CLASSIFICATION BASED ON ASSUMPTION AND PREUSMPTIONS

Classification of goods

The classification of goods consists of determining the headings or sub headings of the Central Excise Tariff under which the goods would be covered. The actual amount of excise duty payable on excisable goods is dependent upon the rate of duty.  The rate of duty is determinable on the basis of classification of goods.  The classification of goods is also required to be decided for the purposes of determining the eligibility to exemptions, most of which are with reference to the Tariff Headings and sub headings.  Section 37B of the Central Excise Act, 1944 empowers the Central Board of Excise & Customs to issue orders, instructions and directions, for the purpose of uniformity in the classification of goods or with respect to the levy of excise duties on such goods.   Central Excise Tariff Act is based on the Harmonized system of Nomenclature (HSN).  When there is no ambiguity about the scope of the entry, the classification is to be done as per the entry in the tariff itself.  HSN explanatory notes can be resorted to in the case of ambiguity in classifying goods.

Assumption and presumption

The classification of goods ought to be done as per the rules of Tariff Act.  There shall be no assumption and presumption applied in classification of goods.  Especially the Department has to apply the rationality in classification of goods not inconsistent with the Rules of Tariff Act.   There shall be no role for assumption and presumption in classification of goods by the Revenue.

In ‘Durga Trading Company v. Commissioner of Central Excise & Service Tax, Lucknow’ – 2019 (1) TMI 820 - CESTAT ALLAHABAD the appellant is manufacturing the pan masala, branded chewing tobacco (BCT) and Jarda scented tobacco (JST).  The appellant was paying duty on BCT and filing regular ER – 1 return by classifying their product heading 2403 99 10 of Central Excise Tariff Act, 1985.  With effect from 01.03.2015 the rate of duty was increased to ₹ 38.64 lakhs per machine per month and duty on JST was fixed to ₹ 27.05 lakhs per machine per month.  Due to this change of rate the appellant filed declaration before the Revenue their products as JST.  The Assistant Commissioner held that that the appellant is not manufacturing JST and their product is only BCT.  The said order dated 04.03.2015 was accepted by the appellant and started paying duty at the enhanced rate.

Vide Notification No. 25/2015-CE, dated 30.04.2015 the rate of JST was enhanced from ₹ 27.05 lakhs to ₹ 82.11 lakhs per machine per month. Due to this change of rate the Revenue changed its opinion and challenged the order of Assistant Commissioner, dated 04.03.2015 which held that the product manufactured by the appellant is only BCT and not JST.  The appeal of the Revenue was allowed by the Commissioner (Appeals) who held that the product manufactured by the appellant is only JST and not BCT.  Against this order the appellant filed appeal before the Tribunal.

In the meantime the Revenue based on the order of Commissioner (Appeals) issued a show cause notice was issued to the appellant to demand duty holding their product as JST and the impugned demand has been confirmed and penalty was also imposed on the appellant.    The appellant filed appeal against this order also before the Tribunal.

The appellant submitted the following before the Tribunal-

• The appellant tried to take benefit under Notification No. 05/2015-CE, dated 01.03.2015 and filed declaration by showing that as they are manufacturing JST but the Adjudicating Authority held that the appellant has filed declaration under the guise of reduced rate of duty on JST.
• The said order of the Adjudicating Authority was accepted by the appellant and was paying duty accordingly.
• The dispute arose when the duty of JST was raised on the basis of which the Revenue began to review the order of the Adjudicating Authority and proceeded to file appeal before Commissioner (Appeals).
• The appeal was filed without examining the samples that whether the product is JST or BCT.
• The Commissioner (Appeals) cannot change the classification without examining the samples when the appellant paid the duty as per the order of Adjudicating Authority.
• The impugned order has been passed by the Commissioner (Appeals) on assumption and presumption holding that the appellant had filed correct declaration on 02.03.2015, which is without basis.
• In other proceedings in the appellant’s own case wherein the classification was changed from BCT to JST, the Commissioner (Appeals) held that in terms of declaration made in Rule 6 of Chewing Tobacco and Unmanufactured Tobacco Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010, the classification cannot be changed from BCT to JST.

The appellant, therefore, prayed that the order of Commissioner (Appeals) classifying their product as JST is to be set aside.

The Revenue put forth the following arguments before the Tribunal-

• The Commissioner (Appeals) has examined the issue and held that the product JST has been declared by the appellant in their declaration dated 02.03.2015.
• The authorized representative of the appellant has admitted their product Pukar Zarda 55 is consumed by mixing with pan masala and is not consumed independently.
• The mode of consumption of the said tobacco product is in harmony with the common accepted practice of jarda consumers.
• Selling of jarda in the garb of chewing tobacco also can tantamount to violation of consumer right which will be an illegal trade practice.
• Therefore the product manufactured by the appellant is only JST.

The Revenue, therefore, prayed that the appeal ought to be dismissed.

The Tribunal heard both sides and analyzed the facts of the case in the appeal.  It is an admitted fact that no sample at any stage was drawn to find out consumption of the product manufactured by the appellant.  Everything was going on the basis of the declaration filed by the appellant.  To find out the composition of the product, the samples are required to be drawn and test report is essential to classify the product.  The Tribunal held that the classification determined by the appellant as well Revenue was merely on assumptions and presumptions since no sample was drawn to find out the composition of the product.

The order of Adjudicating Authority was reviewed by the Revenue only when there is a change of rate for JST.  Before that the Revenue has no objection on the order of the Adjudicating Authority that the product manufactured by the appellant was only BCT.  If the enhancement of duty for JST would not have come into force, the order of Adjudicating Authority would not have reviewed.  The classification cannot be done on the basis of assumption and presumptions.

The Tribunal held that the declaration decided by the Adjudicating Authority is correct classification.  The Tribunal set aside the order of Commissioner (Appeals) and also set aside the demand of duty.