Customs, Excise and Gold Tribunal - Bangalore
The Commissioner Of Central Excise vs Virat Crane Industries Ltd. on 9 November, 2006
Equivalent citations: 2006(106)ECC318, 2006ECR318(TRI.-BANGALORE), 2007(208)ELT262(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. The Revenue has filed these two appeals against the Orders-in-Appeal No. 7/2004 (G) (D) CE dated 27.01.2004 and 24/2004 dated 30.4.2004, passed by the Commissioner of Customs & Central Excise (Appeals), Guntur. Since the issue involved in these appeals is one and the same, we are passing a common order.
2. The Respondents are the manufacturers of "Pan Masala" commonly known as "Gutkha" containing tobacco falling under Chapter Heading 2404.49. The goods are marketed under the brand name of "Crane Gutkha". The issue before us is whether the impugned goods are entitled for the benefit of the SSI Notification No. 08/2001-CE dated 01.3.2001. The Original authority dropped the proceedings initiated by the Revenue and held that the impugned goods are entitled for the SSI exemption under Notification No. 08/2001-CE dated 01.3.2001. The Revenue did not accept the Order-in-Original. Therefore the appeals were filed before the Commissioner (Appeals). The Commissioner (Appeals) in both the impugned orders upheld the decision of the Original authority. Therefore, the Revenue is aggrieved over the impugned orders and have filed these appeals.
3. The gist of the 'Grounds of the Appeals' is as follows:
The Orders-in-Appeal No. 07/2004 (G) (D) CE dated 27.1.2004 and 24/2004 (G) (D) CE dated 30.04.2004 are not proper and legal on the following grounds:
(i) In terms of the Clause (iv) of the Notification No. 8/2001 CE, unbranded chewing tobacco and preparations containing chewing tobacco falling under heading No. 24.04 are eligible for granting benefits under exemption Notification No. 8/2001-CE. In this connection, it is relevant to examine the Tariff classification of above products. The description of the relevant Tariff Sub heading reads as under:
Chewing Tobacco and preparations containing chewing tobacco; Pan Masala containing Tobacco The existence of the 'semi colon' in the above description clearly indicates that 'Chewing Tobacco' and 'Preparations containing chewing tobacco' are distinguishably different from 'Pan Masala containing Tobacco'. Further, in terms of Notification No. 8/2001-CE, only 'Chewing Tobacco' and 'Preparations containing chewing tobacco' falling under heading No. 24.04 are eligible goods for exemption under the said Notification. Therefore, the description contained in the Tariff Sub-Heading 24.04 is to be examined for granting exemption. The said Tariff heading covers two different goods. But the Notification No. 8/2001-CE covers only one type of goods namely, 'Chewing Tobacco and Preparations containing chewing tobacco'. As mentioned above, in terms of the Tariff description, Chewing Tobacco and Preparations containing chewing tobacco AND Pan Masala containing tobacco are two different commodities. Therefore, by no stretch of reasoning it can be concluded that 'Pan Masala containing Tobacco' can be equated with preparations containing chewing tobacco. Therefore the goods manufactured by assesses are not covered by the exemption Notification No. 8/2001-CE. Further, the above mentioned Tariff description covers two varieties of goods namely Chewing Tobacco and Preparations containing chewing tobacco and Pan Masala containing Tobacco which are described under two dash (--) Tariff Heading No. 2404.41 and 2404.49. In case, the phrase "Preparations of Chewing Tobacco" could cover the 'Pan Masala containing Tobacco', the inclusion of phrase "Pan Masala containing Tobacco" in the description existing at one dash (-) Tariff sub heading mentioned above will become redundant. Thus, it is clearly evident that 'Pan Masala containing Tobacco' was intentionally included in the one dash Tariff heading for covering Tobacco was intentionally included in the one dash Tariff heading for covering goods mentioned at Tariff sub-heading 2404.49. Thus, it is clearly evident that the goods, viz. 'Pan Masala containing Tobacco' is different from 'Preparations containing chewing tobacco' in terms of Tariff description.
(ii) Therefore, the goods manufactured by the assessee, i.e. 'Pan Masala containing Tobacco' cannot be treated as 'Preparations containing chewing Tobacco'. Hence, the goods manufactured by the assessee are not covered by the Notification No. 8/2001-CE.
(iii) It was erroneously concluded by the Commissioner (Appeals) that, the 'Pan Masala containing Tobacco' is rightly classifiable as 'Preparations containing chewing Tobacco'. As explained above, both the goods differently described in the one dash (-) Tariff description itself and further divided into two separate two dash (--) Tariff sub-headings as 2404.41 and 2404.49.
(iv) Further, the conclusion that the word "unbranded" used in the Clause iv of the said Notification is applicable only to the chewing tobacco and not to the preparations containing Chewing Tobacco is not tenable for the following reasons:
(a) The word "Unbranded" is an adjective. It qualifies both the nouns that were added by a conjunction "and". There is common usage of singly adjective for qualifying two nouns joined by "and", to illustrate, the phrases Little boys and girls, poor men and women, beautiful roses and lilies and dear ladies and gentlemen, etc. wherein both nouns are covered by the adjective mentioned before the first known. Hence, a simple reading of the above sentence clearly indicates that both the chewing tobacco and preparations of chewing tobacco are unbranded.
(b) Further, the conclusion of the Commissioner (Appeals) that the word "unbranded" is applicable only chewing tobacco is not tenable. The Commissioner (Appeals) came out the above conclusion based on wrong legal premise, i.e. by comparing the Notifications with subsequent Notification. It is settled law that any legal provision is to be interpreted as it stood at the relevant time and not on the basis of subsequent changes. Therefore, it appears that the conclusions of the Commissioner (Appeals) in this regard are not legally valid.
(v) Exemption from AED and NCCD: The SSI Exemption Notification exempts payment of the duty of excise specified under the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985. The product in question was not only leviable to Basic and Special Excise duty but also to Additional Excise Duty as well as National Calamity Contingent Duty. The Additional Excise Duty as well as National Calamity Contingent Duty are not exempted by the said Notification. Therefore, the Commissioner (Appeals) has erred in dropping the entire demand.
4. The learned JDR re-iterated the grounds of the appeals. He stressed the point that the Central Excise Tariff clearly makes a distinct between "Pan Masala" and "Preparations containing chewing tobacco". The exemption Notification is applicable only to "Preparations containing Chewing Tobacco" and not "Pan Masala". Moreover, the exemption is only in respect of the "Unbranded" product and not for any "branded" product. The Respondent's product is clearly branded. Even if it is assumed that it would be a preparation containing chewing tobacco, since it is branded, it would not be entitled for the benefit of exemption Notification. He said that when the Central Excise Tariff makes a clear distinction between 'Preparations containing Chewing Tobacco" and "Pan Masala" and when the exemption Notification mentions only "Preparations containing Chewing Tobacco" and not "Pan Masala", the Pan Masala manufactured by the Respondents would not be entitled for the benefit of the said Notification. He said that the classification of the products cannot be ignored totally while considering the exemption Notification. He also relied on the decision of the High Court of Andhra Pradesh at Hyderabad rendered in the case of Kothari Products Ltd. v. Government of Andhra Pradesh wherein it was held that "Pan Masala" during the relevant period would be classified in Chapter 21 in view of the specific entry and therefore it gets excluded from the General Sub Heading 2404.40 wherein the entry is "Chewing Tobacco and Preparations containing Chewing Tobacco". He maintains in view of the findings of the High Court of Andhra Pradesh that the "Pan Masala" in question should not be considered as coming within the purview of "Chewing Tobacco and its Preparations". In that view of the things, it would not be entitled for the benefit of the exemption Notification as there is no specific entry of "Pan Masala" in the exemption Notification.
5. The learned Advocates urged the following points:
(i) A careful reading of the Notification No. 08/2001-CE dated 01.03.2001 would show that the exemption is available to "Chewing Tobacco and Preparations containing Chewing Tobacco" falling under Chapter heading No. 24.04 of Central Excise Tariff Act, 1985. It is not restricted to the item falling under 2404.41 or 2404.49. In fact, it applies to all the goods falling under heading 24.04.
(ii) The Department contends that only 'Unbranded Chewing Tobacco' falling under heading 2404.41 is entitled for the exemption and not 'Pan Masala containing Tobacco' falling under heading 2404.49 on the ground that the adjective "Unbranded" would qualify both the products namely, "Chewing Tobacco" and "Preparations containing Chewing Tobacco". The Department's view is not correct. The word 'and' appearing between the words "Chewing Tobacco/Preparations containing Chewing Tobacco" should be read as 'or', based on the well defined legal principles as laid down by the Apex Court and other authorities. The following principles have been kept in interpreting the Notification:
(a) Legislative Intent
(b) Historical evolution of the law
(c) Parliamentary exposition of the earlier Act based upon the subsequent enactment
(iii) The Notification should be strictly construed at the threshold, but once it is found that the goods qualify for the exemption, a liberal approach is permissible, if it does no violence to the language of the Notification. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof. The object of the Notification should not be defeated.
(iv) The learned Advocates took us through the SSI Notification Nos. 1/93-CE dated 1.3.93, 14/96-CE dated 23.7.96 16/97-CE dated 1.4.97, 8/99-CE dated 2.6.98, 8/02-CE dated 1.3.2002 and 8/2003-CE dated 1.3.2003 to throw light on the evolution of Notification with regard to the impugned products. The Notification No. 1/93-CE, no SSI exemption was available to the products coming under Chapter 24. However in 1996, SSI exemption was extended to "Chewing Tobacco and Preparations containing Chewing Tobacco", other than those having a brand name, falling under heading 24.04. In the Notification No. 16/97-CE, similar wordings are found. In the year 1998, under Notification No. 8/98-CE the goods falling under Chapter 24 (other than unbranded Chewing Tobacco and preparations containing chewing tobacco, falling under the heading 24.04) were not entitled to SSI exemption. In other words, unbranded chewing tobacco and preparations containing chewing tobacco falling under the heading 24.04 were entitled for the exemption. In 1999, the same position continued. In 2002, the Notification No. 8/2002-CE, it was mentioned in the said Notification - "All goods falling under Chapter 24 (other than unbranded Chewing tobacco, preparations containing chewing tobacco and tobacco extracts and essences', falling under the heading 24.04) were not entitled to SSI exemption. In 2003, the same position continued. Thus it can be seen in 2002, the words "tobacco extracts and essences" were added. Further the word 'and' was removed and in this place a comma was introduced, between the words 'unbranded chewing tobacco' / 'preparations containing chewing tobacco'. The ambiguity which was there, if any has been removed by introducing a 'comma' which in terms of the settled law is 'disjunctive'. The legislative intent as well as the historical evolution of the Notification issued from time to time clearly shows that the intention of the Government was always to extend the benefit of SSI exemption to unbranded chewing tobacco and to preparations containing chewing tobacco, (even if branded and falling under heading 24.04). The law is supposed to be evolving and dynamic and not static as held by the Apex Court in a number of decisions.
(v) If it is the intention of the Government to extend the benefit of Notification, the word 'and' can be interpreted as 'or'. In the case of ITC Ltd. v. CC, Madras 1997 (89) ELT 90 (Tri.) it has been held that the machines for 'stripping and cutting of Tobacco Leaf, appearing in Heading 8459 of Customs Tariff Act should be read as to mean a machine capable of either stripping or cutting of Tobacco Leaf. In this case, 'and' is interpreted as 'or'. Similar decision was given in the following cases:
(a) Electronics Devices v. CC, Madras
(b) Jay Kay & Company v. CC, New Delhi
(c) Travancore Rayons Ltd. v. Union of India and Ors.
(d) CC, Madras v. Zoro Garments Pvt. Ltd.
(vi) The SSI exemption Notification exempts goods from payment of duty when the aggregate clearances in a financial year does not exceed Rs. 1 crore. In the present case, the goods falling under Chapter 24 are not entitled for exemption. However, the exemption is available to the "other than unbranded chewing tobacco" and "preparations containing chewing tobacco, falling under heading 24.04". The impugned goods is nothing but a preparation of chewing tobacco falling under heading 24.04. Therefore, the impugned goods are entitled for the exemption Notification.
6. We have gone through the records of the case carefully. The main issue to be decided is whether the product "Pan Masala containing chewing tobacco" commonly known as "Gutkha" is eligible for SSI exemption under Notification No. 08/2001-CE dated 1.3.2001. The relevant entry for deciding the issue is given in the Annexure to the Notification. The portion of the Annexure which is necessary for us is re-produced below:
(iv) all goods falling under Chapter 24 of the First Schedule (other than unbranded chewing tobacco and preparations containing chewing tobacco, falling under heading No. 24.04);
Both the lower authorities have held that the impugned product is covered by the exemption Notification. From the findings of the lower authorities, the following points emerge:
(1) 'Pan Masala' manufactured by the Respondent is a preparation containing chewing tobacco.
(2) Pan Masala is falling under heading No. 24.04 (3) The adjective "unbranded" qualifies only chewing tobacco and not preparations containing chewing tobacco.
In view of the above, 'Pan Masala' is entitled for the exemption Notification. On the other hand, the Revenue's contention is:
(1) There is a separate entry for 'Pan Masala' in the Tariff.
(2) Preparations containing chewing tobacco are distinguishable from Pan Masala.
(3) The exemption is only for preparations containing chewing tobacco and not for pan masala.
(4) Assuming that pan masala is covered under preparations containing chewing tobacco even then it would not be entitled for the exemption because the word 'unbranded' appearing before chewing tobacco qualifies even the preparations containing chewing tobacco. In the present case, the product is branded. Only unbranded products are entitled for the exemption. Hence the pan masala under brand name manufactured by the Respondent is not entitled for the exemption Notification. The relevant portion of the Tariff entries are reproduced below:
Heading No. Sub-heading No. Description of goods Rate of duty Basic Additional 2404 Other manufactured tobacco and manufactured tobacco substitutes; homogenised or 'reconstituted' tobacco; tobacco extracts and essences xxxx xxxx 2404.39
--Other Rs. 11.50 per thousand Rs. 3.50 per thousand
--Chewing tobacco and preparations containing chewing tobacco; panmasala containing tobacco:
2404.41
--Chewing tobacco and preparations containing chewing tobacco 16% 18% 2404.49
--Pan masala containing tobacco 16% 18% As regards the classification, even though pan masala containing tobacco can be considered as a preparation containing chewing tobacco, there is a separate entry in the tariff. However, in the Notification, they have not separately mentioned the 'Pan Masala'. It is the Department's contention that chewing tobacco and preparations containing chewing tobacco are distinctly different from 'pan masala containing tobacco'. Summing up, the Revenue contends that in order to be eligible for the exemption, the goods have to be:
(a) chewing tobacco and preparations containing chewing tobacco;
(b) failing under Chapter 24.04; and
(c) unbranded.
In the Revenue's view, the impugned products will not be considered as 'chewing tobacco and preparations containing chewing tobacco' in view of the specific entry 'pan masala containing tobacco' in the tariff. Further, the goods manufactured by the Respondents are branded. Therefore, the conditions (a) and (c) above are not satisfied. This is the thrust of Revenue's argument. The 'Pan Masala containing tobacco' is defined in Note 6 in Chapter 24 in the following manner:
6. In this Chapter, "Pan masala containing tobacco", commonly known as 'gutkha' or by any other name, means any preparation containing betel-nuts end tobacco and any one or more of the following ingredients, namely :
(i) lime; and
(ii) kattha (catechu), whether or not containing any other ingredients, such as cardamom, copra and menthol.
A careful reading of the above note shows that the impugned item can be considered as a 'preparation containing chewing tobacco'. On the question of interpretation of exemption Notification, the Hon'ble Supreme Court in the case of Bombay Chemical Pvt. Ltd. v. Collector of Central Excise, Bombay has given certain guidelines which will be of immense use in the present appeal. In that case, the issue was whether the Disinfectant fluids manufactured by the appellants would be entitled for the benefit of exemption Notification under the following entry:
Insecticides, Pesticides, Weedicides and Fungicides The assessee claimed the benefit of the exemption Notification under the above entry. The Assistant Commissioner rejected the assessee's contention. He held that the Disinfectant fluids manufactured by the appellants did not have the property of killing any insect or pest and therefore would not be entitled for the benefit of exemption Notification. The appellate authority, on the other hand, held that the impugned products were nothing but fungicides. In the Departmental appeal, two members of the Tribunal out of the three rejected the Collector's decision. The Tribunal found that the impugned goods were being referred to and marketed as disinfectants and that the preparations in question were capable of killing of various bacteria and fungi, but it refused to extend the benefit of exemption Notification as the Notification being confined to specified categories, the appellant was not entitled to claim the exemption by extension of the principle that since the goods produced by the appellant satisfied the broad test of killing insects, it should be held to be pesticides or fungicides. According to the Tribunal, the exemption notification being meant to cover particular formulation with well-defined uses and especially for killing insects, they cannot be equated or interpreted to include disinfectants which are preparations for general disinfection purposes and which are used in the bathrooms, gutters floor cleaning, etc. While rejecting the Tribunal's contention, the Apex Court made the following observations:
9. Item No. 18 which was added in 1978 grant exemption to the categories of goods which can be classified as insecticides, pesticides, weedicides or fungicides. They have to be understood in broad sense. The reasoning of the Tribunal that if an expression is capable of a broader and a narrower meaning, then it is the lattere which could be preferred, does not appear to be correct. Where entries are descriptive of category of goods they have certain characteristics. Therefore, when a question arises whether a particular goods is covered in any category or not, it has to be examined if it satisfies the characteristic which go to make it a goods of that category And whether in trade circle it is understood as such and if it is a (good) of technical nature, then whether technically it falls in the one or the other category. Once it is found that a particular (good) satisfies the test, then issue which arises for consideration is whether it should be construed broadly or narrowly. One of the settled principles of construction of an exemption notification is that is should be construed strictly, but once a (good) is found to satisfy the test by which it falls in the exemption notification then it cannot be excluded from it by resorting to applying or constructing such notification narrowly. Item 18 is an exemption notification. As stated earlier, it mentions broad categories of goods which are entitled to exemption. Once a [good] is found to fall even narrowly in any of these categories, there appears no justification to exclude it. The test of strict construction of exemption notification applies at the entry, that is, whether a particular goods is capable of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. Each of the words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfy the test of being covered in either of the expression, then it is entitled to exemption. The broad and basic characteristic for exemption under the notification is that the goods must have the property of killing germs and bateria insects or pest and it should be understood in the common parlance as well as being covered in one of the broad categories mentioned in the notification. Since the goods produced by the appellant are capable of killing bacteria and fungi which too, is covered in the expressions 'pesticide' and 'fungicide' there appears no reason to exclude the goods from the aforesaid notification.
Hence if we keep in mind the guidelines enunciated in the above mentioned Supreme Court decision, we should first ask the question whether the impugned products can be considered as preparations containing chewing tobacco. If the answer is 'yes', then the benefit of exemption notification cannot be denied. In the present case, going by the definition of 'pan masala' given in Note 6 of Chapter 24, as extracted above, the impugned product is indeed a preparation containing chewing tobacco. Moreover, there is no doubt that it falls under heading No. 24.04. On the question of entitlement of branded product for the benefit of exemption notification, it is our view that the adjective 'unbranded' cannot be extended to the preparations containing chewing tobacco. In any case, in the year 2002 the word 'and' coming between "other than branded chewing tobacco/preparations containing chewing tobacco" has been shifted and another entry "tobacco extracts and essences" had been added. This also makes it very clear that the intention of the legislature is to give the benefit of exemption notification to 'preparations containing chewing tobacco' irrespective of whether it is branded or unbranded. Therefore, there is much force in the contention of the learned Advocates that the word 'and' appearing between 'chewing tobacco'/'preparations containing chewing tobacco' should be read as 'or' in the light of the various decisions cited by the learned Advocates. There is also much force in the following observations of the Original authority in the Order-in-Original No. 2/2002 dated 6.3.2002:
...I find the assessee is rightly eligible for SSI exemption for the product Pan Masala containing tobacco, commonly known as Gutkha, which stand was ratified by the assessee's convincing argument, drawing attention to the wordings in the above said Notification and also their argument that if the intention of the Government was to limit the SSI exemption to chapter No. 2404.41 only and not to other chapter sub-headings under Chapter heading No. 2404, then it would have clearly stated in the annexure under Clause-iv (other than unbranded chewing tobacco and preparations containing chewing tobacco, falling under heading No. 2404.41) as was done in other chapters in the same annexure viz., xii, all goods falling under chapter 53 of the first Schedule except goods falling under heading Nos. 53.01, 53.02, 53.04, 53.05, 53.08 (other than goods falling under Sub-heading No. 5308.14) and 53.11 (other than woven fabrics of ramie) : that as such, we must go by plain reading of the Notification and not to draw our own inferences or conclusions not supported by the said Notification while interpreting the Notification. So when, in the same Notification and in the same Annexure, the Law Maker wants to extend benefit of exemption for goods falling under Ch. Sh. No. 5308.14, he was doubly sure while mentioning insertion of the Chapter heading 2404 in the exclusion Clause-iv of the Annexure as he wants to accommodate Pan Masala containing tobacco also as a product entitled for SSI exemption....
The learned Departmental Representative's reliance on the judgment of the Apex Court rendered in the case of Kothari Products Ltd. (supra) will not help the case of the Revenue as it deals purely with the classification issue and not the entitlement of the benefit of a Notification. In the result, the appeal No. E/533/2004 is dismissed.
7. It has been stated in the Grounds of Appeal that the SSI Notification No. 8/2001 exempts only Basic and Special Excise duty and there is no exemption for Additional Excise Duty (AED) and National Calamity Contingent Duty (NCCD). It has been pointed out the Commissioner has erred in dropping the entire demand. We find merit in the contention of the Revenue. Even though the impugned product is entitled for SSI exemption, the duties which are not covered by the said exemption are to be paid. Therefore, we allow the appeal No. E/633/2004 on this ground only. In other words, while holding that the Respondents are entitled for SSI exemption under Notification No. 8/2001-CE for the product 'Pan Masala', we hold that the Additional Excise Duty (AED) and the National Calamity Contingent Duty (NCCD) are to be paid. For this limited purpose, the appeal No. E/633/2004 is remanded to the Original Authority for appropriate quantification of the above duty.
(Pronounced in the open court on 22.11.2006)