samples vide letter dated 11.12.2015. Although the samples were sent for retesting to CRCL by the department but without waiting for the retesting report show cause notice dated 1.7.2016 was issued to the appellants as to why –
(i) Central Excise duty amounting to Rs.17,9972,033/-(Rupees seventeen crores, ninety nine lacs, seventy two thousand and thirty three only) should not be determined, demanded and recovered from them under the provisions of Section 11A of the Central Excise Act, 1944 read with Rules, 7,8,9 and 19 of Chewing Tobacco and un-manufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010.
(ii) Central Excise Duty amounting to Rs.17,99,72,033/-deposited by the party under protest should not be appropriated against the duty proposed to be demanded above.
(iii) Interest at an appropriate rate under Section 11AA of the Central Excise Act, 1944 should not be charged from them on the proposed demand of duty mentioned at (i) above.
(iv) Interest amounting to Rs.41,43,757/- deposited by the party under protest should not be appropriated against the interest on the proposed demand of duty mentioned at (i) above.
(v) Penalty under Section 11 AC of Central Excise Act, 1944 and Rule 25 of Central Excise Rules, 2002 read with Rule 18 of the Chewing Tobacco and un-manufactured Tobacco Packing machines (Capacity Determination and Collection of Duty) Rules, 2010 should not be imposed upon the party for contravention of Rules 6,7,8 and 9 of the Chewing Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 as amended.
7. The appellants filed interim reply to the show cause notice and requested for re-testing of the samples but they were directed to file final reply. Thereafter without supplying the re-testing report, the Adjudicating authority passed the Order-in-Original dated 28.1.2021 confirming the demand of central excise duty alongwith interest and penalty on M/s. Som Flavour Masala Pvt. Ltd. and also imposed penalty of Rs.1 crore on Shri Indra Dev Tripathi, Director and of Rs. 25 lakhs on Shri Ashok Nahata, Manager. The said Adjudication order was challenged by the appellants before the Hon‟ble High Court of Punjab & Haryana at Chandigarh being CWP No. 8034 of 2021 (O&M) and the Hon‟ble High Court vide order dated 8.4.2021 disposed of the petition, set aside the order dated 28.1.2021 of the Adjudicating Authority and directed the department to transmit copy of the re-testing report to the appellants and thereafter to decide the matter afresh in accordance with law.
8. Somewhere in the month of April, 2021 re-test report issued by Jt.Director, CRCL was supplied to the appellants whereas the same was forwarded to the department much earlier vide communication dated 9.12.2016. The said re-test report dated 9.12.2016 reads as under:-
“REPORT: The sample is in the form of brownish, dried cut pieces of leaves having characterstic pleasant odour in unit packing. It is composed of Cut bits of tobacco leaves and flavourant. It does not contain added lime. It is a preparation containing Chewing Tobacco.
It is other than Jarda Scented Tobacco.”(emphasis supplied)
After getting the re-test report, the appellants filed their final reply on 7.7.20201 to the show cause notice. After supply of copy of retesting report, the adjudicating authority vide impugned Order-in-Original dated 14.7.2021 once again confirmed the demand of Central Excise duty alongwith interest and equal penalty on M/s. Som Flavour Masala Pvt. Ltd. and also imposed penalty of Rs.1 crore on Shri Indra Dev Tripathi, Director and of Rs. 25 lakhs on Shri Ashok Nahata, Manager.
9. Aggrieved the appellants filed instant Appeals. Learned counsel for the appellants state that there is no statutory definition of „zarda‟ or „chewing tobacco‟ in the Central Excise Tariff whereas Indian Standard “Glossary of Terms for Tobacco and Tobacco Products” (2nd and 3rd Revision) issued by Bureau of Indian Standard (“BIS” ) defines tobacco products therefore recourse has to be taken to the definition as provided by BIS. She submits that Moisture and Nicotine are the relevant factors which distinguished zarda and chewing tobacco and that these are the two determining factors as per BIS to decide whether the product is zarda or chewing tobacco. According to learned counsel test result of all samples stated that the sample has pleasant odour, flavourant and it did not mention about present of any scent in it therefore it cannot be termed as zarda scented tobacco. She also questioned the authority of the Chemical Examiner, Gr.-II of CRCL to give opinion about classification whereas she supported the opinion given by the Joint Director, CRCL in re-testing of sample which categorically states that the sample is of chewing tobacco, other than zarda scented tobacco. She further submits that the opinion of Jt. Director, CRCL is final and binding unless set aside in Appeal by the Director, CRCL. She submits that the show cause notice dated 1.7.2016 has been issued solely on the basis of the opinion of the Chemical Examiner, CRCL and that the learned Commissioner by recording the finding in the impugned order that he is not relying upon the opinion of the Chemical Examiner, has gone beyond the show cause notice. It has also been submitted on behalf of the appellants that the product in issue is known as chewing tobacco in Trade Parlance and that it is settled legal position that in the absence of statutory definition, goods have to be taxed as they are known in common parlance as they have been sold as chewing tobacco to the consumers. Burden of proof is on the department to prove that the items in issue are taxable as zarda scented tobacco and that mere assertion by the department if not sufficient. According to learned counsel there was no mis-declaration or suppression of facts and therefore the adjudicating authority erred in imposing penalty on the appellants. Per contra learned Authorised Representatives appearing on behalf of Revenue supported the findings recorded in the impugned order and prayed for dismissal of appeals filed by the appellants. According to learned Authorised Representative it is wrong to imply that the opinion of Chemical Examiner in the test reports of samples is based on the presence/absence of lime as both the chemical examiners have stated in their respective cross-examination that the test for lime is conducted as a routine manner for such commodity. He further submits that chewing tobacco is a broader term used which includes various forms of tobacco namely, surti, zarda, quiwam, dokta and sukla and that depending upon the contents in the tobacco, the product would be classified. Learned Authorised representative further submits that the appellants are comparing two alien things and that nicotine percentage was not there in any of the test reports. According to learned Authorised Representative in the decisions relied upon by the appellants it has been observed that zarda in common parlance is nothing but tobacco flakes without any other ingredient. It has also been submitted that zarda without scent would come out of the purview of 24039930, similarly chewing tobacco with scent would also come out of the ambit of 24039910 and would fall under 24039930 and the test report duly mentioned that the sample has pleasant odour which confirm to the facts divulged by Director, Manager/ Production Supervisor of the appellants that compound (scent) is added to their product. According to revenue even BIS has given different characteristics for zarda (flake type chewing tobacco) and its central excise classification under different categories would depend upon whether it is scented/perfumed or not. Learned authorised representative denied that the department is bound by the opinion of Jt. Director, CRCL that the sample is of chewing tobacco. On the argument about common parlance test, learned authorised representative submits that since the test reports confirmed use of perfumery, details of raw materials used by the appellants, process of manufacture and statement of their key persons are sufficient to infer that the product in dispute is zarda scented tobacco therefore there is no need to resort to common parlance test and if the appellants are selling it as chewing tobacco or using the packing material mentioning it as chewing tobacco, it does not change the classification.
10. We have heard learned counsel for the appellants and learned Authorised Representatives for the Revenue and perused the case records including the case laws and the written submissions submitted by the respective sides. Chewing Tobacco and Jarda scented tobacco are classified under separate subheadings of Chapter 24 of the Central Excise Tariff as they are different goods/products. But neither the said chapter 24 nor the notifications issued under Section 3A of the Central Excise Act define these two products, therefore we have to look into “Glossary of Terms for Tobacco and Tobacco Products” (2nd and 3rd Revision) issued by Bureau of Indian Standard (“BIS” ) which defines tobacco products and recourse has to be taken to the definition as provided by BIS. Indian standard of BIS prescribe testing of four parameters for chewing tobacco and jarda scented tobacco viz. Moisture, Nicotine, Total ash and Acid Insoluble ash. These are the relevant and determining factors which distinguished zarda and chewing tobacco and decide whether the product is zarda or chewing tobacco. In order to appreciate it we are reproducing hereunder in tabular form the contents of moisture etc. as provided by BIS and the contents found in the product in issue as per the test/re-test reports of CRCL:-
Contents as prescribed by BIS
