2024 (5) TMI 1147 - AT - Central Excise

Classification of goods - Tobacco supplied in retails pack - classifiable under CTH 2401 as claimed by the appellant or 2403 as claimed by the Revenue - invocation of extended period of limitation. Classification of goods - HELD THAT - From the comparison of test report in respect of raw material as well as the final product of the appellant, the nature of product remain exactly same except the packing in as much as the packing of raw material is in bulk and packing of final product is in retail pack. Therefore, the nature of raw material i.e. unmanufactured tobacco in cut leaves form remained as such even after repacking into retail pack - Since the product of the appellant remained unmanufactured tobacco right from the raw material stage up to the finished stage it remains under Chapter heading 2401 and by any stretch of imagination cannot be called as manufactured tobacco. Therefore, since the tobacco has not been converted into manufactured tobacco, taking the same into CTH 2403 is without authority of law. Consequently, the unmanufactured tobacco even though it is consumed as a chewing tobacco since same remained as unmanufactured tobacco cannot be classified under 2403 9910. Even by application of Note 3 of Chapter 24 the activity amount to manufacture, the impugned good falls under Chapter heading 2401. Therefore, by virtue of chapter Note, the activity though amount to manufacture as per the Central Excise. Hence, the appellant have rightly paid the duty as manufacture goods but since the goods is correctly classified under CTH 2401, the demand of basic Excise duty and NCCD is not sustainable as the same is correctly classified under 2401 and not under 2403 as contemplated by the Revenue. Therefore, on merit itself the demand is not sustainable. Extended period of limitation - HELD THAT - The entire activity of re-packings of cut leaves tobacco from bulk to retail pack and classification thereof under Heading 2401 of Central Excise Tariff Act, 1985, was very much in the knowledge of the department. Therefore, there is absolutely no suppression of fact, fraud, mis-declaration, etc. on the part of the appellant therefore, there are no hesitation in holding that the demand of duty adjudged in the impugned order under the extended period is not sustainable also on limitation. The impugned order is not sustainable. Hence, the same is set aside - Appeal allowed.

Summary

Issues involved:
1. Classification of tobacco product.
2. Allegation of misclassification and evasion of tax.
3. Applicability of extended period of limitation.

Summary:

1. Classification of tobacco product:
The primary issue was whether the Appellant's product, 'Suresh Tamakhu', should be classified under CTH 2401 as 'Unmanufactured Tobacco' or under CTH 2403 as 'Chewing Tobacco'. The Appellants argued that their product, consisting of dried and crushed tobacco leaves, falls under Chapter Heading 2401 as "Other unmanufactured tobacco, partly or wholly stemmed". They relied on HSN Explanatory Notes and various judgments, including Bell Mark Tobacco Company & Ors. Vs. Government of Tamil Nadu and Circulars like F. No. 81/5/87-CX.3 dated 23.06.1987, which support the classification of their product as unmanufactured tobacco.

2. Allegation of misclassification and evasion of tax:
The Revenue alleged that the Appellants misclassified their product to evade tax, arguing that it should be classified under CTH 2403 as 'Chewing Tobacco' due to its use and packaging. The DGGI investigation concluded that the product was misclassified, leading to a demand for Basic Excise Duty (BED) and National Calamity Contingent Duty (NCCD). However, the Tribunal found that the product did not undergo any process that would change its classification from unmanufactured to manufactured tobacco. The test reports from the Central Revenue Controls Laboratory confirmed that the product remained as cut tobacco leaves, supporting the Appellants' classification under CTH 2401.

3. Applicability of extended period of limitation:
The Tribunal also considered whether the extended period of limitation could be invoked. The Appellants argued that there was no intention to evade tax, as they had consistently classified their product under Chapter Heading 2401, declared it in their ER-1 returns, and undergone regular audits. The Tribunal agreed, citing cases like Narmada Bio Chem Pvt. Ltd. Vs. C.C.E. & S.T. - Vadodara-I and CCE, Chandigarh Vs. Raja Forgings & Gears Ltd., and concluded that the extended period of limitation was not applicable due to the absence of suppression of facts or fraud.

Conclusion:
The Tribunal set aside the impugned order, holding that the Appellants' product was correctly classified under CTH 2401 as 'Unmanufactured Tobacco', and therefore, the demand for BED and NCCD was not sustainable. The appeal was allowed.