TaxTMI 
TaxTMI 
2026 (1) TMI 779
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....advocate Mr. Digant M. Popat, learned advocate Mr. Anandodaya S. Mishra and learned advocate Mr. Anand Nainawati for the respective petitioners and learned advocate Ms. Hetvi H. Sancheti, learned advocate Mr. Ankit Shah, learned advocate Mr. Maunil Yajnik, learned advocate Mr. Tirth Nayak, learned advocate Mr. Neel P. Lakhani and learned advocate Mr. C.B. Gupta for the respective respondents. 2. Rule returnable forthwith. Learned advocate Ms. Hetvi H. Sancheti, learned advocate Mr. Ankit Shah, learned advocate Mr. Maunil Yajnik, learned advocate Mr. Tirth Nayak, learned advocate Mr. Neel P. Lakhani and learned advocate Mr. C.B. Gupta waives service of notice of rule on behalf of the respective respondents. 3. This group of petitions pertain to issue of classification as to whether non fermented non liquored crushed tobacco leaves packed in small retail pouches as "Chewing tobacco" should be classified under Customs Tariff heading No. 2401 -"unmanufactured tobacco ; Tobacco Refuse" or Custom Tariff Heading No. 24039910-"chewing tobacco" attracting different rates of duty under the provisions of Goods and Services Tax Act, 2017 (For short "the GST Act"). 4. In view of simila....
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....d Central Excise, Vadodara -I issued a show cause notice on 28.06.2024 invoking extended period of limitation under section 74 of the GST Act to demand and recover Compensation Cess to the tune of Rs. 413,48,78,774/- for the period from July, 2017 to March, 2023 and GST amounting to Rs. 17,86,80,879/- for the period from June, 2019 to March, 2023 along with interest and penalty. 9. Another audit report dated 08.08.2024 was issued after conducting the audit under the provisions of the GST Act. However, neither issue of classification was raised, nor any reference of the show cause notice was made thereto. 10. The petitioners therefore challenged the show cause notice before this Court by preferring Special Civil Application NO. 15970 of 2024 on the ground of being arbitrary and in excess of jurisdiction. 11. This Court by order dated 27.11.2024 permitted the petitioner to raise all the contentions before the adjudicating authority and directed the respondent authorities to pass an order in accordance with law after providing an opportunity of hearing to the petitioners and after considering the reply of the petitioners. 12. The petitioners thereafter filed reply dated 24....
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....hewing Tobacco" without lime and hence, shall be classified under HSN 24039910 as per the World Customs Organisation. Moreover, the same is classified under Notification No. 01/2017-Compensation Cess (Rate) dated 28.06.2017 at Sr. No. 26 under the description "Chewing Tobacco (without lime tube)", with Chapter heading, subheading 24039910 attracting Compensation Cess rate at 160%. 19. Insofar as Special Civil Application No. 3657 of 2025 is concerned, brief facts are petitioner is a partnership firm engaged in the business of supply of raw, unmanufactured and unprocessed tobacco in form of dried and cut tobacco leaves without lime tube under the brand name "Suresh Tamakhu" in retail pouches of less than 10 grams. 20. It is the case of the petitioner that they have been classifying their product under Tariff Heading 2401 as unmanufactured tobacco since pre-GST regime i.e. under excise regime and in the certificate of registration granted to the petitioner on 12.05.1995 under Central Excise Act, 1944, it is explicitly stated that the petitioner is granted registration for manufacture of "Branded Unmanufactured Tobacco classifiable under Chapter Heading 2401 00". 21. The peti....
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....thout lime tube is 160%. 26. The petitioners filed detailed reply to the show cause notice dated 25.4.2023 and contested the demand mainly on the ground that the issue stands settled in their own case by decision of Tribunal vide Final Order Dated 15.5.2024 and also relied upon Board Circular F. No. 81/5/87-CX.3 dated 23.06.1987. 27. The Adjudicating Authority however confirmed the classification against the petitioners mainly on the ground that classification under Tariff Heading 2401 is incorrect observing that the product of the petitioners can be used as chewing tobacco and therefore, same is classifiable under Tariff Heading 2403 as "chewing tobacco". Further, Circular Dated 23.6.1987 has been distinguished on the ground that same is based on classification under Tariff Act whereas GST is based on Customs Tariff Act, 1975. Submissions on behalf of the petitioners: 28. Learned Senior Advocate Mr. Mihir Joshi with learned advocate Mr. Digant Popat for the petitioners in Special Civil Application No. 2407/2025, 2463/2025, 5014/2025 and 5015/2025 submitted that in Special Civil Application No. 2407 of 2025, the respondents have issued an Order classifying non-fermented....
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.... 2403 were merged and Tariff Heading 2404 was renumbered as Tariff Heading 2403. Since then, First Schedule of the Central Excise Tariff was fully aligned to Harmonized System till 2017 when same was subsumed under GST Act. 33. It was further submitted that, Tariff Headings 2401 and 2403 in First Schedule of Customs Tariff have been identical to the respective tariff entries in First Schedule of Central Excise Tariff. Thus, all directions, clarifications and judicial pronouncements on classifications issued under the erstwhile excise regime are relevant to define scope of Tariff Headings 2401 and 2403 under GST regime also. 34. Learned Senior Advocate Mr. Joshi submitted that since 1990, the petitioner has been classifying the impugned goods under Tariff Heading 2401. Such classification was also approved by the respondents under the "Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010" until commencement of GST regime. 35. Learned Senior Advocate Mr. Joshi submitted that the CBEC in Circular F. No. 81/5/87-CX.3 dated 23.06.1987 has categorically clarified that unmanufactured tobacco merely broken by beati....
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....cco right from the raw material stage up to the finished stage it remains under Chapter heading 2401 and by any stretch of imagination cannot be called as manufactured tobacco. Therefore, since the tobacco has not been converted into manufactured tobacco, taking the same into CTH 2403 is without authority of law. Consequently, the unmanufactured tobacco even though it is consumed as a chewing tobacco since same remained as unmanufactured tobacco cannot be classified under 2403 9910. 37. Learned Senior Advocate Mr. Joshi submitted that the consumption method alone does not determine whether the products would be classified as "chewing tobacco" under Tariff Heading 2403. Tobacco leaves are used for various purposes such as smoking, sniffing, sucking or chewing. Hence, merely because Tobacco leaves are used for chewing cannot make them 'manufactured tobacco' or 'chewing tobacco'. Tobacco leaves must undergo manufacturing process such as fermentation and liquoring to make them 'manufactured tobacco'. It was further submitted that the impugned Order does not have any finding in this regard and is totally non-speaking. 38. It was submitted that the argument ....
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....roduct as "manufactured tobacco" is "chewing purpose" which is erroneous as Notification No. 01/2017 differentiates between manufactured and unmanufactured tobacco used for chewing and chewing purpose shall not be the determinative of classification. 44. Reliance was placed on the Judgment of Hon'ble Supreme Court in Commissioner of Central Excise, Salem v. M/s. Madhan Agro Industries (India) Private Ltd. [Civil Appeal No. 1766 of 2009], wherein it was held that coconut oil, being an oil and classified as oil, cannot be classified as cosmetic product merely because it is used as cosmetic products or toilet preparation. Hon'ble Supreme Court in the judgement held as under: "40. Presently, it is an admitted fact that pure coconut oil is suitable for multiple uses. That notwithstanding, when a specific heading was created in Chapter 15, viz., Heading 1513, for 'coconut oil' along with other oils, it would not stand excluded therefrom so as to be classified as a cosmetic product under Heading 3305 in Chapter 33 in Section VI of the First Schedule, unless all the conditions required therefor are satisfied. As already noted, such conditions formed part of Chapter Note....
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....hat re-classification by the respondent is erroneous in nature especially by invoking of "chewing purpose" as a basis for classification by placing reliance on amendments to the Central Excise Act - 1) Commissioner of Customs, Central Excise and Service Tax, Hyderadabad v. Ashwani Homeo Pharmacy Civil Appeal No. 9525 of 2018, wherein it was held as under: "Whether re-look at classification of the product in question justified 30. For what has discussed hereinabove, it is apparent that the product in question had rightly been classified as 'medicament' in the past and nothing material had changed so as to re-classify the same. However, the Revenue has attempted to rely on the amendment of the tariff structure in the year 2012 as justification for re-look at its classification. The Adjudicating Authority stated this justification in the manner that there were substantial changes in the tariff headings, particularly when Chapter 30 came to be reworded so as to remove the distinction between patent/proprietary and generic medicaments and to classify them according to whether they are put up in unit containers for retail sale or not; the mention about the Act ....
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....ere broad-basing of the entries in Chapter 30 and Chapter 33 of the First Schedule to the Act 1985, by itself, could not have been the justification for an attempt at re-classification of the product in question." 2) Commissioner of Central Excise, Nagpur v. Shree Baidyanath Ayurved Bhawan Ltd. reported in 2009 taxmann.com 1041 (SC) wherein it was held as under: "30. The learned Senior Counsel for the Department heavily relied upon a three-Judge Bench decision of this Court in Baidyanath wherein this Court held that the product DML. is not an ayurvedic medicine. This Court approved common parlance test applied by the Tribunal. He would submit that the product is the very same product for which Baidyanath is agitating to get a classification under the Heading "medicament". The product has not undergone any change in its composition, character and use; merely because there is some difference in the Tariff entries, the character and use of the product will not change. According to Mr K. Radhakrishnan, by inclusion of the book Ayurveda Sara Samgraha in the First Schedule to the Drugs and Cosmetics Act, 1940, the product DML could not be classified as "medicament"." ....
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....ual hearings were also provided on 18.10.2024, 06.11.2024, 13.11.2024 & 25.11.2024 and 06.01.2025, which was attended by the petitioner and therefore, the Principle of Natural Justice has been followed on every stage of proceedings. 51. With respect to the contention of the petitioner that the impugned order is contrary to the binding circulars and therefore, arbitrary, it was submitted that the petitioner is placing reliance on various circulars of pre-GST regime, while under GST Act, comprehensive definitions and end-use focus override the previous emphasis on manufacturing processes used under Central Excise. Therefore, the claim of arbitrariness is baseless and lacks merit. 52. It was submitted that the product in question is not merely broken or beaten tobacco that would fall under Tariff Heading 2401 for "unmanufactured tobacco", but rather a processed form of tobacco that is intended to be used as chewing tobacco. The steps involved in making it chewable, and its packaging as "chewing tobacco" clearly places it under Tariff Heading 2403, which includes prepared or processed tobacco products. Therefore, the reliance paced on the 1987 Circular which applies to less proce....
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....and liquored. (3) Snuff, more or less flavoured. (4) Tobacco compressed or liquored for making snuff (5) Manufactured tobacco substitutes, for example, smoking mixtures not containing tobacco. However, products such as cannabis are excluded (heading 12.11). (6) Homogenised reconstituted tobacco made by agglomerating finely divided tobacco from tobacco leaves, tobacco refuse or dust, whether or not on a backing (e.g., sheet of cellulose from tobacco stems), generally put up in the form of rectangular sheets or strip. It can be either used in the sheet form (as a wrapper) or shredded/chopped (as a filler). (7) Tobacco extracts and essences. These are liquids extracted from moist leaves by pressure, or prepared by boiling waste tobacco in water. They are used mainly for the manufacture of insecticides and parasiticides. The heading does not cover: (a) Nicotine (the alkaloid extracted from tobacco) (heading 29.39). (b) Insecticides of heading 38.08;" 56. It was submitted that in Note no. (2), the addition highly fermented and liquored is preceded by word "usually" which certainly does not mean necessarily. 57. It was submitted that rel....
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....ion relied upon by the petitioner in case of Suresh Tobacco (supra), it was submitted that the said decision was discussed in the impugned order and the Adjudicating Authority found that the case could not be relied upon in terms of section 120 of GST Act, as the judgment was accepted on Board's instruction on low monetary limit alone. Learned advocate Ms. Sancheti referred to section 120 which reads as under: "Section 120. Appeal not to be filed in certain cases.- (1) The Board may, on the recommendations of the Council, from time to time, issue orders or instructions or directions fixing such monetary limits, as it may deem fit, for the purposes of regulating the filing of appeal or application by the officer of the central tax under the provisions of this Chapter. (2) Where, in pursuance of the orders or instructions or directions issued under sub-section (1), the officer of the central tax has not filed an appeal or application against any decision or order passed under the provisions of this Act, it shall not preclude such officer of the central tax from filing appeal or application in any other case involving the same or similar issues or questi....
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....on of "manufacture" provided under section 2(72) of the GST Act, it is clear that the term manufacture has three important parameters namely distinct name, distinct character and distinct use. The definition clearly emphasizes use of the product as a deciding factor for manufacturing. In present case disputed product has a distinct name registered as its brand name as chewing Tobacco. It also has distinct use as the description on the disputed product itself says for the purpose of chewing. 67. Learned advocate Ms. Sancehti submitted that the decision relied on by the petitioner in case of Collector of Central Excise, Pune vs Jaikisan Tobacco (supra) is not applicable to the facts of the present issue as same pertains to Central Excise regime. Further, the assertions made by the petitioner are misplaced as the impugned order has not only based its findings on consumption, instead has established Distinct Name, Character and Use in terms of section 2(72) of GST Act amounts to manufacture. 68. It was therefore submitted that the subject goods either chewed or sucked merits classification under tariff Heading 2403 and therefore, the petitioner's attempt to differentiate chew....
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....tion of duty Rules" 2010, for levy of excise duty on such products. The issue of classification of impugned products during the pre-GST regime is not under challenge in present writ. The petitioner claims that there is no change in manufacturing process undertaken by them from the central excise regime, but the classification of any product under the GST Act is not limited to the manufacturing process alone but also on distinct nature and end use of the product. It was submitted that the subject goods have been correctly classified under tariff Heading 2403 by the adjudicating authority. 73. Learned advocate Ms. Sancheti placed reliance on the judgment of Hon'ble Madras High Court in Haji KPM Abdul Kareem v. Assistant Commissioner, GST & Central Excise, Thanjavur reported in (2024) 25 Centax 204 (Mad.), wherein it was held as follows: "92. It further appears that vide letter dated 14.03.2019, the said petitioner in W.P(MD) No. 204 of 2021 further stated that from Nov 2018 onwards they have changed the product manufactured from Tariff Heading 2403 99 20 to 2401 20 90 to Tariff Heading 24012090, and thereafter attempted to obtain a ruling from the Appellate Authority for ....
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....visions of the Central Excise Act, Circulars issued from time to time under the Excise Act, provisions of the GST Act which has come into effect from 01.07.2017. TARIFF HEADING "2401 - Unmanufactured tobacco, tobacco refuse 2402 - Cigars, cheroots, cigarillos and cigarettes of tobacco or of tobacco substitutes. 2403- Other manufactured tobacco and manufactured tobacco substitutes; "homogenised" or "reconstituted" tobacco; tobacco extracts and essences. 2404- Products containing tobacco, reconstituted tobacco, nicotine, or tobacco or nicotine substitutes, intended for inhalation without combustion; other nicotine containing products intended for the intake of nicotine into the human body. CIRCULARS (i) F. No. 81/5/87-CX.3, dated 23-6-1987 Government of India Ministry of Finance (Department of Revenue) New Delhi Subject Classification of unmanufactured tobacco merely broken by beating and then seived and packed in retail packets with or without brand names for consumption as chewing tobacco, which is commonly known in the market as Zarda - Regarding. A doubt has been raised as to whether unmanufactured t....
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....ewing tobacco as manufactured tobacco product would not be entitled to classification under Heading No. 24.01 since these are squarely covered by the description appearing in sub-heading No. 2404.41 or 2404.49. 5. The Board has accepted the above views of the conference. Accordingly, it is clarified that unmanufactured tobacco merely broken by beating and then seived and packed in retail packets with or without brand name for consumption as chewing tobacco, which may be commonly known in the market as 'zarda', would be appropriately classifiable under heading No. 24.01 of the Schedule, to the Central Excise and Tariff Act, 1985 as 'unmanufactured tobacco' 6. The above position may be brought to the notice of the lower field formations and the trade Interest may also be suitably informed. 7. All pending assessments may be finalised on the basis of the guidelines given above (ii) F.NO. 81/01/2015-CX-3 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs Dated; 01.04.15 TO The Additional Chief Secretary, Finance Department, Mantralaya, Madam Cam....
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.... goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer; and the word "manufacture" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;" Central Goods and Service Tax Act, 2017 2(72) "manufacture" means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term "manufacturer" shall be construed accordingly; 79. On perusal of the above provisions and notification and circular issued during the period of applicability of Central Excise Act, 1944, the cut tobacco leaves containing the retail pouches were treated as "unmanufactured tobacco" classified under HSN 240 and Chapter Heading 24.01 of the Central Excise Tariff Act, 1985 and the same was cleared on payment of GST at the rate of 28% under Serial NO. 13 of Schedule IV o....
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....obacco. 83. Reliance was placed by the petitioners on HSN Explanatory Notes to Chapter Heading 2401 to classify the product under Chapter Heading CTH 2401 on the ground that the raw materials as well as finished goods are cut leaves from natural leaves of tobacco and therefore it remains unmanufactured tobacco only and in order to classify the same under Tariff Heading 2403, the tobacco has to undergo process of manufactured tobacco and the product of the petitioners remained unmanufactured tobacco right from the raw material stage upto the finished goods stage, the same was classified under Tariff Heading 2401. It was therefore, contended that the end-use of the product for chewing purpose cannot be determinative for classification under the Tariff Heading. 84. CBEC has also clarified this aspect in Circular dated 03.06.1997 to the effect that unmanufactured tobacco merely broken by beating and then sieved and packed in retail packet with or without branding for consumption as chewing tobacco which may be commonly known in the market as "Zarda" would be appropriately classifiable under Tariff Heading 2401 as "unmanufactured tobacco". 85. The contention of the petitioners ....
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....ng the process such as drying, cleaning, sieving, sizing, cutting and thereafter packing into retail pouches and accordingly, the petitioners have classified such product as unmanufactured tobacco under Tariff Heading 2401 during the excise regime and the authorities under the Central Excise Act has also considered it as a valid classification in view of clarification issued by CBEC in circular dated 23.06.1987. 88. However, the definition of "manufacture" in section 2(72) of the GST Act refers to processing of raw materials or inputs in any manner which means that the tobacco leaves in gunny bags procured by the petitioners which is a raw material is processed by drying, cleaning, sieving, sizing, cutting which results in emergence of "chewable tobacco" having a distinct name and character and use. Therefore, small retail pouches containing the tobacco leaves processed as "chewing tobacco" would fall within the Chapter Heading 2403 9910 under the sub-heading "chewing tobacco" of Tariff heading 2403. 89. However, the contention of the petitioners that the respondents could not have invoked the extended period from July, 2017 to March, 2023 as the petitioners were bona fide cl....
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....processed so as to convert it for chewing results in having a distinct name, character and use namely "chewing tobacco". 93. On perusal of the photographs of the retail pouches manufactured by the petitioners which are placed on record, it is discernible that such retail pouches carry the warning for health hazard for chewing the tobacco as per the Cigarettes And Other Tobacco Products (Prohibition Of Advertisement And Regulation Of Trade And Commerce, Production, Supply And Administration) Act, 2003 (for short 'Copta'). This warning also clearly shows that what is sold by the petitioners is "chewing tobacco" and merely because no ingredients are added, it would not be "unmanufactured tobacco" falling under Tariff Heading No. 2401 2090 in view of definition of "manufacture" under the GST Act. 94. Section 3(k) of the 'Copta' defines the term "production" as under: "(k) "production", with its grammatical variations and cognate expressions, includes the making of cigarettes, cigars, cheroots, beedis, cigarette tobacco, pipe tobacco, hookah tobacco, chewing tobacco, pan masala or any chewing material having tobacco as one of its ingredients (by whatever name called) or s....
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....is Act." 96. The petitioners have followed the aforesaid provisions of section 7(4) and 7(5) by printing warning on the retail pouches produced which contains "chewing tobacco". 97. Considering the above provisions of the 'Copta' as well as Explanatory Note of HSN (2017 Edition) issued by the World Customs Organization read with definition of "manufacture" as per section 2(72) of the GST Act, we are of the opinion that the chewing tobacco manufactured by the petitioners sold in retail pouches after re-packing from bulk packages to retail packages would fall within the Tariff Heading No. 2403 9910 as "chewing tobacco' and not under Tariff Heading 24012090 as "unmanufactured tobacco". 98. The respondent authorities have therefore rightly classified the same under the Tariff Heading 2403 9910 as "chewing tobacco" under the provisions of the GST Act which would attract the rate of GST and Compensation Cess accordingly. 99. In view of foregoing reasons, the impugned order-in-original based upon the notice under section 74(1) of GST Act is required to be modified so as to consider the same for the period which can be covered under section 73(10) of the GST Act. It is therefor....