2019 (6) TMI 265 - AT - Central Excise

Tribunal overturns order, classifies product as unmanufactured tobacco, emphasizes natural justice, finds examiner's reports unreliable.

M/s Borsad Tobacco Co. Pvt. Ltd., M/s Sopariwala Exports Pvt. Ltd., Arif Abdul Kader Fazlani, Faisal Yunusbhai Fazlani, Rafiquebhai Sattarbhai Kutchi, Salimbhai Yakubbhai Momin, Shirajbhai Gulamnabi Vekariya Versus C.C.E. & S.T., Ahmedabad-iii

M/s Borsad Tobacco Co. Pvt. Ltd., M/s Sopariwala Exports Pvt. Ltd., Arif Abdul Kader Fazlani, Faisal Yunusbhai Fazlani, Rafiquebhai Sattarbhai Kutchi, ... 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.