Tobacco classification dispute over flavoured chewing tobacco versus zarda scented tobacco resolved by accepting flavoured chewing tobacco, duty set aside

CESTAT considered whether the product was zarda scented tobacco or flavoured chewing tobacco for excise classification and duty liability. The tribunal relied on product labelling and absence of any added zarda scent and on the manner of sale to characterize the goods as flavoured chewing tobacco; accordingly the classification as zarda scented tobacco was rejected and the resultant demand for differential duty and imposed penalties were set aside.

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Issues involved: Classification of goods under Central Excise Tariff Act, 1985; Assessment based on MRP; Change in tariff classification; Notification interpretation; Applicability of extended period for show cause notice.

Detailed Analysis:

1. Classification of Goods: The case involved the classification of 'Baghban chewing tobacco' manufactured by the appellants under the Central Excise Tariff Act, 1985. The appellants initially classified the product under sub-heading 2404.41 but faced a challenge due to changes in the tariff structure post the introduction of the 8-digit tariff.

2. Assessment based on MRP: The Notification No. 13/2002-C.E. (N.T.) specified goods under Heading 2404.41 for MRP-based assessment. Despite changes in the tariff structure, the notification continued to cover goods under the old heading, ensuring MRP assessment for products falling under the specified category.

3. Change in Tariff Classification: Post the introduction of the 8-digit tariff, chewing tobacco and preparations containing chewing tobacco were separately classified under different categories, with Zarda Scented Tobacco falling under 240399.30. The challenge arose when the appellants' product was questioned for classification under Zarda Scented Tobacco.

4. Notification Interpretation: The Notification No. 2/2006-C.E. (N.T.) further specified goods for MRP-based assessment, including items under 240399.10, 240399.20, and later 240399.30. The appellants sought a change in classification from Zarda Scented Tobacco to Chewing Tobacco, leading to a dispute over the correct categorization of their product.

5. Applicability of Extended Period: The show cause notice issued to the appellants raised concerns over the classification of Zarda Scented Tobacco and the subsequent duty implications. The appellants argued against the invocation of the extended period, citing their proactive intimation of the proposed classification change and the absence of any deliberate misdeclaration.

6. Final Judgment: The Tribunal analyzed the evidence presented by both sides regarding the nature of the product and its classification. Considering the labeling, manufacturing process, and sales descriptions provided by the appellants, the Tribunal concluded that the product was correctly classified as Flavoured Chewing Tobacco. Consequently, the demand for differential duty was dismissed, and penalties imposed were set aside. The Tribunal also ruled in favor of the appellants regarding the limitation period for issuing the show cause notice, providing consequential relief to the appellants.

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