2017 (2) TMI 573 - AT - Central Excise

Natural justice - Whether the goods manufactured by the appellants were branded Chewing Tobacco or Gutkha/Pan Masala? - Held that - the date of search, every statements indicates that appellants were manufacturing branded Chewing Tobacco and none of the statements indicated that the goods manufactured by the appellant as on 27.02.2010 were Gutkha or Pan Masala - also, the Officers on visit never raised any doubt about the nature of the goods manufactured them to be Gutkha or Pan Masala. The SCN at the beginning discusses about the branded Chewing Tobacco being manufactured by the appellants and suddenly the said SCN started making allegations that the goods manufactured by appellants were Gutkha/Pan Masala. The SCN indicates that it was within the knowledge of the Revenue that the goods manufactured by the appellants was branded Chewing Tobacco. If on the basis of test report submitted by the Shriram Institute for Industrial Research, Delhi, Revenue had a reason to believe that the goods manufactured by appellants were Gutkha/Pan Masala, then under Law it was necessary for Revenue to issue SCN to the appellant calling upon them to show cause as to why the goods manufactured by them should not be treated as Gutkha/Pan Masala classifiable under Tariff Item No. 2403 9990. Instead Revenue unilaterally concluded that the goods manufactured by appellants were Gutkha/Pan Masala. Therefore, there has been violation of principle of natural justice and said SCN indicates the pre judging of the issue by the framers of the charge in the SCN - there has been miscarriage of justice. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of the products manufactured by the appellants.
2. Validity of the test reports used by the Revenue.
3. Admissibility of computer printouts as evidence.
4. Compliance with principles of natural justice.
5. Imposition of penalties and recovery of duties.

Detailed Analysis:

1. Classification of the Products:
The core issue revolved around whether the products manufactured by the appellants should be classified under Tariff Item No. 2403 9990 as Pan Masala or Gutkha. The appellants argued that they were manufacturing branded Chewing Tobacco, not Pan Masala or Gutkha, and provided details of their products to the Central Excise Department, which were verified multiple times without any discrepancies being noted. The appellants contended that their products did not contain Lime or Kattha, essential ingredients for classification as Pan Masala or Gutkha. The Tribunal found that the initial statements recorded during the search indicated that the appellants were manufacturing branded Chewing Tobacco, and no evidence of Lime or Kattha was found during the raids.

2. Validity of the Test Reports:
The Revenue relied on test reports from Shriram Institute for Industrial Research, Delhi, which indicated the presence of Lime and Kattha in the samples. However, the appellants questioned the validity of these reports, arguing that the samples were supposed to be tested by the Central Revenue Control Laboratory, New Delhi, and not a private laboratory. The Tribunal noted that the Revenue failed to provide any order from the Department of Revenue authorizing the use of Shriram Institute for testing. Additionally, the appellants had their samples tested by a State Government laboratory, which did not find Lime or Kattha in the products.

3. Admissibility of Computer Printouts:
The appellants contested the reliance on computer printouts, arguing that the conditions stipulated under Section 36B of the Central Excise Act, 1944, were not met. The Tribunal found inconsistencies in the retrieval process of the data from electronic devices, which raised doubts about the reliability of the printouts used as evidence by the Revenue.

4. Compliance with Principles of Natural Justice:
The Tribunal observed that the show-cause notice issued by the Revenue unilaterally concluded that the products were Pan Masala or Gutkha without giving the appellants an opportunity to present their case. This action was deemed a violation of the principles of natural justice, as the appellants were not given a fair chance to contest the classification of their goods.

5. Imposition of Penalties and Recovery of Duties:
The Original Authority had confirmed substantial demands of duty and imposed equivalent penalties on the appellants under various sections and rules. However, due to the aforementioned issues, particularly the lack of reliable evidence and the violation of natural justice, the Tribunal set aside the show-cause notice and the Order-in-Original, thereby nullifying the demands and penalties imposed on the appellants.

Conclusion:
The Tribunal concluded that the show-cause notice and the subsequent Order-in-Original were not sustainable due to the lack of reliable evidence, improper testing procedures, and violation of natural justice. Consequently, the appeals were allowed, and the demands and penalties imposed on the appellants were set aside.

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