2005 (9) TMI 173 - AT - Central Excise

Classification - Manufacture and sale of scented tobacco - Unmanufactured tobacco Or Manufactured - Whether the classification as arrived at of the entity Scented Tobacco as excisable under Heading 2404.04 is appropriate - HELD THAT - A reading of mandatory provisions to be applied, for purpose of classification, which have been totally ignored by the ld. Adjudicator, induces us to conclude that the treatments and process conducted at the premises of the Appellants are nothing more than flavouring or moistening substances added to be a curing or a casing of tobacco leaf in order to improve the aroma or keeping qualities and such Tobacco leaf, cased ( sauced or liquored ) leaf with a liquid of appropriate composition, mainly in order to prevent mould and drying would not render raw tobacco to be classified out of Heading 2401 of C. Ex. Tariff Act, 1985. Casings and flavours used in cigarette/tobacco industry are understood to be a solution of flavouring materials in water or other solvents that are applied to leaf tobacco blends; in the present case application is of a solution of quimam (which is tobacco flavoured water) and other flavours including saffron water which admittedly serve no other purpose than to prepare a blend of unmanufactured tobacco for purposes of use in further manufacture of Gutkas/Pan Masala. The process indulged herein is found to be casing of Raw tobacco leaf relying upon material from internet submitted by the ld. Advocate. We would therefore uphold classification to be under 2401.10. We find that the classification of the disputed admittedly unbranded entity is under 2401.10 and we cannot uphold the classification thereof under 2404.40 as arrived at by the adjudicator and on finding that the tariff rate of duty under 2401.10 or and 2404.49 is NIL as also, we find no reasons to uphold the duty demands and the consequent penalties and liabilities arrived at by classifying the entity under 2404.40. When the entity is to be classified under 2401.10 at nil tarrif rate of duty the question of determining any duty demand on M/s. J.M. Enterprises and/or others by clubbing the clearances as arrived at in the impugned order in Appeal Nos. E/2703/02 and E/2704/02 and denying the benefit of SSI cannot be upheld since the SSI notification provide that goods at 'nil' tariff rate and/or wholly exempt under other notifications unconditionally, cannot be reckoned for determining SSI turnover. Since the goods cleared are determined to be at nil rate of duty there was no condition or requirement to even obtain a registration under a Central Excise Act and Rules or/and follow any procedures. The charges on clandestine unaccounted removal and penalties thereafter therefore cannot be upheld. In view of the findings the order impugned in Appeal Nos. E/2703 and E/2704/02 and E/3195/02 are required to be set aside. Consequent to the setting aside of the orders the appeals are to be allowed. Ordered accordingly.

Issues Involved:
1. Classification of the product "Scented Tobacco" under the Central Excise Tariff.
2. Eligibility for Small Scale Industry (SSI) exemption.
3. Clubbing of clearances of different units.
4. Clandestine manufacture and sale without registration.
5. Imposition of duty demands and penalties.

Detailed Analysis:

1. Classification of the Product "Scented Tobacco":
The core issue was whether "Scented Tobacco" should be classified under Heading 2404.40 as "chewing tobacco and preparation containing chewing tobacco." The Revenue supported this classification, while the Appellant contested it. The tribunal noted that the notices issued did not clearly define "preparation" or explain how the product qualified as "chewing tobacco." The tribunal found that the product was not a compound like "Kimoun" as discussed in the Dharampal Satyapal case, which involved a mixture of aqueous tobacco solution and perfumes. The tribunal concluded that the product, as it left the premises, was not "chewing tobacco" but rather raw tobacco treated with quimam and perfumes, which did not render it ready for chewing.

2. Eligibility for SSI Exemption:
Appeals were filed by M/s. Yogesh Associates and M/s. J.M. Enterprises, contesting the denial of SSI benefits. The tribunal found that since the product was classified under Heading 2401.10, which has a nil tariff rate, the clearances could not be clubbed for SSI turnover determination. The tribunal also noted that the SSI notification exempts goods with a nil tariff rate from being counted towards SSI turnover.

3. Clubbing of Clearances:
The tribunal examined whether the clearances of different units under the J.M. Joshi Group could be clubbed. The tribunal found that the classification of the product under 2401.10 at a nil tariff rate meant that there was no basis for clubbing the clearances of different units to deny the SSI benefit.

4. Clandestine Manufacture and Sale without Registration:
The tribunal addressed the issue of clandestine manufacture and sale without registration. It found that since the product was classified under 2401.10 with a nil tariff rate, there was no requirement for registration under the Central Excise Act and Rules. Consequently, the charges of clandestine removal and the imposition of penalties could not be upheld.

5. Imposition of Duty Demands and Penalties:
The tribunal concluded that the classification of the product under 2404.40 was incorrect and that the correct classification was under 2401.10 with a nil tariff rate. As a result, there was no basis for duty demands or penalties. The tribunal set aside the impugned order and allowed the appeals.

Conclusion:
The tribunal found that the product "Scented Tobacco" should be classified under Heading 2401.10 with a nil tariff rate, rather than 2404.40. This classification meant that the product was not subject to excise duty, and the SSI exemption could not be denied. The tribunal also found no grounds for clubbing clearances or imposing penalties for clandestine manufacture and sale. The appeals were allowed, and the impugned orders were set aside.

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