2017 (10) TMI 497 - AT - Central Excise

Clandestine manufacture and removal - Tobacco - 4,91,400 pouches of chewing tobacco on which no brand was mentioned and 8,59,950 pouches of Shiv Baba Brand scented Supari also called Pan Samagri were found in the manufacturing premises and some quantity of raw material and packing material was also available - cross-examination - Two different varying stands have been taken by Revenue with regard to processes applied for manufacturing of chewing tobacco - Contention of the Revenue as put forth in show cause notice is that packing of Unmanufactured tobacco in pouches converts it into manufactured chewing tobacco. Held that - No evidence has adduced or relied upon in the show cause notice to show that the Appellant ever purchased any kind of spices, perfumes, lime or any other kind of material that could be used for mixing with raw un-manufactured tobacco to render its transformation into manufactured chewing tobacco - The investigating officers have nowhere recorded in the Panchnama discovery of any machine, apparatus, appliances or vessels used for processing of raw un-manufactured tobacco or mixing it with any other material. Contention of Revenue as put forth in show cause notice, that packing of Unmanufactured tobacco in pouches converts it into manufactured chewing tobacco is totally misconceived and highly presumptive. Central Excise Tariff and the exemption notifications issued in relation to Unmanufactured tobacco and Chewing tobacco do not recognize any such proposition. It can be easily seen from 2010 Rules and Notifications issued thereunder that these prescribe the effective rates of duty per packing machine per month both in respect of Unmanufactured Tobacco bearing a brand name as well as for chewing tobacco, with and without lime tube/lime pouches. Thus, mere fact that raw un-manufactured tobacco is packed in pouches on FFS packing machines does not convert such unmanufactured tobacco into a manufactured product such as chewing tobacco - The provisions of 2010 Rules and N/N. 16/2010- C.E dated 27.02.2010 further make it amply clear that the Adjudicating Authority erred in taking the view that unmanufactured tobacco is transformed into manufactured chewing tobacco simply on account of packing in pouches of FFS Machines, irrespective of the nature of tobacco packed in pouches. With regard to the allegation that the Appellant was engaged in clandestine manufacturing and clearance of Shiv Baba Brand Scented Jarda/Chewing Tobacco in pouches bearing 50 Paise per pouch, it was contended that the Original Authority has in the impugned order merely reiterated the allegations leveled in the show cause notice and without discussing any facts and evidences to substantiate the allegation and held the Appellant to be guilty of being engaged in the manufacture of the said Shiv Baba Brand Scented Jarda/ Chewing Tobacco. Hon ble Supreme Court of India in the case of Damodar J. Malpani 2002 (9) TMI 114 - SUPREME COURT OF INDIA has held that the samples should be first sent for chemical analysis and thereafter the question of classification of the product should be taken up on the basis of the chemical analysis report and other materials. Therefore, we find that it is binding on all to decide the classification of goods on the basis of the report of CRCL laboratory on the chemical composition of the samples which were drawn from the manufacturing premises. CRCL has reported that sample was in the form of brownish bits of leaves and it was containing tobacco and that it did not contain any added lime or flavouring agent. The Original Authority has held that the goods manufactured by the appellant were Shiv Baba Brand scented Zarda chewing tobacco. There are no evidence to establish that during the period of show cause notice any of the 14 pouch packing machines were engaged in manufacture of Shiv Baba brand scented Zarda chewing tobacco by the appellant. There are no evidence in the whole proceedings to establish that during the entire period of show cause notice any of the 14 machines were engaged in the manufacture of Shiv Baba branded scented Zarda chewing tobacco of RSP 50 Paise. On the contrary when the officers visited the manufacturing premises on 14.10.2014 it was noticed that 6 machines put together in two premises were engaged in packing of unbranded unmanufactured chewing tobacco and there was no RSP mentioned nor brand name was mentioned on them and other 8 machines were engaged in packing of Shiv Baba brand scented Supari or Pan Samagri. Therefore, there was no evidence on record to establish that during the entire duration for which the show cause notice was issued any of the 14 machines were engaged in manufacture of Shiv Baba branded scented Zarda chewing tobacco of RSP of 50 Paise per pouch. The goods confiscated were not manufactured in the said raided premises. Hence the confiscation does not sustain - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the product as unmanufactured tobacco or manufactured chewing tobacco.
2. Validity of the Panchnamas and statements recorded during the investigation.
3. Applicability of Central Excise duty under Section 3A of the Central Excise Act, 1944.
4. Imposition of penalties on the appellants.

Detailed Analysis:

1. Classification of the Product:
The primary issue was whether the product in question was unmanufactured tobacco or manufactured chewing tobacco. The appellants argued that the product was unmanufactured tobacco, supported by the CRCL report, which indicated that the samples did not contain any lime or flavoring agents. The appellants relied on the Supreme Court judgment in Damodar J Malpani v/s Commissioner of Central Excise, which emphasized the importance of chemical analysis in determining the classification of goods. The Tribunal agreed with the appellants, noting that the CRCL report confirmed the product was unmanufactured tobacco, as it did not contain added lime or flavoring agents.

2. Validity of Panchnamas and Statements:
The appellants challenged the validity of the Panchnamas dated 14.10.2014 and the statements recorded during the investigation. They argued that the Panchnamas were not reliable as the Panch witnesses did not understand the contents and signed without proper explanation. During cross-examination, the Panch witnesses and other individuals confirmed that no scent or flavoring agents were mixed with the tobacco, and no mixing machines were found at the premises. The Tribunal found the Panchnamas and statements unreliable, as they lacked factual and scientific basis.

3. Applicability of Central Excise Duty:
The Revenue contended that the product was branded unmanufactured tobacco and thus subject to Central Excise duty under Section 3A of the Central Excise Act, 1944. However, the Tribunal found no evidence to support this claim. The CRCL report and cross-examination of witnesses confirmed that the product was unbranded and unmanufactured tobacco. The Tribunal noted that the Supreme Court's ruling in Damodar J Malpani required classification to be based on chemical analysis, which in this case, supported the appellants' claim.

4. Imposition of Penalties:
The Original Authority had imposed penalties on the appellants under Rule 26 of the Central Excise Rules, 2002, and confiscated goods. However, since the Tribunal found that the product was unmanufactured tobacco and not subject to Central Excise duty, the penalties and confiscation were not sustainable. The Tribunal set aside the Order-in-Original, which confirmed the demand for Central Excise duty and imposed penalties.

Conclusion:
The Tribunal concluded that the product in question was unmanufactured tobacco, not subject to Central Excise duty. The Panchnamas and statements were found unreliable, and there was no evidence to support the Revenue's claim. Consequently, the Tribunal set aside the Order-in-Original, including the demand for Central Excise duty, penalties, and confiscation of goods. The appeals were allowed, and the appellants were entitled to consequential relief as per law.