Customs, Excise and Gold Tribunal - Delhi
International Tobacco Co. Ltd. vs Cce on 21 March, 2007
Equivalent citations: 2007(120)ECC230, 2007ECR230(TRI.-DELHI)
ORDER C.N.B. Nair, Member (T)
1. The appellant manufactures cigarettes in its factory at Ghaziabad.
2. During the period 16/12/03 to 06/07/04, it cleared cigarettes under the brand name "Tipper - Gold Tipped" after classifying them as "other than filter cigarettes" and discharging duty liability applicable to such cigarettes. Under the impugned order, it has been held that these cigarettes are also "filter cigarettes" and were required to discharge duty at higher rates as applicable to filter cigarettes. Consequent to the finding, a duty demand of over Rs. 2.3 crores along with interest has been made and a penalty of equal amount imposed under the order. The present appeal challenges the duty demand, imposition of penalty etc. made under the order.
3. The manufacturing process of 'tipped' cigarette as detailed in the show cause notice may be noted:
An observation of manufacturing process of the said Tripper Brand Gold Tipped cigarettes reveals that the party made solid dense end rod with tobacco and joined the same solid dense end rod with piece of cigarette rod and solid dense end rod is over wrapped with gold tipped C T paper. The dense end rod portion is used at mouth end of the cigarette which perform the function of filter.
(emphasis supplied) The notice also mentions that the appellant has claimed in the advertisement material enclosed with the cigarettes that the 'solid dense end rod' functioned as filter.
4. Thus, it was by treating the 'solid, dense end rod' made of tobacco and over wrapped with C.T. paper as a filter that the duty demand was made.
5. The appellant contested the demand by contending that the cigarette in question was also "other than filter cigarettes". In support of this contention, the expert known of Dr. Biswajit Deb, was filed, along with the reply to the show cause notice. Affidavits of several cigarette distributors were also filed, wherein they stated that these (tipped) cigarettes are also considered as plain cigarettes by dealers, retailers and smokers and not as filter cigarettes. Reliance was also placed on the ISI specifications for cigarette filters and it was contended that tobacco is not a known or used filter material for cigarettes and that accepted filter materials are mostly viscose staple, acetate tow and/or crimped paper. It was also pointed out that the chemical examiner of the Central Excise Department had also opined that "material in the brownish tipped portion appears to be other than the materials satisfying the specifications of cigarette filter".
6. In adjudication, the contentions of the appellant were rejected and classification of the cigarette as filter cigarette ordered. The finding of the Commissioner may be read:
13. Essential characteristics of a filter, from whatever has been submitted and put forth by the party are:
i. It should check the suspended particles from entering the mouth.
ii. It should not let the tobacco particles enter the mouth.
iii. It should absorb smoke of tobacco resulting in absorption of nicotine to some extend.
iv. It should have higher filtration efficiency.
v. It should purify tobacco smoke.
All above essential characteristics of a filter are possessed by the tipper end. Densified tobacco, with tobacco densely filled inside, facilitates absorption of more smoke and nicotine contained therein and this higher nicotine retention efficiency is acquired by compressed tobacco inside. Tobacco smoke passing through it gets purified by elimination of nicotine and impurities in the form of suspended particles, tobacco particles and carbon particles (tar). Along with accomplishing above functions, in visual resemblance also, it was purposely made to look alike a filter, in colour, by even using gold tipped tipping paper which has its own advantage of not letting the mouth end get spoilt by getting wet, apart from its distinct identification as a mouth end of the cigarette. Even process of manufacture was a two stage process similar to that of a filter cigarette rather than a single stage process adopted for manufacturing plain cigarettes. Despite carrying out distinct and specified functions of a filter and despite all above similarities present, use of name filter, it seems, was deliberately and purposely avoided. Instead of use of word 'filter' a new terminology 'tipper' was derived and devised. Resort to adoption of this new terminology, replacing the normally used term 'filter' is self evident when one comes across the duty structure of filter cigarettes vis-a-vis plain cigarettes during the period. Difference in duty structure and amount of total duty involved in this case, makes the above purpose explicit and clear. Huge amount of duty involved in the case was the main factor for not divulging the true facts to the department. Visibly, facts have thus been distorted and mis-represented by the party with a clear and malafide motive to evade central excise duty and therefore for this deliberate action on the part of the party, a penalty under Section 11AC read with Rule 25 is rightly attracted and has correctly been imposed.
7. The contention of the learned Senior counsel for the appellant is that the finding is without any evidence in its support and is also contrary to the entire materials available on record. It is being pointed out that there is no material, even remotely suggesting that tobacco itself can be used as a (tobacco) filter by making it into a dense rod as noted in the show cause notice. It is being pointed out 1.5 specifications stipulate that the role of cigarette filter is to retain the components of the smoke and filtration efficiency is measured in terms of alkaloid (nicotine) retention, referred to as "Nicotine Removal Efficiency (NRE). It is being emphasized that the following is the specifications laid down in the 1.5:
3.1.1. Filter - The filter shall be made from suitable non-toxic material which may be bonded with non-toxic binder. The filter rods may be made of mono, dual or multiple materials, with or without special/ selective absorbing additives. Generally filters are made of viscose staple, acetate tow and/or crimped paper.
The learned Senior counsel also refers to the specifications that a filtering material should be free from odour. It is, thus, his contention that the impugned findings are contrary to the industry and standards norms and such findings cannot be sustained.
8. The learned Senior counsel would also emphasise that it is well settled that it is for the revenue authorities to establish through acceptable evidence that the classification they seek is in conformity with the common parlance understanding of the item under classification.
9. It is also being pointed out that piper cigarette and other tipped cigarettes manufactured in other jurisdictions were being assessed as other than filter cigarettes.
10. Learned SDR would point out that literature available on the internet would indicate that other materials also would be suitable as cigarette filter. Copy of the report in Business Wire dated 3rd October 2005 has been brought to our notice. This report states that Biotec, a company in the U.S, was developing starch based cigarette filters. It is also the learned SDR's contention that since the tariff mentioned no specific filtering material or any particular kind of filters, cigarettes with filters made of all materials would require to be classified as filter cigarettes. He would also point out that the Commissioner has correctly held that when smoke passes through the dense layer of tobacco at the smoker's end, it gets filtered. It is also the finding that loose flakes of tobacco are stopped from entering the mouth of smokers. According to the learned SDR, the functions of a cigarette filter are to reduce the tar in tobacco smoke as well as to stop tobacco flakes from entering the mouth of smokers. He would point out that since smoke gets filtered during its passage through the dense layer of tobacco, thereby, reducing tar and tobacco flakes also get retained, the tipped cigarettes satisfy the twin criteria. He would also point out that since the appellants were themselves promoting the cigarette as a filter cigarette, it would not be open for them to contend to the contrary and seek assessment at lower rates.
11. In reply to the learned SDR's contention, learned Senior counsel would point out that it is well settled that a claim by its manufacturer, by itself, would not be determinative of the true character of a product and no classification could be ordered based on a manufacturer's claim alone. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise Bombay v. Chokale and Co. as and the decision of the Tribunal in the case of CCE, Vadodara v. Inarco Ltd. .
12. The material on record, including the business wire report of 3/10/05 produced by the revenue, do not at all show that tobacco itself can be used as a cigarette filtering material. In fact, the ISI, tobacco industry expert, as well as the chemical examiner have in unison stated to the contrary. We may read the report of the chemical examiner:
C. No. 138 Chem/Misc/2005/M/CLM/Misc/2 dtd. 7.11.2005 Report : The sample is cigarettes with the description "Tipper Gold Tipped" in unit packing (containing 10 nos.) Total length of cigarette - 60 mm having light brown marking at 15 mm length. While portion (45 mm) is filled with processed tobacco and remaining 15 mm (brownish portion) is filled with exhausted tobacco treat with sugary material.
However, as per ISO 10666-1983 cigarette filter shall be made from suitable non-toxic material which may be bonded with non-toxic binder. The filter rods may be made of mono dual or multiple materials with or without special/ selective absorbing additives. Generally, filters are made of viscose staple, acetate and/or crimped paper and should pass specification regarding (1) manufacture of filter (a) formation (b) cut off (2) dia (3) hardness and resilience (4) pressure drop and (5) filtration efficiency tests.
For which this laboratory is not equipped. However, in the product under reference, the material filled in brownish tipped portion appears to be of other than those mentioned above.
Sealed remainants are returned herewith.
R.S. Malhotra Chemical Examiner
13. The Chemical Examiner has specifically stated that generally filters are made of viscose staple, acetate tow and/or crimped paper and filters should pass specifications. Filtration efficiency is one of the specifications mentioned by him. This is to be found emphasized in ISI specifications also. Therefore, unless a material matches the filtration efficiency test, it would not pass the test of being a filter. A mere contention that, upon passing through a dense layer of tobacco, smoke gets filtered does not satisfy the test that the material is a suitable or acceptable filtering material. From the material on record, tobacco would appear to completely fail the qualities required in a filtering medium. Its noxious odour alone is sufficient for its rejection.
14. The evidence produced by the appellant from the dealers in cigarettes also show that the trade as well as consumers do not treat tipped cigarettes as filter cigarettes. Revenue had no contrary evidence in support of its rejection.
15. In sum, the evidence on record is that the cigarette in question does not satisfy the common parlance test of its being filter cigarette. That is the valid test acceptable for excise classification Novopan India Limited v. Collector of Central Excise and Customs, Hyderabad as etc.
16. In view of what is stated above, the classification of the cigarette as filter cigarette and duty demand on that basis are not sustainable. In the absence of duty demand, penalty and demand for interest also cannot arise.
17. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.
(Dictated and pronounced in the open court)