2024 (12) TMI 1620 - AT - Central Excise

CRCL retest finds product not declared chewing tobacco; revenue appeal dismissed for lack of merit under precedent

Commissioner of Central Excise & CGST, Varanasi Versus M/s KG Pan Products Pvt. Ltd.,

CESTAT affirmed dismissal of the revenue's appeal: the adjudicating authority properly relied on the CRCL retest concluding the appellant's product was ... Short payment of Central Excise duty - duty paid according to the declaration filed by them in Form 1 treating their goods as chewing tobacco and information was submitted as required in Form 2 - recovery of short paid duty alongwith interest and penalty - HELD THAT:- Admittedly the adjudicating authority has in the present case proceeded to decide the issue on the basis of the second test report given by CRCL after retesting of the samples and have concluded that the product of the appellant was other than Jarda scented tobacco, we do not find any infirmity in the approach adopted. At the best he could have asked for yet another retest of the sample. Revenue has not challenged the impugned order on this ground. In case of Som Flavour Masala Pvt. Ltd [2022 (8) TMI 1050 - CESTAT CHANDIGARH] bench has held that 'The Director, CRCL is the only appellate authority in respect of re-test of samples and as per records no appeal has been made to the Director, CRCL against the opinion given by the Jt. Director, CRCL and therefore the opinion of Jt. Director, CRCL is final and it cannot be brushed aside just because it is not in favour of the department. In our view, the opinion of Jt. Director, CRCL is in line with Indian Standard prescribed by BIS. He did not classify the goods but gave his technical opinion that the sample is of chewing tobacco.' - This order of the tribunal has been affirmed by the Supreme Court in C.G. AND S.T.C.C.E. AND S.T ROHTAK VERSUS M/S. SOM FLAVOUR MASALA PVT. LTD. [2023 (2) TMI 1204 - SC ORDER]. There are no merits in the appeal filed by the revenue and in view of the discussions as above and the decision of Hon’ble Madras High Court relied upon by the adjudicating authority in his order - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the manufactured product during May-August 2015 is classifiable as Jarda Scented Tobacco (tariff sub-heading for scented tobacco) or as Chewing Tobacco (different tariff sub-heading) for purposes of levy under the Packing Rules and First Schedule to the Central Excise Tariff Act. 2. Whether the Revenue can sustain demand for differential duty, interest and penalties when initial laboratory reports and subsequent re-test reports from the departmental laboratory (CRCL) differ. 3. What weight and legal effect should be attached to initial test reports vis-à-vis re-test reports from the same departmental laboratory; and whether the re-test report, once accepted/uncontested, requires the adjudicating authority to drop the demand. 4. Whether the Unmanufactured Tobacco Packing Machines (Capacity Determination & Collection of Duty) Rules, 2010 or related provisions empower the officer to change the classification declared by the assessee absent conclusive technical evidence to the contrary. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proper classification: Jarda Scented Tobacco v. Chewing Tobacco Legal framework: Classification is governed by the First Schedule to the Central Excise Tariff Act and the General Rules for interpretation of the Schedule; levy and collection mechanism for the products in question is governed by the Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination & Collection of Duty) Rules, 2010 (Packing Rules), read with Notification issued thereunder. MDL/ACP determination under Rule 6 and duty payment/intimation under Rule 9 are relevant. Precedent treatment: Principles of tariff classification (rules of interpretation, applicability of general rules) and doctrine that classification depends on description, common parlance and constituents; case law cited establishes that classification requires proper application of these principles and may be influenced by technical reports. Interpretation and reasoning: The Court examined the Form-1 declaration of the unit (product declared as chewing tobacco), the provisional MDL fixed by Assistant Commissioner treating goods as Jarda scented tobacco, and the technical reports from CRCL. Classification dispute turns on objective characteristics of the product (presence of flavourant/pleasant odour, presence or absence of lime) as identified by laboratory analysis and the statutory interpretation rules. The adjudicating authority correctly identified the central question as whether products were Jarda scented tobacco (24039930) or chewing tobacco (24039910). The Court relied on the re-test CRCL findings which described the samples as containing tobacco bits, flavourant and added lime and expressly stating the samples were preparations containing chewing tobacco and were other than Jarda scented tobacco. Given that re-test results confirmed the product as chewing tobacco and the assessee had declared the same and paid duty accordingly, the Court concluded classification in favour of chewing tobacco. Ratio vs. Obiter: Ratio - where authoritative departmental re-test report classifies the samples as chewing tobacco and the assessee consistently declared and paid duty as such, the classification must follow the conclusive re-test result unless valid grounds exist to prefer the earlier test. Obiter - discussions on competing interpretive rules and the detailed catalogue of product meanings are supportive reasoning but not discrete holding beyond application to facts. Conclusions: The products were held to be chewing tobacco as declared by the assessee; therefore classification under chewing tobacco sub-heading was upheld and the differential classification to Jarda scented tobacco was not sustained. Issue 2 - Effect of divergent laboratory reports and entitlement to benefit of re-test Legal framework: Chapter 11 (Samples) of the Central Excise Law Manual and applicable circulars (Board guidance) govern sample testing/re-testing, and permit reliance on re-test results; statutory adjudicatory powers under Central Excise Act apply for demanding duty under section 11A and interest under section 11AA where appropriate. Precedent treatment: Authorities cited (including High Court and Tribunal decisions) establish that where initial and subsequent tests differ, the re-test may be preferred, and in cases of non-conclusive or conflicting evidence the benefit ordinarily goes to the assessee. Prior rulings indicate the Department cannot discard a re-test it previously accepted and that differing test conclusions cannot be picked selectively to suit revenue. Interpretation and reasoning: The Court analyzed chronology: initial CRCL report indicated characteristics of Jarda scented tobacco; assessee sought re-test on duplicate/triplicate samples, re-test was authorized and conducted; re-test report concluded product was chewing tobacco other than Jarda scented tobacco. The adjudicating authority relied on the re-test. The Court noted relevant case law where tribunals/high courts have preferred re-test reports and observed Board circular permitting the competent authority to consider re-test without prejudice to first test, or to state reasons if selecting one over the other. The Court found no infirmity in relying on the re-test; the Department did not challenge the re-test or demonstrate procedural infirmity in re-testing process. Where departmental laboratory re-test reverses earlier report and the revenue does not contest validity, adjudication in favour of assessee is proper. Ratio vs. Obiter: Ratio - where a departmental laboratory, after authorized re-test on preserved duplicate/triplicate samples, reports contrary findings favouring the assessee and the revenue does not furnish convincing reasons to prefer the earlier report, the adjudicating authority may and should rely on the re-test report; benefit goes to the assessee on inconclusive/conflicting scientific evidence. Obiter - discussion of possible further retest options and Board circular guidance are explanatory. Conclusions: The re-test report was correctly relied upon; differing laboratory reports do not permit the Department to sustain demand absent persuasive basis to reject the re-test. The demand for differential duty based on the earlier report could not be sustained. Issue 3 - Burden of proof and competence of laboratory to opine on classification Legal framework: Burden of proof on classification lies with the Revenue when it seeks to alter classification and demand differential duty; laboratories provide technical analysis of composition/constituents-their role is to report test results and technical opinion, while ultimate legal classification is by the adjudicating authority applying tariff rules. Precedent treatment: Decisions were cited holding that Chemical Examiner's role is to furnish test results and not to express tariff classification; however the head of laboratory (Joint Director/Director) may give technical opinion which the adjudicating authority may accept. Interpretation and reasoning: The Court observed CRCL's reports described constituents and characteristics and, on re-test, the Joint Director's opinion that samples were preparations containing chewing tobacco and other than Jarda scented tobacco. The Court rejected the Revenue's contention that CRCL exceeded jurisdiction; it held that CRCL's technical opinion as to sample composition is permissible and relevant to classification. The Court also noted that burden of proof for classification lies with Revenue and that where technical evidence (re-test) supports assessee's declared classification and duty paid, the Revenue's contrary provisional classification is not sustainable. Ratio vs. Obiter: Ratio - technical opinions given by departmental laboratory heads on composition are admissible and relevant; but ultimate legal classification remains for adjudicator applying tariff rules. Obiter - remarks on the limited role of Chemical Examiner vs Director of lab are explanatory of institutional functions. Conclusions: The re-test technical opinion was within permissible scope and adequately addressed the composition questions necessary for classification; Revenue failed to discharge burden to show the product was Jarda scented tobacco. Issue 4 - Liability for differential duty, interest and penalty under applicable rules Legal framework: Section 11A/11AA of the Central Excise Act (demand and interest) and Rule 19 of Packing Rules (recovery) and Rule 25 Central Excise Rules (penalty) govern consequences for short payment and contravention of packing rules. Interpretation and reasoning: Because the Court accepted that the goods were chewing tobacco as declared and the assessee had paid duty accordingly (supported by uncontested re-test), there was no short payment attributable to misclassification by the assessee. The impugned demand for differential duty, interest and penalties rested on the assumption of a different classification which was not sustained. The Court noted that, at most, the adjudicator could have sought another retest, but Revenue did not challenge the order on that ground. Ratio vs. Obiter: Ratio - where classification is established in favour of the assessee by authoritative re-test and the Revenue does not successfully rebut that result, claims for differential duty, interest and penalty based on the alternative classification fail. Obiter - possible procedural remedies (further retest) where variation exists are noted but were not required here. Conclusions: Demands for differential duty, interest and penalties were not sustainable and the adjudicating authority correctly dropped the proceedings.