Tej Ram Dharam Paul Vs Commissioner of Central Goods (CESTAT Chandigarh)
Held that the pouches of ‘Maha Pasand Jarda Scented Tobacco’ describes the product as ‘chewing tobacco’ and in Trade Parlance also it is known as ‘Chewing Tobacco’ only. Hence, the same is classified as chewing tobacco and not jarda scented tobacco
Facts-
The issue involved in this appeal relates to classification of the goods manufactured i.e. ‘Maha Pasand Jarda Scented Tobacco’ by the appellants 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?
Conclusion-
Held that the pouches of the products in including presentation, sales, distribution and usage issue described the product as ‘chewing tobacco’ and in Trade Parlance it is known as ‘Chewing Tobacco’ only. The manufacturer, distributor and the consumer, everyone understands and consume the product as chewing tobacco only.
The Tribunal in the matter of Flakes-N-Flavours has held that in the absence of anything to the contrary, the product in question has to be treated as per the description given by the manufacturer on outer cover of pouch, common parlance and established practice as the chewing tobacco or zarda scented tobacco have not been defined in the tariff.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
This appeal has been filed impugning the Order-in-Original dated 18.3.2022 passed by the Commissioner, Central Tax (GST & CE), Rohtak by which the learned Commissioner confirmed the Central Excise duty along with interest and penalty as demanded in the show cause notice.
2. The issue involved in this appeal relates to classification of the goods manufactured by the appellants 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 appellant submitted duly filled Form-I on 5.3.2015 w.e.f. 10.3.2015 declaring that one number of single track FFS pouch packing machine (purchased on 9.3.2015) installed in the factory will be used for production of „Maha Pasand Jarda Scented Tobacco‟ (without lime tubes) and paid duty for the period 10.3.2015 to 31.3.2015 as per Form-2 dated 17.3.2015. The department drew samples of Maha Pasand Jarda Scented Tobacco (without lime tube) vide panchnama dated 13.3.2015 from the appellant‟s premises and forwarded the same to Central Revenues Control Laboratory (CRCL), New Delhi for testing and vide communication dated 27.4.2015 informed the appellants that as per the report of CRCL dated 23.3.2015 “the sample is in the form of brown coloured dried cut pieces of vegetable matter. It is a preparation containing tobacco, lime and flavoring agents. It is other than Jarda Scented Tobacco. It has the characteristic of Khaini” and therefore the product is classifiable under chapter sub-heading 24039910 as Chewing Tobacco (other than filter khaini) and not under CESTH 24039930. The aforesaid report of CRCL as well as the direction of the department in its communication dated 27.4.2015 was accepted by the Appellant and they communicated the same to the department vide their letter dated 15.6.2015 and accordingly they filed challan dated 12.6.2015 for the differential duty alongwith interest on Maha Pasand Chewing Tobacco.
4. Although as per the direction of department the appellant started classifying the product as Chewing Tobacco (without lime tube) under CETH 24039910, but again sample of Mahapasand Chewing Tobacco (without lime tube) was drawn by department from the premises of appellant on 29.5.2015 and sent for testing to CRCL on 3.6.2015 and the CRCL vide its report issued through communication dated 20.7.2015 intimated that the sample is in the form of brownish cut pieces of leaves and it is mainly composed of Tobacco and Lime and it has the characteristics of chewing tobacco. This time the department went a step ahead and even asked the CRCL about the exact commodity / product and its classification. To which Dr. Purnima Mishra, Chemical Examiner Grade-II, CRCL replied vide communication dated 27.7.2015 by referring to para 70(B) and (C) of manual of the Revenue Laboratories stating that “assessing offices at various levels should not ask the Deputy Chief Chemist/Chemical Examiner to give the tariff classification.”
5. Thereafter again various samples were drawn by the department in the month of December, 2015 of Premium Maha Pasand Chewing Tobacco (with lime tube) from the premises of the appellant and sent the same to CRCL and this time they asked the CRCL to confirm whether the appellants have correctly classified their product or the product is appropriately classified under CETSH 24039930 (Jarda Scented Tobacco) and this time CRCL vide Test Memo Nos. 16/2015, 17/2015 & 18/2015 all dated 14.12.2015, mainly on the basis of content of calcium which was 0.17%, concluded that the sample has the characteristics of Jarda Scented Tobacco. Accordingly the department issued Capacity determination order dated 18.12.2015 and calculated the annual capacity of production of the appellants w.e.f. 23.5.2015 as 8,36,65,000 pouches for the financial year 2015-16 in terms of Rule 6 of Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 and vide letter dated 21.12.2015 the Appellant was directed to deposit the differential duty between Chewing Tobacco and Jarda Scented Tobacco alongwith interest till date. Although the appellants requested for show cause notice, but substantial amount was also deposited by the Appellants „under protest‟ in order to avoid further financial hardships in the meantime.
6. Thereafter a show cause notice dated 1.7.2016 was issued by the department as to why:-
i) Central Excise duty amounting to Rs. 4,47,72,842/-(Rupees Four crore, Forty Seven lacs, seventy two thousand eight hundred and forty two only) should not be determined, demanded and recovered from them by invoking the extended period of five years 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. 1,86,64,055/-deposited by the party under protest, as informed by the party to the Assistant Commissioner, Kundli vide their letter dated nil received in Kundli Division on 20.01.2016 and also informed by Shri Ram Gopal Yadav in his statement dated 27.01.2016 should not be appropriated against the duty proposed to be demanded above.
iii) Interest at appropriate rate should not be demanded and recovered from them on the proposed demand of duty mentioned at (i) above by invoking the extended period of five years under Section 11AA of the Central Excise Act, 1944; and
iv) 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 Adjudicating Authority vide impugned order dated 18.3.2021 confirmed the demand of Central Excise duty of Rs.4,47,72,842/- alongwith interest and equal amount of penalty and ordered for appropriation of the amount of Rs.1,86,64,055/-deposited by the appellants. And also imposed a penalty of Rs. 25 lakhs on Sh. Nutesh Kumar Singla, Partner and of Rs. 1 lakh on Shri Ram Gopal Yadav.
8. Learned senior counsel appearing for the appellant submits that the appellant has classified its product as „Chewing tobacco‟ as per the instruction of department as contained in communication dated 27.4.2015 which is as under:-
“..the product being manufactured by you is other than Jarda Scented Tobacco having characteristics of khaini which is form of Chewing Tobacco. Hence the product being manufactured by you is classificable under Chapter subheading 24039910 as Chewing tobacco (other than Filter Khani)”
And only pursuant to the aforesaid direction of the department, the appellants filed the declaration for the subsequent months by classifying its product as „Chewing tobacco‟ and discharged the duty liability during the disputed period. Learned counsel also submits that initially the appellants declared their product as Jarda Tobacco classified under heading 24039930 but then the department after getting the testing done insisted the appellant to change the classification as 24039910- Chewing Tobacco as at that time the duty on chewing tobacco was more as compared to Jarda tobacco and the appellant changed the classification and paid the differential duty, but thereafter, later at some point of time rate of duty on tobacco product increases and that of chewing tobacco reduced, the department is now asking the appellant for changing the classification to 24039930-Jarda Tobacco and to pay differential duty on it w.e.f May, 2015 to December, 2015. He further submits that the CRCL‟s last test report, which has been relied upon by the department, based only on the test of calcium and concluded that the sample has the characteristics of Jarda Scented Tobacco and there is no indication in the test report as to what is the definition of jarda scented tobacco and chewing tobacco and under which parameter test of sample conducted viz. moisture content, Nicotine, Ash etc. as provided in the Bureau of Indian Standards (BIS) specifications. According to learned counsel the Chemical Examiner failed to provide the parameter/standards set out for Jarda Scented Tobacco during her cross-examination. Learned counsel also submits that the respondents have proceeded only on assumptions and presumptions and failed to produced any evidence in support of their classification, whereas it is settled principle that the classification has to be proved by the department with evidences only and not merely on the basis of statements without any corroborative evidence. According to learned counsel Additive Mixture (Kimam) and Perfumery compound is not a scent and the same has been held to be chewing tobacco or preparation for chewing tobacco by the Hon‟ble Supreme Court in the matter of Gopal Zarda Udyog vs. CCE, New Delhi; 2005(188) ELT 251 (SC) and also in Dharam Pal Satyapal vs. CCE, New Delhi; 2005 (183) ELT 241 (SC). He further submits that the product in issue is known as chewing tobacco in Trade Parlance and the respondent has altered the classification only due to imposition of higher amount of duty on jarda scented tobacco as compare to chewing tobacco w.e.f. May, 2015 under compound levy scheme. The calculation of Central Excise duty has also been disputed by the learned counsel and he submits that the respondent has calculated the duty for full months on the assumption that during the disputed period the packing machines operated for full month whereas the fact is that except for August and December, 2015 the packing machines never operated for full months in any other month as from time to time the department kept on sealing and de-sealing the machines. According to learned counsel the duty paid by the appellant under protest is liable to be refunded to them and that no penalty can be imposed on any of the appellants. Per contra learned Authorised representative appearing for the respondent supported the order passed by the Adjudicating Authority and prayed for dismissal of the appeal. According to learned Authorised Representative the product has been rightly classified as jarda scented tobacco classifiable under heading 24039930 and in support of his contentions learned Authorised Representative mainly relied upon the test report of the samples and the statement of Chemical Examiner Dr.(Ms.) Purnima Mishra. It has also been submitted on behalf of revenue that use of perfumes in manufacturing the product has been admitted by the Authorised signatory as well as the commercial manager of the appellants in their respective statements. Further it has been argued that chewing tobacco consists of various forms including jarda and khaini and classified under Tariff item 24039910 but the moment „scent‟ is added to jarda, the product is classified as jarda scented tobacco Tariff item 24039930. The CRCL report also mentions presence of „pleasant odour‟ which is nothing but scent used in the manufacture. In support of his submissions learned Authorised representative placed reliance on the decisions of the Tribunal in the matter of Flakes-N-Flavours vs. CCE; 2015(327) ELT 435(T), Urmin Products vs. CCE; 2010(26) ELT 597(T) and Som Products(P) Ltd. Vs. C&ST; 2019(368) ELT 150 (T). He further submits that the presence of „pleasant odour‟ as certified by the chemical examiner coupled with the statements of the authorised signatories of the appellant clearly establishes the product to be jarda scented tobacco. He also submits that when the product can be classified as per the contents there is no need to resort to common parlance test. On the issue of wrong calculation of duty learned authorised representative submits that the duty has been rightly calculated as in terms of Rules 7,8,9 & 10 of the Chewing Tobacco and Unmanufactured tobacco Packaging Maching (Capacity Determination and Collection of Duty) Rules, 2010, the central excise duty on all the machines, including the machines which were put into operation even for a day during a particular month, is required to be paid for full month. Learned authorised representative also submits that no case is made out by the appellant for setting aside penalty as the appellants had deliberately mis-declared their product in order to avoid higher amount of duty. He accordingly prayed for dismissal of the appeal.
9. We have heard learned Senior counsel for the appellants and learned Authorised Representative for the Revenue and perused the case records including the case laws and the written submissions/additional written submissions submitted by the respective sides. Admittedly Chapter 24 of the Central Excise Tariff which relates „Tobacco and Manufactured Tobacco substitutes has not defined Chewing Tobacco and Jarda Scented Tobacco. In the same way section / chapter heading notes in chapter 24 of HSN are silent on this issue. The department rests its case only on the basis of Test Reports under Test Memo No.16-18 dated 14.12.2015 of CRCL. The said test reports are as under:-
“(1) Sample is in the form of yellowish brown coloured cut-pieces of leaves having pleasant odour packed in unit packing having printed description “Premium Maha Pasand Chewing Tobacco.”
It is a preparation containing small bit of processed tobacco leaves with flavouring agent, it does not contain added slacked lime.
Analytical finding of sample are as below:
