1987 (3) TMI 383 - AT - Central Excise

Summary

Issues:
1. Whether gudakhu falls under Item 4 of the Central Excise Tariff Schedule as manufactured tobacco or under Item 68 as other unspecified goods.
2. Interpretation and application of the Orissa High Court judgment regarding the classification of gudakhu.
3. Relevance of the Notification 59/81 dated 12-3-1981 in exempting gudakhu from excise duty.
4. Consideration of the essential characteristics of gudakhu to determine its classification under the Central Excise Tariff Schedule.

Analysis:
The judgment dealt with the classification of gudakhu under the Central Excise Tariff Schedule. The appellants, a partnership firm manufacturing gudakhu, contended that gudakhu should be classified as manufactured tobacco under Item 4 of the Tariff Schedule, relying on a judgment of the Orissa High Court. The High Court had previously held that gudakhu is akin to hookah tobacco and falls within the definition of manufactured tobacco. Despite this, the Assistant Collector insisted on the appellants obtaining a Central Excise License and paying duty under protest. The appellants challenged this decision, leading to an appeal before the Appellate Collector, which was dismissed, prompting the present revision treated as an appeal (paras 2-3).

The appellants argued that the Orissa High Court's decision should be followed, emphasizing that the essential character of the article should determine its classification for taxation purposes. They cited precedents to support their position, including the principle that processing does not change the essential character of an article for tax purposes. The authorities were criticized for not adhering to the High Court's decision and demanding a fresh classification list from the appellants (para 4).

The Respondent contended that gudakhu did not qualify as manufactured tobacco and that the High Court's decision was specific to hookah tobacco, not gudakhu. Reference was made to Notification 59/81, which exempted gudakhu in granule form from duty, highlighting the limited scope of the exemption (para 5).

The Tribunal analyzed the Orissa High Court's judgment, noting that gudakhu was found to be similar to hookah tobacco and therefore classified as manufactured tobacco. The Tribunal also considered the exemption notification, which supported the classification of gudakhu under Item 4 of the Tariff Schedule. It was concluded that the impugned order demanding duty under Item 68 could not be sustained, and the appeal was allowed with appropriate reliefs (paras 6-9).

In a separate opinion, the Vice-President of the Tribunal reiterated the Orissa High Court's findings regarding the classification of gudakhu as manufactured tobacco under Item 4 of the Central Excise Tariff Schedule. The composition of the product, the nature of the Tariff entries, and the exemption notification all pointed towards gudakhu falling under Item 4. Consequently, the impugned order was set aside, and the appeal was allowed (paras 10-15).