2025 (4) TMI 1063 - AT - Central Excise

Rate of duty - Cassification of the goods manufactured by the appellant - classifiable as Jarda Scented Tobacco (JST) covered by Tariff Entry 2403 9930 or as Chewing Tobacco (CT) covered by Tariff Entry 2403 9910 - Evasion of payment of higher rate of duty - levy of interest and penalty - HELD THAT - The issue is no longer res integra and has been decided by the Apex Court by a recent decision in Commissioner of Central Excise Ahmedabad versus Urmin Products P. Ltd Ors. 2023 (10) TMI 1112 - SUPREME COURT where the Apex Court considered the issue with reference to seven separate appellants and the appeal filed by the revenue against the appellant was considered at Sl. No.3. In the said decision the Apex Court concluded that the assessee had mis-classified the goods from JST to CT for evading payment of higher duty. The issue was therefore decided against the appellant and in favour of the Revenue. The relevant observations of the Apex Court as rendered in the lead matter of Urmin Products and which has been held to be squarely applicable to the facts of the present appellant. The learned counsel for the appellant submits that the decision of the Apex Court in Urmin Products is not applicable to the present appeal as the appeal before the Apex Court had arisen from the order of the Tribunal dated November 14 2018 whereby the order passed by the Commissioner (Appeals) was set aside where the challenge was to the order passed by the Assistant Commissioner dated August 28 2015 for the period June 2015 to August 2015 whereas the present appeal arises out of the order dated July 16 2018 passed by the Adjudicating Authority. There are no merits in the submissions of the learned Counsel for the simple reason that the issue decided by the Adjudicating Authority in the present case is whether the appellant misclassified and mis-declared their manufactured goods as Chewing Tobacco instead of Zarda Scented Tobacco . Levy of interest - HELD THAT - The appellant having failed to discharge the duty liability on the goods manufactured by them as JST they are liable to pay interest on the duty amount which is automatically leviable. As noted by the Adjudicating Authority the decision of the Apex Court in Pratibha Processors versus Union of India 1996 (10) TMI 88 - SUPREME COURT that interest is compensatory in character and is imposed on an assessee who was withheld payment of any tax as and when it is due and payable and that the levy of interest is in accordance with the actual amount of tax withheld. Levy of penalty - HELD THAT - The Apex Court in Urmin Products has also noted the conduct of the appellant in suppressing the facts from the Department by mis-declaring and mis-classifying their goods from time to time was with intent to evade payment of central excise duty. In view thereof the Adjudicating Authority has rightly confirmed the penalty of equivalent amount under the provisions of Rule 18 of Unmanufactured Tobacco Packing Machines (Capacity Determination Collection of Duty) Rules 2010 read with section 11AC of the Act and rule 25 of Central Excise Rules 2002. Conclusion - The appellant s goods are correctly classifiable as Jarda Scented Tobacco under Tariff Entry 2403 9930 not as Chewing Tobacco. Appeal dismissed.

Summary

The primary legal issue considered is the correct classification of goods manufactured by the appellant, specifically whether the goods fall under the category of "Jarda Scented Tobacco" (JST) covered by Tariff Entry 2403 9930 or "Chewing Tobacco" (CT) covered by Tariff Entry 2403 9910. This classification impacts the applicable rate of central excise duty and the consequent duty liability.

Another core issue is whether the appellant deliberately misclassified the goods to evade payment of higher central excise duty, and the consequent imposition of interest and penalty for such evasion.

Additionally, the applicability and binding nature of the Apex Court's decision in a related matter involving similar facts and parties, specifically the decision in Commissioner of Central Excise, Ahmedabad versus Urmin Products P. Ltd. & Ors., was considered in determining the present appeal.

Lastly, the procedural correctness and scope of the adjudicating authority's order, including the interplay between prior administrative orders and the show cause notice issued under Section 11A of the Central Excise Act, were examined.

Issue 1: Classification of Goods - JST vs. CT

The relevant legal framework involves the Central Excise Tariff Act, specifically Tariff Entries 2403 9930 for "zarda/jarda scented tobacco" and 2403 9910 for "chewing tobacco." The classification determines the applicable duty rates under the Central Excise Act, 1944, and the assessment mechanism under Section 4 or Section 4A of the Act. The Notification No. 2 of 2006 dated 01.03.2006, superseding Notification 13 of 2002, specifies goods covered under Section 4A for MRP-based assessment. Notably, "zarda/jarda scented tobacco" is not covered under this notification, implying assessment under Section 4 with higher duty, whereas "chewing tobacco" is covered under Section 4A with lower duty after abatement.

The Apex Court in Urmin Products held that the appellant misclassified goods as CT instead of JST to avoid paying higher duty. The Court relied on chemical analysis reports from the Central Revenue Chemical Laboratory (CRCL) confirming that the samples had identical ingredients and characteristics consistent with JST, including the presence of tobacco and flavouring agents but no added lime. The manufacturing process was also found to be consistent with JST.

The adjudicating authority in the present case relied on the CRCL report and factual evaluation, concluding that the appellant's goods were indeed JST and not CT. The appellant's communication and manufacturing process confirmed this classification. The Court rejected the appellant's contention that the Apex Court's decision was not applicable, emphasizing that the present appeal arises from the same facts and that the Apex Court's ruling is binding precedent.

The appellant's attempt to change classification based on fluctuating duty rates was viewed as deliberate misclassification aimed at evading higher duty. The Court noted that the appellant initially declared the product as JST and later changed it to CT without any change in the product's nature or manufacturing process.

Issue 2: Intentional Misclassification and Duty Evasion

The Court examined the appellant's conduct in light of the evidence, including communications, sample test reports, and manufacturing details. The Apex Court in Urmin Products observed that the appellant's frequent changes in classification were motivated by duty avoidance. The CRCL report confirmed the identical nature of the products irrespective of the classification claimed.

The adjudicating authority found that the appellant deliberately misled the department by classifying the product under the tariff heading with a lower duty rate. This constituted suppression of facts and mis-declaration with the intent to evade central excise duty.

The Court upheld the imposition of the differential duty demand along with interest, applying the principle that interest is compensatory and imposed on the amount of tax withheld, as established in Pratibha Processors versus Union of India. The appellant's failure to discharge the correct duty liability attracted automatic interest liability.

Issue 3: Penalty Imposition

The Court upheld the penalty imposed under Rule 18 of the Unmanufactured Tobacco Packing Machines (Capacity Determination & Collection of Duty) Rules, 2010, read with Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002. The penalty was justified on the grounds of deliberate misclassification and evasion of duty.

The Apex Court's observations on the appellant's conduct were relied upon to affirm the penalty, emphasizing that suppression and mis-declaration with intent to evade duty warrant penal consequences.

Issue 4: Applicability of Apex Court Decision and Procedural Aspects

The appellant argued that the Apex Court's decision in Urmin Products was not applicable as it arose from different orders and periods. The Court rejected this argument, noting that the issues and facts are substantially the same, and the Apex Court's ruling is binding on all courts and tribunals.

The Court clarified that the present proceedings arose from the show cause notice dated February 2, 2016, which followed earlier administrative orders by the Assistant Commissioner regarding classification and duty liability. The Commissioner (Appeals) had disposed of earlier appeals by granting liberty to raise all grounds before the adjudicating authority in the show cause notice proceedings.

The adjudicating authority's order dated July 16, 2018, confirming the duty demand and penalty, was thus a proper exercise of jurisdiction. The Court noted that the earlier Tribunal order allowing the appellant's appeals was set aside by the Apex Court, restoring the Commissioner (Appeals) order and validating the adjudication process.

Significant Holdings:

"The assessee being aware that there being no change in the nature of the products, its ingredients and also the manufacturing process had changed and misclassified the product as 'chewing tobacco' from 'zarda/jarda scented' tobacco. Had the assessee continued its classification as 'zarda/jarda scented tobacco', the duty payable as per transaction value under Section 4 of the CE Act would have been much more than the determination under Section 4A of CE Act after 50 % abatement. It is for this precise reason for avoiding and evading payment of the higher duty, the classification was deliberately changed from 'zarda/jarda scented tobacco' to 'chewing tobacco'."

"From the outcome of the test report of Chemical Examiner vide letter dated 03.06.2015 in respect of sample taken, it can be safely concluded that all the samples were having the same ingredients and, therefore, were showing the identical characteristics i.e. it is containing mainly 'tobacco and flavouring agent. It does not contain added lime. Here, this fact becomes obvious that all the samples were of identical items and by the very existence of flavouring agent in them, the impugned manufactured item is nothing but Jarda Scented Tobacco."

"The levy of interest is compensatory in character and is imposed on an assessee who was withheld payment of any tax as and when it is due and payable, and that the levy of interest is in accordance with the actual amount of tax withheld."

The Court concluded that the appellant's goods are correctly classifiable as "Jarda Scented Tobacco" under Tariff Entry 2403 9930, not as "Chewing Tobacco." The appellant's deliberate misclassification to evade higher duty was established based on chemical analysis and consistent manufacturing processes. The duty demand, interest, and penalty imposed are justified and upheld. The appeal was dismissed, affirming the impugned order of the adjudicating authority in accordance with the binding Apex Court precedent.