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2019 (6) TMI 265 - AT - Central ExciseClandestine manufacture and removal - clearance of Afzal brand Snuff tobacco products falling under Chapter 24 of CETA 1985 without Central excise registration and without payment of duty - entire case of the Department is based on the test report given by the Chemical Examiner - HELD THAT - The chemical examiner report cannot be relied upon in the light of the fact that when M/s SEPL had applied for retest of the samples by an independent entity the department did not accept such request. Also there is no fault of the Appellant if the samples could not be re-tested after 9 years only due to lacuna on the part of the Revenue - We also find from the statement of the directors and supervisors and employees of the appellant as well as M/s SEPL that they were purchasing Culcutti tobacco / raw tobacco from farmers and undertook during cutting crushing and grinding of tobacco and convert the same into Gadia Powder which was packed in 50 kg bags. No evidence has been adduced by the Department to show that the appellants purchased any katha calcium oxide or flavouring agents. Even the chemical examiner in his report never stated that the goods were fermented and subsistence like calcium oxide katha were added to the goods in order to hold the goods as chewing tobacco; the process of chewing tobacco is not complete unless it is fermented and liquored. Whereas the report of the chemical examiner says that the same is a coarse brown powder and if the same would have been chewing tobacco it would not have been coarse brown powder as after mixing of katha and calcium oxide the product may not remain so. The appellants had requested for cross examination of the chemical examiner as well as the cross examination of persons under the provisions of Section 9D of the Central Excises Act whose statements were relied upon. However no such opportunity was granted to them - When the appellants since the very first day itself were claiming their goods to be tobacco powder it was imperative for the Revenue to test the samples properly and conduct a market enquiry. It is coupled with the fact that the officers did not find any mixtures or machines in which the process of mixing the tobacco flakes with katha calcium oxide and flavouring agents takes place. Since the goods has remained un manufactured tobacco the same cannot be classified under impugned classification. Even the Department had accepted the fact that M/s SEPL are the owner of that goods. It is also not in doubt that the goods were ultimately for exports for which the relevant Bond / LUT were filed by M/s SEPL and evidence of exports was produced duly certified by the jurisdictional Superintendent of M/s SEPL before the adjudicating authority which shows that otherwise also the goods were for export purpose and not liable for duty. Since the chemical examiner report being inconclusive and the appellants were not granted re-test of the samples therefore the goods cannot be considered as chewing tobacco. It is coupled with the fact that no machines used for mixing of katha calcium oxide or flavouring agents were found to be installed in the factory of the appellant even though the factory was in running condition. The Appellant are merely getting the raw leaves and grinding them and after making powder putting them into 50 Kgs pack which is a bulk pack. The intention is not to market. Hence the nature of product would not take it into category of manufacture. The goods cannot be considered as manufactured chewing tobacco and would merit classification as unmanufactured tobacco falling under CTH No. 2401 since the only operation undertaken in respect of tobacco leaves was drying cutting and seining - the impugned order holding classification of goods under CTSH No. 2403 99 10 is not sustainable. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Whether the process undertaken by the appellant constitutes "manufacture" under the Central Excise Act. 2. Classification of the product as "manufactured tobacco" or "unmanufactured tobacco". 3. Validity and reliability of the Chemical Examiner's report. 4. Compliance with principles of natural justice regarding re-testing of samples. 5. Ownership and export status of the seized goods. 6. Imposition of duty, penalties, and confiscation of goods. Issue-wise Detailed Analysis: 1. Whether the process undertaken by the appellant constitutes "manufacture" under the Central Excise Act: The appellant, M/s Borsad Tobacco Pvt. Ltd. (BTPL), was engaged in processing raw tobacco through drying, cutting, and grinding into powder form known as "Gadia Powder." The Revenue alleged that the appellant was manufacturing and clearing excisable goods without registration and payment of duty. The Tribunal found that the processes undertaken by the appellant did not amount to "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The Tribunal relied on previous judgments, such as Iswar Grinding Mills vs. CCE and Shrikant Prasad vs. CCE, which held that crushing or grinding of tobacco leaves to form tobacco powder does not constitute manufacture. 2. Classification of the product as "manufactured tobacco" or "unmanufactured tobacco": The Revenue classified the appellant's product under Chapter sub-heading 2403 99 10 as "manufactured tobacco," subject to excise duty. The Tribunal, however, held that the product should be classified under Chapter heading 2401 as "unmanufactured tobacco," attracting NIL rate of duty. The Tribunal noted that the appellant's product, Gadia Powder, was merely dried, cut, and ground tobacco without any additional processes that would change its classification to manufactured tobacco. 3. Validity and reliability of the Chemical Examiner's report: The Chemical Examiner's initial report dated 28.03.2008 stated that the sample was "in the form of coarse brown powder" and "may be considered as manufactured tobacco." A subsequent report dated 22.04.2008 indicated the presence of calcium oxide, katha, and flavoring agents. The Tribunal found these reports inconclusive and noted discrepancies. The appellant had consistently requested re-testing of the samples, which was not granted, violating principles of natural justice. The Tribunal emphasized that the Chemical Examiner's reports lacked detailed analysis and were not reliable. 4. Compliance with principles of natural justice regarding re-testing of samples: The Tribunal observed that the appellant's request for re-testing of samples was not honored, and the samples were returned untested after nine years due to their expired shelf life. This failure to allow re-testing constituted a violation of the principles of natural justice. The Tribunal held that the adjudication based on the Chemical Examiner's inconclusive reports was not justified. 5. Ownership and export status of the seized goods: M/s Sopariwala Exports Pvt. Ltd. (SEPL), a group company of the appellant, claimed ownership of the seized goods and provided evidence of export. The Tribunal noted that the goods were provisionally released to SEPL, indicating acceptance of SEPL's ownership by the Revenue. The Tribunal also acknowledged that the goods were intended for export and were not meant for domestic clearance without duty payment. 6. Imposition of duty, penalties, and confiscation of goods: The Tribunal set aside the adjudicating authority's order, which had imposed excise duty, penalties, and ordered confiscation of the goods. The Tribunal concluded that the goods were unmanufactured tobacco, not subject to excise duty, and the appellant did not violate excise regulations. Consequently, the demand for duty, penalties, and confiscation was not sustainable. Conclusion: The Tribunal allowed the appeals filed by the appellants, setting aside the impugned order. The product was classified as unmanufactured tobacco under Chapter heading 2401, attracting NIL rate of duty. The Tribunal emphasized the importance of adhering to principles of natural justice and found the Chemical Examiner's reports unreliable. The confiscation of goods, demand for duty, and penalties were deemed unsustainable.
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