Collector of Central Excise, Kanpur vs Gupta Tobacco Co.>1996(01)LCX0073

1996(01)LCX0073

IN THE CEGAT, COURT NO. IV, NEW DELHI

S/Shri G.P. Agarwal, Member (J) and G.R. Sharma, Member (T)

COLLECTOR OF CENTRAL EXCISE, KANPUR

Versus

GUPTA TOBACCO CO.

Final Order Nos. 390 to 396/96-D, dated 10-1-1996 in Appeal Nos. E/1475, 1476 & 1469/95-D with E/COD/162, 164 & 160/9-D and Appeal Nos. E/4617 & 4997/91-D

Cases Quoted

Commissioner v. Gurmukh Singh — 1985(05)LCX0003 Eq 1986 (025) ELT 0094 (Tribunal) [Para 7]

Elsons Machines v. Collector — 1988(11)LCX0035 Eq 1988 (038) ELT 0571 (SC) [Para 7]

TISCO v. UOI — 1988(05)LCX0068 Eq 1988 (035) ELT 0605 (SC) [Paras 7, 10]

Advocated By : Shri P.K. Jain, SDR, for the Appellant.

Shri V. Lakshmikumaran, Advocate, for the

Respondents.

[Order per : G.R. Sharma, Member (T)]. - We observe that Collector of Central Excise, Kanpur has filed the application for Condonation of Delay in the matter of C.C.E., Kanpur v. Gupta Tobacco Co., Durga Prasad Vidyasagar and Shakya Industries. On careful consideration of the submissions made by the appellants, the delay is condoned.

2. These appeals have been filed being aggrieved by the order passed by the Collector (Appeals). The Collector (Appeals) had decided the issue of classification of the product in favour of the assessees. The Department has come in appeal against this decision of the Collector (Appeals) whereas in other cases, the Collector (Appeals) had rejected the appeals of the assessees against resort to provisional assessment ordered by the Assistant Collector. The Collector (Appeals) in these cases had held that the issue has not been finally decided by the Tribunal and therefore, the appeals were not maintainable.

3. From the records, we find that there are two appeals filed by the Collector in respect of M/s. Ram Swaroop Chaurasia & Sons. These appeals are numbered as E/4617/91-D and E/4997/91-D. As these two appeals are against the same order of the Collector (Appeals), these two appeals are actually one appeal and therefore, have been disposed of together.

4. The facts, in brief, are that M/s. Gupta Tobacco and M/s. Durga Prasad Vidyasagar are engaged in the manufacture of goods which they described as branded chewing tobacco and marketed as Jhakara Tobacco. The appellants claimed the assessment of their product under Chapter Heading 2404.41 of Central Excise and Tariff Act, 1985. The appellants also indicated the ingredients of their product as supari, tobacco, lime, menthol etc. The Department disputed the claim for classification under Chapter Heading 2404.41 and sought to reclassify the product under Chapter Heading 2106.11 as Pan Masala. The Assistant Collector, Central Excise ordered reclassification of the product under Heading 2106.11 and approved the price lists. The appellants filed an appeal to Collector (Appeals). The Collector (Appeals) set aside the order of the Assistant Collector and ordered classification of the product as claimed by the appellants. Against this order of the Collector (Appeals), the Department has filed four appeals. In the meantime, the Assistant Collector ordered that the assessment of the branded chewing tobacco which was in dispute would be made provisionally in terms of Rule 9B of the Central Excise Rules, 1944 and approved the price lists accordingly. The appellants started manufacturing another brand of chewing tobacco and claimed that this product was totally different from Jhakara Tobacco whose classification was in dispute and filed classification list and price list for new product. The Assistant Collector did not approve the classification list but provisionally approved the price lists in terms of Rule 9B of the Central Excise Rules, 1944. The appellants filed an appeal to the Collector (Appeals) who dismissed the appeal as infructuous.

5. Out of the seven appeals referred to above, four appeals have been filed by the Collector for deciding whether the product manufactured by these respondents was classifiable under Chapter Heading 2404.41 or 2106.11 and three appeals filed by M/s. Gupta Tobacco and M/s. Durga Prasad Vidyasagar are against the order of Collector (Appeals) under which the Collector (Appeals) dismissed the appeals of the appellants as infructuous.

6. The facts, in brief, are that the respondents herein are engaged in the manufacture/Jhakara Tobacco and claimed its classification under Chapter Heading 2404.41 of CETA, 1985. The respondents had submitted their classification list effective from 1-4-1989 and cost sheet attached thereto for approval. During examination of the price lists, it was found that in the product manufactured by the respondents herein the contents of supari was 60% or more. It was therefore, observed that the product manufactured by the respondents herein contains supari, tobacco, lime and menthol as ingredients. It was therefore, alleged that it was Pan Masala classifiable under CH 2106.11 and not under CH 2404.41 of CETA, 1985. The Assistant Collector held that the product was classifiable under CH 2106.11. However, the Collector (Appeals) held that the product was not classifiable under CH 2106.11 but was classifiable under CH 2404.41 as claimed by the respondents herein. Against this order, the Department have filed these appeals.

7. Shri P.K. Jain, the learned SDR appearing for the appellants submitted that Chapter Note 3 of Chapter 21 of the Schedule to the Central Excise Tariff Act, 1985, Pan Masala means any preparation containing betel nuts and anyone or more of said ingredients such as lime, katha, cardamom, copra, menthol, tobacco etc. He submitted that the respondents herein contested that proportion of tobacco in the product was sometimes more. The Ld. SDR argued that the proportion in which the betel nuts and or any one or more of other substances mentioned are to be contained is not stated and therefore, is not relevant. He submitted that only requirement of Chapter Note 3 of Chapter 21 was, the preparation must contain betel nut and any one or more of other ingredients and therefore, the product should be classified as Pan Masala. The Ld. SDR submitted that the ratio of the decision of the Tribunal in the case of Commission of Central Excise v. Gurmukh Singh reported in 1986 (025) ELT 94 was not applicable to the facts of the present cases in much as the classification list was not required and that duty has been demanded for six months by issue of show-cause notice under Section 11A of the Central Excises and Salt Act, 1944. On the issue that the Assistant Commissioner cannot ignore the pattern of assessment during the period and cannot take any decision regarding change in the pattern of assessment without full justification based on fresh facts or change in tariff that might have taken place. The ld. SDR submitted that in the instant cases, the change was justified in view of Chapter Note 3 of Chapter 21. He submitted that it is well settled law that estoppel will not apply to taxation matter. In support of his contention, the ld. SDR cited and relied upon the ratio of the judgment of the Apex Court in the case of Elsons Machines v. C.C.E. reported in 1988 (038) ELT 571. He submitted that the Collector (Appeals)’s finding that natural justice was denied to the respondents herein is not correct because reasonable opportunity had been given to the respondents herein by issue of a show cause notice granting of personal hearing and passing an appealable order. It was also submitted by the ld. SDR that the duty for the first six months can be demanded consequent upon the change in classification as has been held by the Apex Court in the case of TISCO v. Union of India reported in 1988 (035) ELT 605. Referring to the reliance placed under Rule 3(b) of the Rules of Interpretation of the Schedule to the Central Excise Tariff Act, 1985, ld. SDR submitted Rule 1 of the Rules makes the position clear in asmuch as classification is determined according to the terms of the heading and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained. He therefore, concluded his arguments by saying that the product in dispute has to be treated as Pan Masala narrating the classification of it under CH 2106.11 and prayed that the impugned order may be set aside and the appeals may be allowed.

8. Shri V. Lakshmikumaran, the learned Advocate appearing for the respondents herein submitted that the product manufactured by the respondents was being considered as chewing tobacco for classification under CH 2404.41. Since the introduction of new tariff, he submitted that at no stage, there was any dispute on this issue. He also submitted that there has been no change in the process of manufacture or use of ingredients and therefore, the ld. Counsel submitted that it was strange that the Department all of a sudden changed its mind and issued a show-cause notice. The ld. Counsel submitted that the manufacturers, dealers and consumers of Jakhara Tobacco deal in and use it in the form of tobacco. He submitted that with the introduction of new Tariff in 1986 Budget, the product manufactured by them was classified under Chapter Heading 24.04 and sub-heading 2404.41 of CETA, 1985; that there has been no change in the production of their Jakhara Tobacco nor is there any change in the Tariff; that no legal basis has been indicated anywhere as to why the classification is being changed from Chapter 24 to Chapter 21; that the product being manufactured by the respondents herein was different from Pan Masala; that the essential character of the product manufactured by the respondents is chewing tobacco; that in the common trade parlance, the product is known as chewing tobacco and not as Pan Masala; that the learned Collector (Appeals) had satisfied himself that in a packet of Jhakara Tobacco of 200 gms., the tobacco contents are 120 gms. which is equal to 60% and that supari contents are only 80 gms. which works out to 40%; that apart from percentage of contents, the essential character of the product, its use and trade nomenclature by which it is known in the market in commercial parlance should determine the classification. The learned Counsel submitted that where two views are possible, it is not permissible to disturb the view taken by the authorities; that the authorities in their case have consistently viewed that it was a chewing tobacco classifiable under Chapter 24; that sufficient evidence has not been produced by the Department in favour of their case for change of classification of the product from Chapter 24 to 21; that the learned Counsel therefore, submitted that there was no cause for change in classification abruptly and the Department should have allowed them to continue with the classification of their product as was being done before.

9. Heard the submissions of both sides. On careful consideration, we find that the issue in a short compas, is what is the classification of the product described as Jhakara Tobacco. The Department have relied on Chapter Note 3 of Chapter 21. As against this, the respondents herein have relied on Rule 3(b) of the Rules of Interpretation submitting that Rule 3(b) provides :

“Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.”

The contention of the respondents herein was that the product Jhakara Tobacco was a composite product and therefore, according to Rule 3(b) of the Rules of Interpretation of Schedule, the product should be classified under CH 2404.41. We find that this plea of the respondents herein is not tenable inasmuch as in the Interpretative Rules, the reference is made to Interpretative Rule 3(a). Interpretative Rule 3(a) provides :

“The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.”

As against this, the Department had referred to and relied on Rule 1 which provides :

“The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained.”

On a careful reading of this Rule it is found that the Rule provides that the classification shall be determined in accrodance with the terms of headings and any relative Section or Chapter Notes. Now Note 3 of Chapter 21 defines Pan Masala as any preparation containing betel nuts and any one or more of other ingredients such as lime, katha, cardamom, copra, menthol and tobacco. Now, we find that this Chapter Note is very clear as to what should be classified as `Pan Masala’. The respondents herein, at one point of time, submitted that it was a composite product and therefore, merits classification not under CH 2106.11 but under CH 2404.41. This plea of the respondents herein is not acceptable inasmuch as reading Interpretative Rule 1 with Chapter Note 3 of Chapter 21, we find that the preparation is pan masala and thus, we hold that there is no ambiguity and therefore, there is no necessity of referring to Interpretative Rules as there is a clear definition of the term `Pan Masala’ and the product in dispute conforms to the definition of `Pan Masala’ given in Chapter Note 3 of Chapter 21. An emphasis was also laid by the respondents herein that in trade parlance, their product was accepted as chewing tobacco and therefore, having regard to various judgments of High Courts and Supreme Court, their product should be classified under Chapter 24. We find that this plea of the respondents herein is not correct inasmuch as pan masala has been defined in Chapter Note and there is no ambiguity what pan masala was. Having regard to this specific definition given in the Tariff, we hold that trade/common parlance will not be applicable in the instant cases.

10. On the question that there is no circumstance to change the classification of the goods and that the product in dispute was being assessed previously after approving the price lists as branded chewing tobacco, we find that in the instant cases, the Department have raised the issue under Section 11A by raising a demand. As the demand is confined to six months from the date of issue of show-cause notice, we find that it is permissible as held by the Apex Court in the case of TISCO reported in 1988 (035) ELT 605 holding that :

“7. Regarding the question of limitation, the dispute is whether, assuming that the demand made by the Collector was valid, what is the period to which it could relate, it being common ground that as far as composite units comprising wheels, tyres and axles supplied by the appellant to the Indian Railways are concerned the demand under Item No. 68 of the Central Excise Tariff was justified. The question here is as to whether that demand could extend only to six months prior to the service of the show cause notice as contended by the appellant or upto a period of five years prior to that notice as contended by the respondent. In this regard, Section 11A is the relevant provision. The said section has been amended in 1978, but we are not concerned with that amendment. A perusal of sub-section (1) of that Section shows that where any duty of excise has not been levied or short levied or short paid or erroneously refunded, the Central Excise Officer concerned may, within six months from the relevant date, serve notice on the person chargeable with that duty. This provision would clearly show that the period for which the demand could be made was only six months prior to the service of the notice. Now, in the present case, it has been found by the High Court and, in our opinion, rightly, that there was no suppression or mis-statement of facts or fraud by the appellant to which the alleged short levy or non-levy could be attributed. In fact, it is common ground that right from 1962 the appellant was filing classification lists containing the description of the items and showing them as liable to the payment of excise duty only, under Item No. 26AA(ia) and these lists were accepted and approved by the excise authorities. In these circumstances, we fail to see how it could be said that the appellant was guilty of any suppression or mis-statement of facts or collusion or violation of the provisions of Central Excises Act as contemplated under the proviso to Section 11A of the said Act. In view of this, the period of limitation would clearly be only six months prior to the service of the show cause notice. The demand for excise duty against the appellant on the said composite units (sic) under Item No. 68 of the Excise Tariff to the extent that it exceeds the period of six months prior to the service of the show cause notice must, therefore, be struck down.”

In view of the ratio of this judgment, the plea of the appellant fails.

11. Insofar as the three appeals filed by M/s. Gupta Tobacco Co. and M/s. Durga Prasad Vidyasagar are concerned, the product described as Jhakara Tobacco has already been held to be classifiable under CH 2106.11 of CETA, 1985 as Pan Masala.

12. Insofar as the appeals of M/s. Gupta Tobacco and M/s. Durga Prasad Vidyasagar are concerned, the Assistant Collector passed an order for provisional assessment of the goods under his Memorandum C/No. V-70(24)/VC73-87/771, dated 7-2-1992 and approved classification lists provi-sionally. The Collector (Appeals) held “It is found from the record that the appellants have also not filed any appeal against the Assistant Collector, Central Excise Memorandum dated 7-2-1992 wherein he has ordered for provisional assessment under Rule 9B with regard to disputed goods of the appellants. The Collector (Appeals), therefore, dismissed the three appeals filed by the three appellants (two filed by M/s. Durga Prasad Vidyasagar and one by M/s. Gupta Tobacco) on the ground that the appellants had appealed against the Memorandum dated 7-2-1992 of Assistant Collector. The appellants have no apparent cause of action. We find that the assessment in the present cases is provisional and there is no time limit as we have taken a view on the classification of the product manufactured by the respondents. These three appeals are remanded for de novo adjudication in accordance with the decision taken in the four appeals filed by the Commissioner of Central Excise. The Assistant Collector shall examine the facts and the contents of the preparation in accordance with Chapter Note 3 of Chapter 21 and decide the cases in accordance with law after affording an opportunity of personal hearing to the respondents herein. Therefore, these three appeals are allowed by remand and the impugned order passed by the Collector (Appeals) is set aside.

13. In the result, the four appeals filed by the Commissioner of Central Excise are allowed and the impugned order is set aside and the three appeals filed by M/s. Durga Prasad Vidyasagar and M/s. Gupta Tobacco Co. are allowed by remand. The seven appeals are disposed of accordingly.

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Equivalent 1997 (90) ELT 169 (Tribunal)