Consistent tariff classification and confiscability findings determine the survival of duty demands and penalties in excise disputes.

Consistent self-declaration of a product as chewing tobacco under CETI 2403 99 10, reinforced by repeated departmental classification under the same entry, is discussed as defeating a contrary attempt to treat it as zarda scented tobacco under CETI 2403 99 30; on that basis, the differential duty demand and section 11AC penalty are described as unsustainable. The note also explains that rule 26 penalty requires a clear finding that the goods were liable to confiscation, and that absence of such a finding renders the penalty unsustainable.

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Issues: (i) Whether the product manufactured and cleared by the appellant was classifiable as chewing tobacco under CETI 2403 99 10 or as zarda scented tobacco under CETI 2403 99 30, and whether the duty demand and penalty under section 11AC of the Central Excise Act, 1944 could survive; (ii) Whether penalties imposed on M/s. R.R. Jhiriwal, Robin Jhiriwal and Rajan Jhiriwal under rule 26 of the Central Excise Rules, 2002 were sustainable.

Issue (i): Whether the product manufactured and cleared by the appellant was classifiable as chewing tobacco under CETI 2403 99 10 or as zarda scented tobacco under CETI 2403 99 30, and whether the duty demand and penalty under section 11AC of the Central Excise Act, 1944 could survive.

Analysis: The product had consistently been declared in ER-1 returns as chewing tobacco under CETI 2403 99 10, and the department had itself repeatedly passed orders classifying the same product under that tariff entry from 2012 onwards. In these circumstances, the department could not successfully contend, on the basis of the later proceedings, that the same product was zarda scented tobacco under CETI 2403 99 30. Once the classification in favour of chewing tobacco was accepted on the facts, the differential duty demand founded on the contrary classification could not stand, and the consequential penalty under section 11AC also failed.

Conclusion: The product was held classifiable as chewing tobacco under CETI 2403 99 10, and the demand of duty, interest and the section 11AC penalty were set aside.

Issue (ii): Whether penalties imposed on M/s. R.R. Jhiriwal, Robin Jhiriwal and Rajan Jhiriwal under rule 26 of the Central Excise Rules, 2002 were sustainable.

Analysis: Rule 26 required a finding that the goods were liable to confiscation. The impugned order did not contain a proper discussion or finding on confiscability, and the mere imposition of rule 26 penalty could not cure that defect. In the absence of the essential statutory ingredient, the penalties could not be sustained.

Conclusion: The penalties imposed under rule 26 of the Central Excise Rules, 2002 were unsustainable and were set aside.

Final Conclusion: The impugned adjudication order was held unsustainable in law, and all connected appeals were allowed with the entire adverse duty and penalty burden removed.

Ratio Decidendi: Where the department has consistently treated the goods under one tariff entry and the adjudication order does not record the essential finding that the goods are liable to confiscation, the contrary duty demand and rule 26 penalty cannot be sustained.

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