2019 (12) TMI 334 - AT - Central Excise

Classification of goods - chewing tobacco, perfumery compounds etc. - whether classified as Chewing Tobacco falling under Chapter Heading No.2403 99 10 or to be classified as Jarda Scented Tobacco falling under Chapter Heading 2403 99 30? - HELD THAT - The appellants were manufacturing the goods under the brand name of Baba and filed various declarations in terms of the provisions of Chewing Tobacco and unmanufactured Tobacco Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010 by describing the product as Chewing Tobacco. Such declarations were scrutinized by the Deputy Commissioner who fixed the capacity of the machines having the speed for the manufacture of Jarda Scented Tobacco. Chewing Tobacco and Jarda Scented Tobacco are classifiable under two different Tariff Items. The test report of the chemical examiner clearly reveals that the product in question is not Chewing Tobacco but the same is Jarda Scented Tobacco. Zarda is admittedly a variety of Chewing Tobacco but keeping in view two separate headings for Chewing Tobacco and Jarda Scented Tobacco leads us to conclude that the two products are different products classifiable under different tariff items and have to be assessed accordingly going by the ingredients of the product - such ingredients stand revealed by the test report of the chemical examiner supported by the statement of Shri Shashi Kumar Maheshwari. The issue of classification of Baba Zarda stands finally decided by the Hon ble High Court of Orissa in the case of MISHRA ZARDA TRADERS VERSUS STATE OF ORISSA 1987 (1) TMI 455 - ORISSA HIGH COURT . While dealing with classification of the said product, the Hon ble High Court observed that Baba Zarda Zafrani Patti Scented Tobacco is essentially Zarda and not Chewing Tobacco. The same is leviable to tax. It is the classification of the product which is relevant and the subsequent consequences of the same resulting in confirmation of demand of duty are result of the decision on the classification. Whether in the case of Sales Tax or in the case of Central Excise, once the product stand held as Jarda Scented Tobacco by the Hon ble High Court and there being no contra decision of any other High Court, the ratio of the said decision would be fully applicable to the facts of the present case. The appellants final product declared by them as Chewing Tobacco is essentially Jarda Scented Tobacco and stands correctly classified by the Lower Authorities under Tariff Items No.2403 99 30. As a consequence of classification of goods under said Heading, the confirmation of demand of duty by the Lower Authorities is proper and appropriate. Appeal dismissed.

Issues Involved:
1. Correct classification of the product: "Chewing Tobacco" vs. "Jarda Scented Tobacco".
2. Authority to determine product classification under Rule 6 of the 2010 Rules.
3. Validity of reliance on test reports from a different unit.
4. Estoppel in taxation matters.
5. Applicability of past classifications.
6. Market parlance vs. statutory definitions in classification.

Issue-wise Detailed Analysis:

1. Correct Classification of the Product:
The primary issue was whether the product declared by the appellants as "Chewing Tobacco" falls under Chapter Heading 2403 99 10 or should be classified as "Jarda Scented Tobacco" under Chapter Heading 2403 99 30, attracting a higher rate of duty. The Tribunal upheld the classification as "Jarda Scented Tobacco" based on the test reports which indicated the presence of tobacco, silver flecks, and fragrance, characteristics of scented tobacco. The Tribunal noted that the product was marketed under the same brand name "Baba" and had similar ingredients and manufacturing processes as another unit's product already classified as "Jarda Scented Tobacco".

2. Authority to Determine Product Classification under Rule 6 of the 2010 Rules:
The appellants contended that Rule 6 does not empower the proper officer to determine the correct classification of the product. The Tribunal rejected this argument, stating that the proper officer must verify the correctness of the product description to determine the capacity and duty liability accurately. The Tribunal emphasized that the declarations under Rule 6 are for determining the correct annual production capacity, which necessitates verifying the product's classification.

3. Validity of Reliance on Test Reports from a Different Unit:
The appellants argued that the test reports relied upon were from another unit of the same group and not their own. The Tribunal dismissed this argument, noting that both units manufactured identical products under the same brand name using similar ingredients and processes. The Tribunal held that the test report's findings were applicable to the appellant's product as well, supported by the General Manager's admission about the product's composition.

4. Estoppel in Taxation Matters:
The appellants argued that the classification of their product as "Chewing Tobacco" had been accepted by the Revenue for years and should not be changed. The Tribunal referred to the principle that there is no estoppel in taxation matters, allowing the Revenue to reclassify goods correctly based on merits, even if past classifications were erroneous. The Tribunal cited the Hon’ble Gujarat High Court decision in Mcgaw Ravindra Laab (I) Ltd. vs. UOI to support this view.

5. Applicability of Past Classifications:
The Tribunal noted that the past acceptance of the product as "Chewing Tobacco" does not preclude the Revenue from reclassifying it correctly in the future. The demand of duty related only to the period after the classification was changed, and not to the past periods when the classification was accepted as "Chewing Tobacco".

6. Market Parlance vs. Statutory Definitions in Classification:
The Tribunal emphasized that statutory definitions and technical literature should prevail over market parlance in determining the correct classification. The Tribunal cited various sources, including the BIS glossary and the Orissa High Court decision in Mishra Zarda Traders vs. State of Orissa, which distinguished between "Chewing Tobacco" and "Zarda". The Tribunal held that the product was correctly classified as "Jarda Scented Tobacco" based on its ingredients and characteristics, aligning with the statutory definitions.

Conclusion:
The Tribunal upheld the classification of the product as "Jarda Scented Tobacco" under Chapter Heading 2403 99 30, rejecting the appellants' contentions. The impugned orders were upheld, and all appeals were rejected. The Tribunal's decision was based on the test reports, statutory definitions, and the principle that there is no estoppel in taxation matters, allowing for correct reclassification irrespective of past practices.

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