2022 (8) TMI 826 - AT - Central Excise

Tribunal rules in favor of appellants, classifying product as chewing tobacco.

M/s. Tej Ram Dharam Paul Versus Commissioner of Central Goods, And Service Tax, Rohtak

M/s. Tej Ram Dharam Paul Versus Commissioner of Central Goods, And Service Tax, Rohtak - TMI Issues Involved:1. Classification of the goods manufactured by the appellants.2. Determination of Central Excise duty, interest, and penalty.3. Validity of test reports and their compliance with BIS specifications.4. Correctness of the department's reliance on CRCL reports for classification.5. Application of Trade Parlance Test.6. Calculation of Central Excise duty based on machine operation.Detailed Analysis:1. Classification of the Goods Manufactured by the Appellants:The primary issue was whether the product should be classified as 'chewing tobacco' under heading 24039910 or 'jarda scented tobacco' under heading 24039930. The appellants initially classified their product as jarda scented tobacco but changed it to chewing tobacco based on the department's instructions and subsequent CRCL test reports. The department later insisted on reclassifying the product as jarda scented tobacco based on new test reports.2. Determination of Central Excise Duty, Interest, and Penalty:The department issued a show cause notice demanding Rs. 4,47,72,842/- as Central Excise duty, interest, and penalty, invoking the extended period of five years under Section 11A of the Central Excise Act, 1944. The Adjudicating Authority confirmed the demand and imposed penalties on the appellants.3. Validity of Test Reports and Their Compliance with BIS Specifications:The CRCL test reports were central to the department's case. However, the reports only mentioned the calcium content and pleasant odor, without addressing the four mandatory characteristics of jarda tobacco as per BIS specifications (Moisture Content, Nicotine, Total Ash, Acid Insoluble Ash). The Chemical Examiner's cross-examination revealed that the tests did not follow the BIS standards, making the CRCL reports unreliable for classification purposes.4. Correctness of the Department's Reliance on CRCL Reports for Classification:The department's reliance on CRCL reports was found to be misplaced. The CRCL itself stated that it should not be asked to classify goods. The department's repeated attempts to get a favorable classification from CRCL cast doubt on the integrity of the process. The Tribunal held that the CRCL reports did not provide a valid basis for reclassification.5. Application of Trade Parlance Test:The Tribunal emphasized the importance of the Trade Parlance Test, which determines the classification based on how the product is understood in the trade by dealers and consumers. The product was consistently described and known as 'chewing tobacco' in the market. The Tribunal cited Supreme Court rulings that support using the common understanding of a product for classification in fiscal statutes.6. Calculation of Central Excise Duty Based on Machine Operation:The appellants disputed the calculation of duty, arguing that the department assumed full-month operation of packing machines, while the machines were often sealed and de-sealed. The department's calculation method was challenged, but the Tribunal did not provide a detailed ruling on this specific issue in the summary.Conclusion:The Tribunal concluded that the department failed to prove its case for reclassification as jarda scented tobacco. The CRCL reports did not comply with BIS specifications, and the department did not provide sufficient evidence beyond the reports. The product was known as chewing tobacco in trade parlance, supporting the appellants' classification. The impugned order was set aside, and the appeal was allowed with consequential relief as per law.