2014 (9) TMI 664 - AT - Central Excise

Classification of goods - Classification of Gopal Zarda - classifiable under T.H. 24039910 or under T.H. 24039930 - Difference of opinion - Majority order - Held that - The appellant is claiming the classification of the product under Tariff Heading 24039910 whereas the Revenue is classifying the same under Heading 24039930 of the Tariff. prior to 28.2.2005 the appellants were clearing the product under Heading 2404.41 of the Tariff which covers chewing tobacco and preparations containing chewing tobacco. There is no dispute in this regard. As the Central Excise Tariff is migrated from six digit to eight digit classification from 28.2.2005 the appellants continued to clearing the goods under Heading 24039910 chewing tobacco. The products classifiable under Heading 24039910 are notified under Notification No. 2/2006-CE(NT) dated 1.3.2006 to discharge duty as per the provisions of Section 4A of the Central Excise Act, on MRP basis. The appellant continued to discharge duty as per the provisions of the Notification. The pouches of the product produced by the appellant show that the product is described as under GOPAL 100 ZARDA Deluxe flavoured chewing tobacco . The instructions on the pouches are that the product is to be chewed and not to swallow but to spit. - the product in question is chewing tobacco and classifiable under Heading 24039910 of the Tariff. Further the Notification No. 2/2006-CE (NT) dated 1.3.2006 is further amended by Notification No. 16/2006-CE(NT) dated 11.7.2006 whereby the chewing scented tobacco classifiable under Heading 24039910 also notified as assessable under Section 4A of the Central Excise Act, 1944. Prior to the period in dispute 1.3.2006 to 10.7.006 the appellants were clearing the product as flavoured chewing tobacco and thereafter also clearing the same by classifying the product under Heading 24039910 of the Tariff and the product in question is marketed as Chewing Tobacco - Decided in favour of assessee.

Issues Involved:
1. Correct classification of the product "Gopal Zarda" as either "chewing tobacco" or "zarda scented tobacco."
2. Determination of the applicable assessment method under Section 4 or Section 4A of the Central Excise Act.
3. Validity of the demand for differential duty and imposition of penalties.

Issue-wise Detailed Analysis:

1. Correct Classification of the Product:
The primary dispute revolves around whether "Gopal Zarda" should be classified under tariff heading 2403 99 10 as "chewing tobacco" or under heading 2403 99 30 as "zarda scented tobacco." The appellants argue that their product is "flavoured chewing tobacco," which should be classified under heading 2403 99 10. They emphasize the difference between "flavoured" and "scented," citing dictionary definitions and the manufacturing process, which involves adding perfumery compounds, spices, and aromatic chemicals to raw tobacco. The Revenue contends that the product falls under heading 2403 99 30 due to the addition of perfumery compounds, making it "zarda scented tobacco."

The Tribunal examined the definitions and manufacturing process, noting that "flavour" refers to taste, while "scent" refers to smell. The product was marketed as "flavoured chewing tobacco," and there was no evidence from the Revenue to prove it had transitioned to "zarda scented tobacco." Previous classifications and common parlance supported the appellants' claim that the product remained "chewing tobacco."

2. Determination of Applicable Assessment Method:
The classification determines whether the product should be assessed under Section 4 (transaction value) or Section 4A (maximum retail price) of the Central Excise Act. Notification No. 2/2006-CE (NT) dated 1.3.2006 specified that goods under tariff headings 2403 99 10 and 2403 99 20 should be assessed under Section 4A. However, heading 2403 99 30 was not included until Notification No. 16/2006-CE (NT) dated 11.7.2006, which meant that "zarda scented tobacco" had to be assessed under Section 4 during the period from 1.3.2006 to 10.7.2006.

The Tribunal found that since the product was classified as "chewing tobacco" under heading 2403 99 10, it should be assessed under Section 4A, as specified in the relevant notifications.

3. Validity of Demand for Differential Duty and Penalties:
The Revenue issued a show cause notice demanding differential duty of Rs. 4,28,65,508 for the period 1.3.2006 to 10.7.2006, asserting that the product should be assessed under Section 4. The original adjudicating authority confirmed the demand and imposed a penalty of Rs. 1.10 crore. However, the Tribunal found that the product was correctly classified under heading 2403 99 10 and should be assessed under Section 4A, making the demand and penalties invalid.

The Tribunal also noted that the Commissioner accepted there was no willful suppression or intent to evade duty by the appellants, as all clearances were made with the Revenue's knowledge. Therefore, there was no basis for imposing penalties.

Separate Judgments:
The judgment included a dissenting opinion from one member, who argued that the product should be classified under heading 2403 99 30 as "zarda scented tobacco" and assessed under Section 4 during the relevant period. This member emphasized the addition of perfumery compounds in the manufacturing process, which imparted a scent to the product.

Conclusion:
The majority order concluded that "Gopal Zarda" is correctly classified under heading 2403 99 10 as "chewing tobacco" and should be assessed under Section 4A. The demand for differential duty and penalties was set aside, and the appeal was allowed with consequential relief to the appellants.

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