TaxTMI 
TaxTMI 
2026 (7) TMI 1936
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....oduction is also sold to M/s. BGP Healthcare P. Limited which is an independent entity; that he does not agree with the report of chemical examiner in respect of sample drawn from the premises of M/s. BGP Healthcare P. Ltd. (in short BHPL). The revenue issued a show cause notice dated 17.06.2020 proposing classification of Nicotine Sulphate manufactured by the appellant under CTH 24039990 and demanding differential duty of Rs.4,60,00,920/- under proviso to section 11A by invoking extended period. They also demanded differential duty of Rs.3,56,475/- in respect of sales to M/s. BGP Healthcare alleging under valuation of such goods, under the said proviso. The revenue also proposed recovery of interest under Section 11AA and mandatory penalty under Section 11AC of the Central Excise Act, 1944. 1.1 The show cause notice was decided by the Commissioner vide impugned order dated 05.10.2020, wherein, he upheld classification of the product under CTH 24039990, confirmed the differential duty of Rs.4,60,00,920/- on account of mis-classification of goods and duty of Rs.3,56,475/- on account of undervaluation of goods sold to related party alongwith interest and equal penalty under Sectio....
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....port Chemical Examiner has answered a question of classification and so, gone beyond his role. Their contentions on this ground have been completely ignored as the Adjudicating Authority who did not consider two test reports in respect of samples drawn from their factory and proceeded to decide case based on the first test report of sample drawn from third party premises. * It has been held in following cases that where show cause notice or impugned order uses a language which pre-judges the issue at hand, this results in violation of principles of natural justice- a) Oryx Fisheries Pvt Ltd. Vs. Union of India - 2011 (266) ELT 422 b) Rajam Industries (P) Ltd. Vs. Addl. DGCEI-2010 (255) ELT 161 (Mad.) * The chemical examiner is not a competent authority to decide/ opine on classification of a product which is entirely within the jurisdiction of the Adjudicating Authority. They refer following decisions- a) CCE, Ahmedabad-I Vs. Dhariyal Chemicals- 2014 (309) ELT 727 (T) b) Puma Ayurvedic Herbal (P) Ltd. Vs. CCE, Nagpur- 2006 (196) ELT 3(SC) * Test report of a sample drawn from a third party premises cannot be relied upon.....
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....tine Sulphate being highly toxic in nature, is neither manufactured tobacco nor a tobacco substitute. It is also not homogenised or reconstituted tobacco and therefore, it cannot be covered under CTH 2403. * The Nicotine Sulphate obtained by adding dilute sulphuric acid to Nicotine is entirely different than Nicotine and therefore, cannot be covered as tobacco extracts and essence. * Historically and Commercially, Nicotine Sulphate has always been classified under CTH 2939. One of the manufacturers of Nicotine Sulphate, M/s. Nisol Manufacturing Co. Pvt. Ltd. are exporting this product under CTH 2939. (Copy of LOP dated 19.09.2019 issued to this unit, by the Development Commissioner, Kandla, SEZ for manufacture and export of Nicotine alkaloid 95% under CTH 29397900 enclosed) * As per Note 1(a) of Chapter 29, separate chemically defined whether or not containing impurities, are only covered under Chapter 29. As per CRCL test report sample contains Nicotine 36.4% and Nicotine Sulphate 47.4% which means that sample contains 47.4% Nicotine Sulphate and the rest is water and out of 47.4% Nicotine Sulphate, Nicotine percentage is 36.4% and the rest is Sulphuric ....
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....interest nor to any penalty as confirmed by the learned Commissioner. They requested to allow their appeal and set aside the impugned order. 3. During arguments, learned Advocate Shri Anand Nainawati highlighted relevant Chapter Notes, HSN Explanatory Notes, various provisions and circulars to plead that appellant has correctly classified Nicotine Sulphate under CTH 2939 and revenue's attempt to classify it under CTH 2403 is not legally sustainable. He argued that as per HSN Explanatory Notes under the heading 2403, Nicotine (the alkaloid extract from tobacco) is excluded from Chapter 24 and classifiable under CTH 2939. CTH 2403 covers tobacco extracts and essences which are liquids extracted from moist leaves by pressure, or prepared by boiling waste tobacco in water. They are mainly used for manufacture of insecticides and parasiticides. 3.1 Learned Counsel further argued that there are certain exceptions to the Rule that Chapter 29 is limited to separate chemically defined compounds. These exceptions include the following products:- Heading 29.09-Ketone peroxides. Heading 29.12 -Cyclic polymers of aldehydes; paraformaldehyde. Heading 29.19 -Lacto....
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.... also not sustainable. 4. Opposing the prayer, Shri Nem Singh, learned Commissioner (AR) pleaded that the test reports read with clarification given by the CRCL justifies misclassification of Nicotine Sulphate. He draws attention towards test report dated 20.06.2017 wherein, the Chemical Examiner has put a remark- "the sample is an "aqueous dispersion" having concentration of Nicotine (extract an essence of tobacco). Such type of manufactured product of tobacco defined under Chapter 2403 subheading 99.90." He pleads that there is huge difference in rate of excise duty leviable on products of heading 2939 and 2403 which shows appellant's intent to evade payment of duty. He reiterates the finding of learned Commissioner to justify invocation of extended period. On related party sales, Shri Singh submits that Shri Jayesh B Patel was Partner in BGP International and also a Director in BHPL which establishes that both the entities were interconnected related persons. He further submits that valuation of such goods sold to related party should be @110% of cost of production as provided under Rule 9 of Central Excise Valuation Rules, 2000. He argues that during 2016-17, appellant sold ....
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....te under CTH 29399900. From above evidence, it is clear that classification of Nicotine Sulphate by appellant under Chapter Heading 2939 was already intimated to the department and therefore, there is no ground to allege suppression, misstatement etc. in the case to invoke extended period. We accordingly hold that the action of the department to demand central excise duty on Nicotine Sulphate for the period June-2015 to June-2017 by issuing show cause notice on 12.06.2020 is hit by limitation. The entire demand is therefore, liable to be dropped on this ground alone. To support above view, we rely on following decisions, wherein it was held that information not required to be supplied under law, if not supplied, does not amount to suppression- a) Apex Electricals Pvt. Ltd. Vs. UOI- 1992 (61) ELT 413 (Guj.) b) Cadila Pharmaceutical Ltd. Vs. CCE- 2017 (349) ELT 694 (Guj.) 5.2 Regarding second issue, we find that revenue has determined classification of Nicotine Sulphate under CTH 24039990 which covers, "Other manufactured Tobacco and Manufactured Tobacco Substitutes"; "Homogenised or Reconstituted Tobacco"; "Tobacco Extracts and Essences" by rejecting classificat....
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....oaminolipids. Heading 29.34- Nucleic acids and their salts. Heading 29.36-Provitamins and vitamins (including concentrates and intermixtures), whether or not in a solvent. Heading 29.37 -Hormones. Heading 29.38 -Glycosides and their derivatives. Heading 29.39 -Alkaloids and their derivatives. Heading 29.40 -Sugar ethers, sugar acetals and sugar esters, and their salts. Heading 29.41 -Antibiotics. From above, it is clear that heading 29.39 covers, "Alkaloids and their derivatives". 5.4 Para-6.2 of the show cause notice elaborates the process of manufacture of "Nicotine Sulphate" as intimated by the appellant to the Jurisdictional Range Superintendent. The manufacturing process is as under- "Tobacco powder and tobacco leaves/wastes are mixed with waste lime and some water is added for wetting till strong smell is observed. The material is then transferred to percolators for percolation. After filling percolators, water and depleted broth are charged into percolators for extraction. Here, mostly depleted broth is used for extraction. From the bottom of percolators, fresh broth is collected which is transferred to ano....
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....e find that the officers have drawn samples from a third party premises on 08.03.2016 in the absence of the appellant or their representative. The CBIC Supplementary Manual in para 8.1 clearly specifies that, "except where there are special instructions for particular kind of samples, the representative samples from such or any lot must be drawn in quadruplicate in the presence of the owner/ manager of the factory or his representative." Therefore, by drawing samples in absence of the manufacturer or his representative, the officers have violated the guidelines issued by CBIC on drawl of samples. On second issue, we find that sample drawn on 08.03.2016 was tested by CRCL which communicated test report on 20.06.2017 and thus, it is clear violation of IS: 10627: 1983 which prescribes that the sample should be tested within 90 days of it's manufacture. We also refer the decision of CESTAT Kolkata in the case of Moorgate Industries (I) Pvt. Ltd. Vs. Commissioner of Customs (Port) reported at 2023 (12) TMI 963, wherein, at para-9, it was observed that, "the sample was tested nearly two months after its drawl and had not been stored in accordance with the prescribed conditions, the re....
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....t similar composition of the material and recognise the product as organic chemical. Therefore, we have no hesitation in rejecting the sample test report dated 20.06.2017, on above grounds. 5.7 During arguments, learned Advocate submitted copy of export data of one company by name M/s. Nisol Manufacturing Company Pvt. Ltd, Anand who have exported Nicotine Sulphate by classifying the same under CTH 29397910. Learned Advocate further argued that said exporter was also audited by the officers who have not raised any objection on classification of this product under CTH 29397910. After perusing the export data, we are of the view that in one Commissionerate, officers have accepted classification of Nicotine Sulphate under CTH 2939 whereas, in other Commissionerate, it has been objected to, and classification under tobacco products of CTH 2403 is being sought. This is clearly impermissible. We accordingly hold that the appellant has correctly classified Nicotine Sulphate under CTH 29399900 and revenue's attempt to classify it under CTH 24039990 and recover differential duty for the larger period, cannot be legally sustained. Accordingly, demand of duty, interest and penalty on this c....