Custom, Excise & Service Tax Tribunal
Faisal Yunusbhai Fazlani vs Ahmedabad-Iii on 4 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 03
Excise Appeal No. 10483 of 2018-DB
[Arising out of OIO-AHM-EXCUS-003-COM-05-06-17-18 passed by Commissioner
(Appeals), Commr. of Central Excise, Customs & Service Tax- Ahmedabad-III]
M/s Borsad Tobacco Co. Pvt. Ltd. .....Appellant
Himmatnagar Vijapur Road, Opp. Apsara Hotel,
Highway Road, Village-Lalpur,
Post-Savgadh, Taluka-Himmatnagar,
Sabarkantha-Gujarat-383001
VERSUS
C.C.E. & S.T., Ahmedabad-iii .....Respondent
Custom House... 2nd Floor, Opp. Old Gujarat High Court, Navrangpura,Ahmedabad, Gujarat-380009 WITH i. Excise Appeal No. 10484 of 2018 (M/s Sopariwala Exports Pvt. Ltd.) ii. Excise Appeal No. 10485 of 2018 (Arif Abdul Kader Fazlani) iii. Excise Appeal No. 10486 of 2018 (Faisal Yunusbhai Fazlani) iv. Excise Appeal No. 10487 of 2018 (Rafiquebhai Sattarbhai Kutchi) v. Excise Appeal No. 10488 of 2018 (Salimbhai Yakubbhai Momin) vi. Excise Appeal No. 10489 of 2018 (Shirajbhai Gulamnabi Vekariya) [Arising out of OIO-AHM-EXCUS-003-COM-05-06-17-18 passed by Commissioner (Appeals), Commr. of Central Excise, Customs & Service Tax- Ahmedabad-III] APPEARANCE:
Shri. Prakash Shah (Advocate) for Appellant Shri. T.G. Rathod (A.R.) for Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) FINAL ORDER NO. A/ 10979-10985 /2019 DATE OF HEARING:19.02.2019 DATE OF DECISION:04.06.2019
2|Page E/10484-10489/2018-DB RAMESH NAIR The present appeals have been by filed by M/s Borsad Tobacco. Pvt. Ltd. (BTPL) and others against OIO dated 17.11.2017 passed by the Commissioner, CGST & Central Excise, Gandhinagar. The facts of the case are that BTPL is engaged in processing of raw-tobacco, i.e. sieving, cleaning, and packing of same. M/s Sopariwala Exports Pvt Ltd (SEPL), another group company is also engaged in processing of tobacco for exports. The Appellant were issued show cause notice alleging that the Appellant factory was visited by the preventive officers and it was found that the Appellant are engaged in manufacture and clearance of excisable goods, viz. "Afzal" brand Snuff tobacco products falling under Chapter 24 of CETA, 1985 without Central excise registration and without payment of duty. That during search Machines namely Trombler Machine, Feeder Netware Machine, Grad well machine (Charotar Machine), Y Bro Screen (Rava Machine), Hath Channa, Umity Fire Tank, Vibrator Machine (Rava), Vinovar Fan and Blower Machine (Fan) were found. 1152 bags of Afzal Brand Snuff Tobacco and certain raw materials i.e raw tobacco, tobacco "Dakhra", colol, Katha, empty bags bearing "Afzal (Reg.) & Best Quality Snuff Tobacco" were allegedly found in unit. The 1152 bags of Afzal Brand Snuff Tobacco contained the following inscription :
AFZAL (REGD.) BEST QUALITY SNUFF TOBACCO SOPARIWALA EXPORTS PVT LTD POST BAG NO. 9992, 'NIRMAL'. 21ST FLOOR NARIMAN POINT, MUMBAI-400 021 (INDIA) TEL : 91-22-66396666, FAX : 91-22-66396677 E-MAIL :[email protected]. Web :www.sopariwala.com FOR EXPORT ONLY 50 KG, NET WHEN PACKED GROSS WT : 50.200 KGS
3|Page E/10484-10489/2018-DB 1.1 Shri Salimbhai Y. Momin who was present stated that 1152 Bags were Afzal Barnd Snuff Tobacco and were to be delivered to M/s Sopariwala Exports Pvt. Ltd. It was alleged that the goods were intended to be cleared without payment of duty and hence were put under seizure. Statements of Shri Salimbhai Yakubbhai Momin, supervisor, Shri Sirajbhai Gulamnabi Vekariya, Accountant, Raffique Sattar Kachhi, Manager, Shri Arif Abdul Kadar Fazlani, and Shri Faisal Yunusbhai Fazlani, directors were recorded. The premises of SEPL was also searched and documents were seized. The show cause notice contended that Tobacco and manufactured Tobacco substitutes are covered under Chapter 24 of the Explanatory Notes to the Harmonised Commodity Description and Coding System. That excerpts from the said explanatory notes on "unmanufactured tobacco" as available at Page No. 205 states as under :
" Unmanufactured tobacco in the form of whole plants or leaves in the natural state or as cured or fermented leaves, whole or stemmed / stripped , trimmed or untrimmed, broken or cut ....."
1.2 That only when following processes are done on tobacco plant / leaves, the resultant tobacco product would be construed as unmanufactured tobacco. By implication, if any other process beyond those mentioned below is performed on the tobacco plant / leaves, it would mean that the resultant product cannot be classified as "
manufactured tobacco" :
- Curing
- Fermentation
- Stripping
- Trimming
- Cutting
1.3 That in the instant case, the processing is definitely
transgressing the boundaries demarcated for a product to be classified under un-manufactured tobacco. Further, M/s BTCPL are undertaking the process of drying, cutting and then crushing / grinding on the leaves of tobacco by various machines in their premises. Through these processes, the leaves of tobacco are converted into powder form
4|Page E/10484-10489/2018-DB and this tobacco powder is identified by the assessee as Gadia Powder. Further, as per the Board‟s circular no. 01/88 dated 21.3.1988 issued vide file No. 81/2/88-CX-3, it was held that deliberate powdering of tobacco leaves was definitely a process of manufacture and as such "tobacco powder" would be appropriately classifiable as a "
manufactured tobacco product". The samples of Afzal brand Snuff Tobacco and Tobacco powder were sent to the Chemical examiner at Vadodara on 25.1.08 for testing, who vide his letter No.RCL/AH/Prev./49/1173 dated 28.3.2008 reported that "The sample is in the form of coarse brown powder. It is other than snuff. The sample U/R may be considered as manufactured Tobacco". Vide letter No. RCL/AH/Prev./48/117 dated 28.03.2008, the Chemical Examiner reported that "the sample is in the form of brown powder. It is other than Snuff. The sample U/R may be considered as manufactured Tobacco". Further, the Chemical Examiner, CECL, Vadodara vide his letter F.No. RCL/AH/Prev./48-49/08-09 dated 22.04.2009 communicated the ingredients in both samples of manufactured products. He reported, as under :-
1. Afzal brand snuff Tobacco : The sample mainly contains tobacco powder and in smaller quantities of Calcium Oxide (CaO), Katha, Flavouring agents.
2. Tobacco powder : The sample mainly contains tobacco powder and in small quantities of Calcium Oxide (CaO), Katha, Flavouring agents. The samples u/r are not showing the presence of any foreign substances in the observations and tests conducted.
1.4 It was alleged that in view of the chemical report, process undertaken, above mentioned circular and HSN Explanatory Notes, it is clear that the product under consideration has to be classified as "manufactured tobacco product". In respect of aforesaid seized goods, M/s SEPL‟s Borsad unit vide letter dated 18.12.2007 requested to provisionally release the seized goods claiming the same to be raw tobacco, which did not contain any chemicals. They also claimed themselves to be the actual owner of the said goods and also gave the manufacturing process in brief. The goods were ordered to be
5|Page E/10484-10489/2018-DB released provisionally on execution of B-11 Bond after furnishing 25% cash security. The show cause notice alleged that all the commodities of tobacco are covered under Chapter 24 of the Central Excise Tariff Act, 1985. So, invariably the product manufactured by M/s BTPL would also fall under the said chapter. The Chapter heading No. 2401 covers „unmanufactured tobacco, tobacco refuse‟. In the present case, the process undertaken by Appellant includes cutting of tobacco with machines, grinding in pulverizing machine, mixing of flavouring agents etc. The product emerging out of the process undertaken by Appellant is entirely different from unmanufactured tobacco. The physical characteristics, constituents, usage, target customers and marketability of the resultant products are entirely different from the unmanufactured tobacco. With a view to the above mentioned circular No. 01/88 dated 21.03.1988, it is clear that the product manufactured by Appellant cannot be classified under chapter sub-heading 2401. Now, chapter sub-heading No. 2402 covers cigars, cheroots, cigarettes of tobacco or of tobacco powder, it would be classifiable under the heading 2403. The chapter sub-heading no. 2403 10 covers smoking tobacco, guduka tobacco, smoking mixtures for pipes and cigarettes, biris and others; the same would not be applicable to the product manufactured by M/s Borsad Tobacco Co. Pvt Ltd. The chapter sub heading no. 2409 91 covers homogenized or re-constituted tobacco, the same would not be applicable. Hence, the product in question manufactured by Appellant would fall under chapter sub-heading 2403
99. The Appellant are engaged in business of purchase of Tobacco leaves and processing of the same in the factory premises. Though the statements of the concerned persons were given to the effect that the appellant has rented a portion of their unit to M/s BTCPL. However, there was nothing to indicate that part or entire premises was occupied by some other firm or company. That the appellant has all the machines, which were used in manufacture of "other manufactured tobacco and manufactured tobacco substitutes - other "falling under chapter sub-heading 2403.99 of the CETA, 1985. The seized goods were Snuff and Appellant are actually manufacturers of the seized goods. No account of procurement of raw material and the production of the said 1152 bags of manufactured tobacco was maintained by the appellant. It appears that the appellant is
6|Page E/10484-10489/2018-DB purchasing Tobacco from farmers, the leaves of tobacco is dried and then cut to pieces by machines and then crushed / grinded in the grinding machines. Through these processes, the leaves of tobacco are converted into powder form, which is known as " Gadia Powder". The said Gadia Powder is manufactured tobacco packed in pre-printed HDPE bags bearing printed brand name "Afzal (Regd) " best quality snuff tobacco and cleared in the domestic market without following the central excise procedure. That the Chemical Examiner vide communication dated 22.4.2008 communicated that the said Gadia Powder was " manufactured tobacco" and contained calcium oxide (CaO), katha, flavouring agents etc. That the appellants have been manufacturing, packing and clearing "manufactured tobacco" in pre - printed HDPE bags having brand name as "Afzal brand snuff tobacco" in the name of Gadia Powder and the same was cleared without issuing any invoice and without registration of the unit despite the fact that the same was liable to central excise duty and no exemption was available. The process of conversion of tobacco leaves to tobacco powder would amount to manufacture under section 2 (l) as the input and final product are having distinct name, character and usage. Further as per Chapter Note 3 to Chapter 24 of the Central Excise Tariff Act, 1985 states as under "
"In relation to products of heading 2401 or 2402, labeling or re-labeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to " manufacture".
1.5 Thus, even the process of packing of powder from bulk to retail packs would amount to manufacture. The Appellant were engaged in the manufacture of tobacco products under the brand name of "Afzal Snuff Tobacco", classifiable under Chapter heading 2403 99 which attracts central excise duty at the rate of 66% (BED 50% + NCCD 10% + Additional duty 6%) and education cess and higher secondary education cess thereof, without obtaining central excise registration and without following excise procedure. Central Excise duty of Rs. 19,57,824/- is payable on the said 1152 bags and M/s SEPL had provided packing material to the appellant when they were aware that the Appellants were manufacturing " branded manufactured tobacco
7|Page E/10484-10489/2018-DB without being registered. The Appellant were issued show cause noticed dated 25.4.2008 wherein it was proposed to confiscate the 1152 bags of manufactured snuff tobacco bearing brand name "Afzal (Reg.) Snuff Tobacco" and to impose penalty under Rule 25 of Central Excise Rules, 2002 read with secton-11AC. Shri Salim bhai Yakub bhai Momin, supervisor, Shri Siraj bhai Gulamnabi Vekariya, Accountant, Raffique Sattar Kachhi, Manager, Shri Arif Abdul Kadar Fazlani, and Shri Faisal Yunusbhai Fazlani, directors were also proposed penalties u/s 26 of CER, 2002. Vide adjudication order dt. 05.01.2009 the show cause notice was adjudicated thereby ordering confiscation of seized goods and imposition of penalties.
1.6 M/s BTPL were also issued another show cause notice dt. 28.04.2010 proposing "Afzal brand Chewing Tobacco" to be classified as branded manufactured chewing Tobacco falling under Chapter sub- heading 24039910 of the CETA 1985 and thereby demanding Central Excise Duty of Rs. 1,90,38,063/- on 559650 kgs of goods manufactured and cleared by the Appellant, along with interest and to impose penalty u/s 11AC of CEA, 1944 read with Rule-25 of the CER, 2002. M/s SEPL were also proposed to impose penalty under Rule 26 of CER, 20002. It was also proposed to impose penalty under Rule- 26 on Shri Faisal YunusbhaiFazlani, Shri Arif Abdul Kadar Fazlani, Shri Raffique Bhai Sattar Kachhi, Shri SirajbhaiGulamnabiVekariya, and Shri SalimbhaiYakubbhai Momin. The said show cause notice was adjudicated by the Commissioner, Central Excise, Ahmedabad-I vide OIO No. AHM-CEX-003-COMMR-013-13 dated 7.3.2013, wherein he confirmed the proposal of the show cause notice and also imposed penalty upon M/s SEPL and other noticees.
1.7 Aggrieved by the orders dated 5.2.2009 and 7.3.2013, the Appellant filed an appeal before the Tribunal, who vide its order No. A/10749 to 10755/ AZB/AHD/2013 dated 10.6.2013 set aside the order-in-original dated 5.2.2009 and 7.3.2013 and remanded the matter back to the adjudicating authority to consider issue along with the issue of classification after getting the samples re-tested. The Revenue, thereafter sent two samples, viz. (i) "Afzal (Regd) brand Snuff Tobacco and (ii) Tobacco Powder drawn under panchnama dated
8|Page E/10484-10489/2018-DB 27/10/2017 to the Central Revenue Chemical Laboratory (CRCL), New Delhi for re-testing to ascertain " whether the sample is snuff of preparation containing snuff and whether the sample is manufactured tobacco or otherwise". The Jt. Director, CRCL, New Delhi vide letter dated 18.10.2016 returned the sample without testing contending that it was not possible to test the samples after 9 years from the date of drawl. The appellants were, thereafter, given personal hearing wherein they filed written submissions. The adjudicating authority vide impugned order-in-original No. AHM-EXCUS-003-COM-05-06-17- 18 dated 17.11.2016 ordered confiscation of 57600 kg of manufactured tobacco branded as "Afzal brand Snuff Tobacco" under Rule -25 of the CER, 2002 with an option to redeem the same on payment of redemption fine of Rs.7 lakh u/s 125 of the Customs Act and also ordered recovery of central excise duty of Rs. 19,57,824/- along with penalty on the ground that the seized goods are liable for confiscation as the same were manufactured without possessing central excise registration and were ready for despatch clandestinely under the guise of non-manufactured tobacco, hence liable to redemption fine.. He also imposed penalty of Rs. 4 lakh on M/s SEPL under Rule - 26 of the CEA, 1944. In respect of Show Cause Noticed dated 28.4.2010, the adjudicating authority held that the goods " Afzal Brand Snuff Tobacco" will be classified as branded manufactured chewing tobacco falling under Chapter sub-heading 24039910 of the CETA. He confirmed excise duty demand of Rs. 1,90,38,063/- on 559650 kg on the ground that the appellant has clandestinely manufactured said quantity of branded manufactured tobacco under the brand name "Afzal brand Snuff Tobacco" falling under the chapter sub-heading 24039910 of the CETA. He also ordered for payment of interest and also imposed equal amount of penalty u/s 11AC read with Rule-25 of CER, 2002. A penalty of Rs. 5 lakh on M/s SEPL on the ground that they are also involved in above illegal activity as it tried to prove that the excisable goods cleared from the factory of the appellant were actually exported without any specific evidence, so as to help the appellant to wriggle out of the duty liability. Personal penalty was also imposed upon co - appellants. Being aggrieved, the Appellants have filed the present appeals.
9|Page E/10484-10489/2018-DB
2. Shri Prakash Shah ld. counsel appearing for the appellant submits that the demands is based totally upon assumption and presumption as no goods were found to have been removed in domestic market. There is no identified buyer in the domestic market of such goods. No evidence has been adduced by the Revenue that the goods manufactured were chewing tobacco. The goods are unmanufactured tobacco and the reliance placed by the Revenue on the opinion of the Chemical Examiner, Vadodara dated 22.4.2008 cannot be relied upon. Previously the Chemical Examiner in his report dated 28.3.2008 had only stated that the sample is in the form of coarse brown powder. It is other than snuff. The sample " U R "
may be considered as manufactured tobacco. The report did not show as to how the said conclusion has been reached. Shri Faisal Yunusbhai Fazlani in his statement dated 3.4.2008, when showed the said report, had clearly dis-agreed with the report of the chemical examiner. The Supervisor, Shri Salimbhai Yakubbhai Momin has clearly stated in his statement that the goods were un-manufactured tobacco and belong to M/s SEPL and the goods were seized from the property of the appellant, the part of which was leased to M/s SEPL. The Revenue has erred in misconstruing the Explanatory Notes to Harmonized Commodity Description and Coding System for holding that when the process of curing, fermentation, stripping, trimming and cutting are done on tobacco plant / leaves, the resulting product would be „un- manufactured tobaccco‟. The adjudicating authority has wrongly held that if any process beyond the aforesaid process is carried out on the tobacco plant / leaves, it would mean that the resultant product cannot be classified as "unmanufactured tobacco". It has been wrongly held that crushed / grinded un-manufactured tobacco leaves has been added with calcium oxide, katha and flavouring agent supported by the chemical examiner report, which is not sustainable and not reliable. In normal course the raw tobacco purchased from farmers is cleaned in the machines and the process of drying, cutting and cleaning of tobacco leaves are undertaken. No katha, calcium oxide or flavouring agents are being added in the tobacco after crushing; packing in bags of 50 kg only and not in consumer packing of small pouches or tin containers. Tobacco remained unmanufactured and classifiable under heading No. 2401 of CETA. 10 | P a g e E/10484-10489/2018-DB He relies upon the Tribunal decision in case of Iswar Grinding Mills vs CCE - 2000 (117) ELT 743 (T) wherein it was held that crushing / powdering of tobacco leaves first manually and then with power aided crushing / grinding machine to form tobacco flakes / powder does not amount to manufacture. The tobacco is unmanufactured tobacco and classifiable under 24.01 of the CETA, 1985 attracting NIL rate of duty. He also relied upon the decision in case of Shrikant Prasad - 2000 (117) ELT 345 (T) wherein it was held that the Tobacco powder obtained by crushing tobacco leaves, stems and stalks fall under heading 24.01 of the CETA1, 1985 as unmanufactured tobacco attracting NIL rate of duty. He also relied upon the Tribunal judgment in case of Sree Biswas Vijaya Industries, 1999 (96) ELT 712 (Tri), as upheld by the Hon‟ble Supreme Court , as reported in 1998 (104) ELT A136 (SC). The reliance placed by the adjudicating authority on Circular No. 1/88 dated 21.3.1988, according to which powdering of tobacco leaves was a process of manufacture is erroneous. As the circular is not binding on the assessee and it is contrary to the orders of the Tribunal on the very same issue. He also relies upon the Tribunal judgment in case of Gudakhu Factory - 2003 (151) ELT 720 (T), as upheld by the Apex Court reported in 2003 (155) ELT 235 (SC) that they have been challenging the Chemical Examiner report from the very first statement and in spite of repeated requests by the appellant as well as by M/s SEPL, the adjudicating authority did not allow the re-test of the samples, which is against the law. He also submits that the Chemical Examiner, in his first report dated 28.3.2008, reported that " the sample is in the form of brown powder.
It is other than snuff . The sample under reference may be considered as manufactured tobacco. However, in his report dated 22.4.2008, the Chemical Examiner has reported that "(1) Afzal brand Snuff Tobacco : The sample mainly contains Tobacco powder and in smaller quantities Calcium Oxide (CaO), Katha, flavouring agents (2) tobacco powder : The samples mainly contains tobacco powder and in smaller quantities Calcium Oxide (CaO), katha, flavouring agents.
2.1 They had requested for retesting of samples but instead of complying with the request, the adjudicating authority had decided the case in gross violation of the principles of natural justice and having 11 | P a g e E/10484-10489/2018-DB violated the principles of natural justice, created a situation whereby no opportunity was left for re-testing of the said samples. The revenue cannot be allowed to take advantage of his own wrong and demand the duty without affording opportunity of re-test or cross examination of the Chemical Examiner. The Show Cause Notice has wrongly alleged that during search on 27/28.10.2007 at their premises raw materials, viz. raw tobacco, tobacco Dakhara, colour, katha and empty pre- printed plastic HDPE bags were found. Firstly it is evident that the officers did not find raw material like calcium oxide and flavouring agents. When there were no such raw materials found, the question of adding or mixing calcium oxide or flavouring agents does not arise. It was wrongly stated in panchnama that Katha was found whereas the same was mud and the revenue has failed to establish that the substance found during the search was allegedly katha. Their accounts fully supports the fact that there have never been any purchases of katha, flavouring agents or calcium oxide any time. The burden is on the Department to show that the Appellant had purchased these materials. In absence of any material / evidence, it cannot be said that the Appellant was adding these materials in the impugned goods. There is no statement of the appellant that they were manufacturing chewing tobacco by adding katha and calcium oxide. As per HSN Explanatory Notes, chewing tobacco is usually highly fermented and liquored. There is no such finding by the Chemical Examiner that the samples of the impugned goods were highly fermented and liquored. In absence of any material, the impugned goods cannot be classified as chewing tobacco. The officers did not find any mixers in which the process of mixing of tobacco flakes with katha, calcium and flavouring agents were allegedly undertaken. In absence of any mixer in the premises, it is impossible to undertake the process of mixing of tobacco flakes with any material like katha, calcium oxide and flavouring agents. Without prejudice, it is submitted that the sample has been taken in October, 2007 and report of the same has been applied for the past period from 2005-06 to 2007-08. It is submitted that SEPL had taken a portion of the premises of the appellant on lease. For the purpose, a Lease Agreement has been duly entered into between the Appellant and SEPL and the copy of the said lease agreement was duly produced before the authorities. 12 | P a g e E/10484-10489/2018-DB Shri Fakizal Yunus Fazlani, director of SEPL, had in his statement dated 30.11.2007 stated that SEPL have taken some portion of the factory premises on lease basis from BTCPL and SEPL are processing Gadia Powder known as snuff in the premises taken on lease. He also stated that M/s SEPL are procuring Calcutti from the farmers and bring into the leased premises, which are sieved and grinded. The tobacco leaves are converted into powder form, which is commonly known as a Powder in the market language. The Gadia tobacco packed in 50 kg bags are transferred to SEPL unit at Borsad from where it is exported. Sh. Rafique Sattar Kutchi Manater of M/s BTCPL in his statement dated 31.10.2007 has also stated this fact.
2.2 The entire case of the Department is based on the test report given by the Chemical Examiner. In Test Report dated 28.3.2008, the Chemical Examiner reported that the sample is other than snuff. The sample under reference may be considered as manufactured tobacco. A perusal of the Test Report reveals that the Chemical Examiner was not sure about the nature of the product; whether manufactured or unmanufactured as he has opined that sample may be considered as manufactured tobacco. He has not given any reasons or parameters on the basis of which he has opined that the sample may be considered as manufactured tobacco. Shri Faisal Yunusbhai Fazlani, authorised person of M/s SEPL in his statement dated 3.4.2008 has stated that he does not agree with the report, as their product is tin manufactured tobacco. The show cause notice and the adjudicating authority had made a reference under letter F.No. 11/15-93/P1/078- 08-GR-V dated 21.4.2008 from Ahmedabad and Chemical Examiner from Vadodara sent a letter on next day itself on dated 22.4.2008 to the effect that the sample mainly contains tobacco powder and in smaller quantities calcium oxide, katha, flavouring agents. The letter dated 21.4.2008 has not been made available to the Appellant which is in violation of the principals of natural justice. The letter dated 22.4.2008 of the Chemical Examiner suffers from the vice of vagueness as it does not specify the percentage of katha, flavouring agents and calcium oxide at all. Moreover, the Test Report dated 28.3.2008 has been completely silent about any composition of the samples. Therefore, the letter dated 22.4.2008 is not reliable as 13 | P a g e E/10484-10489/2018-DB evidence. M/s SEPL under their letter dated 15.5.2008 on receipt of show cause notice along with which said letter dated 22.4.2008 was received, requested the Respondent to get the sample tested from an independent Chemical Examiner duly recognized by the Government since the Chemical Examiner had given two different reports. The Adjudicating authority did not allow the retest, which is in violation of the principles of natural justice and the impugned order is liable to be set aside. The request for re-testing of the sample was made again vide letter dated 29.7.2008 and in reply dated 6.11.2008 to the earlier show cause notice. The respondent, however, did not get the sample re-tested. Shri Faisal Yunus Fazlani of the Appellant had also requested in his reply dated 14.7.2008 to get the samples re-tested as two different reports had given by the Chemical Examiner. Similarly, Shri Arif Abdul Kader, director of the appellant, in his reply had requested the Commissioner to get the samples re-tested from independent Chemical Examiner duly recognized by the Government. By relying on the test report and letter dated 22.4.2008 without getting the samples re-tested, principles of natural justice were contravened in the first round of adjudication and the first adjudication order was set aside by this with the direction to have the sample re- tested, which was declined by the CRCL in view of shelf life of the sample having been expired as the department had not preserved the samples properly. M/s SEPL had sent a sample of the impugned product to Tobacco Projects, Anand Agricultural University, Anand to test. Dr A.P. Patil, Unit officer has opined in his report dated 18.12.2007 as under :
"The sample is of size from 5# to 30#. No additive seems to be added in it and it is purely unmanufactured tobacco."
2.3 The Commissioner in his order has taken into consideration the opinion given by the Additional Commissioner (Preventive) on the classification of the goods, whether manufactured or unmanufactured which is patently incorrect in as much as the opinion of the Additional Commissioner (Prev.) in deciding the classification is beyond his jurisdiction and authority. He submitted that the adjudicating authority has erred in holding that the issue of classification of 14 | P a g e E/10484-10489/2018-DB disputed product of the Appellant can be decided on the basis of Test Report given earlier by the Chemical Examiner observing that the said Test Reports have attained finality. The adjudicating authority is wrong in holding that the appellant never applied for retesting of the samples as required under Clause 11 of the CBEC Supplementary Manual and that the Appellant cannot make the Department responsible for not doing re-test of the samples of the impugned goods. He also erred in holding that the report received from the Chemical Engineer, Central Excise Laboratory, Vadodara has attained finality to decide the classification issue of the impugned goods in view of the retesting of the samples over a period of 9 years is not at all possible. The Appellant M/s BTPL had allowed SEPL to use a portion of their unit to M/s SEPL on lease under lease agreement dt. 01.04.2006. M/s SEPL were carrying out process related to Tobacco at said place. It is apparent from statements of directors, employees, accountant, supervisors of the Appellant firm that the premises of the Appellant firm was taken over by M/s SEPL and the goods were owned by them. Also it is undisputed fact that the appellant is not liable to pay any duty as the entire goods were exported. They had produced evidences to show that the goods on which duty was demanded has been exported from Borsad unit of M/s SEPL. The adjudicating authority has erred in holding that the goods belonged to the appellant only, that the appellant had manufactured the said "Afzal Brand Snuff Tobacco".
3. Shri T.G. Rathod, ld. Additional Commissioner, AR appearing for the revenue supports the findings of the impugned order and relies upon the earlier test reports to state that the goods viz. "Afzal Brand Snuff Tobacco" are branded chewing tobacco classifiable under 2403 99 10 and liable for duty. He reiterates the findings of the impugned order.
4. Heard both the sides and perused the records. In earlier round of proceedings, the matter was remanded back by the Tribunal for re- testing of samples. However, the Joint Director, CRCL, New Delhi vide communication dated 18.10.2016 has stated that " tobacco is a natural plant product and the shelf life is 2 years if the seal is left intact." That the samples under reference ,Nine years have been 15 | P a g e E/10484-10489/2018-DB already passed from the date of drawl and hence the samples were returned. The adjudicating authority has held that since the testing is not possible, therefore, the test report given by the Chemical Examiner, CECL, Vadodara has attained finality, hence he decided the issue of classification. On the basis of the report of the Chemical Examiner, Vadora, he held that since the tobacco leaves were dried, cut and crushed / grinded in the machines installed in the factory and after mixing of ingredients like calcium oxide, katha, flavouring agents, the same was packed in printed plastic bags with brand name Afzal Snuff Tobacco, the said process has resulted into manufactured tobacco, which liable to central excise duty. He held that the chemical examiner can give only opinion on chemical analysis. He has relied upon the hon‟ble apex court judgment in case of Alnoori Tobacco Products - 2004 (170) ELT 135 (SC) wherein the hon‟ble court held that there was a categorical finding recorded on facts that the tobacco powder obtained by crushing of unmanufactured tobacco leaves is a different commercial product having a distinct name and character and since in the cases relied upon by the Tribunal, it was categorically noticed that there was no material placed to show a different commercial product come into existence, the Tribunal was wrong in holding that the tobacco powder so obtained was classifiable under heading 24.01. He also relied upon the apex court judgment in the case of International Tobacco Company that basic character, function and use is more import than the name known in trade parlance. He held that though the appellants claimed the goods to be " Gadia Powder", the same is entirely a different product from the unmanufactured tobacco having its own distinct properties and characteristics as raw tobacco has undergone various processes like mixing of calcium oxide, katha, flavouring agents apart from undergoing process of drying, cutting and crushing / grinding. The adjudicating authority also held that during search, colour / katha found in the factory supports the report of the chemical examiner. He also held that though M/s SEPL vide letter dated 15.5.2008 showed their disagreement with the test report and requested for re-test, the appellant has never requested for retest of the sample of the disputed products and that the appellant was required to apply for retest of the samples. However, they failed to do so and, and therefore, they 16 | P a g e E/10484-10489/2018-DB cannot claim that they have applied for re-test of the samples within 90 days from the date of communication of the rest report to them. The argument advanced by the appellant that M/s SEPL had taken a portion of the factory on lease and processing activity was undertaken by M/s SEPL is an afterthought. The machines installed in the factory premises are owned by the appellant, they were registered under various acts and, therefore, they are the actual manufacturer of the goods. Regarding the contention of the appellant that the disputed goods were exported by M/s SEPL under bond / LUT and submission of export proofs like certificate from the Range jurisdictional superintendent, AR-III, Anand cannot be considered as export made by the appellant as they have not followed any procedure of the export inasmuch as they have cleared the goods only for home consumption to M/s SEPL without any invoice and payment of duty. He relied upon the Tribunal order in case of Sheena Exports - 2012 (2) ECS (97) (Tri
- Del).
5. We find that the investigation were initiated by visiting the premises of the appellant wherein the officers found 1152 bags of Afzal brand snuff tobacco, which contained the following description :
AFZAL (REGD.) BEST QUALITY SNUFF TOBACCO SOPARIWALA EXPORTS PVT LTD POST BAG NO. 9992, 'NIRMAL'. 21ST FLOOR NARIMAN POINT, MUMBAI-400 021 (INDIA) TEL : 91-22-66396666, FAX : 91-22-66396677 E-MAIL :[email protected]. Web :www.sopariwala.com FOR EXPORT ONLY 50 KG, NET WHEN PACKED GROSS WT : 50.200 KGS 5.1 Further, the machines, viz. (1) 1-Trombler Machine, (2) 1 -
Feeder machine, (3) 1- Grad well machine (Charotar Machine) , (4) 1- Y-Bro screen (Rava Machine), (5) 5-Hath Charna , (6) 1- Umity Fire 17 | P a g e E/10484-10489/2018-DB Tank, (7) 1-Vibrator Machine (Rava), (8) 1-Vinovar Fan and (9) 1- Blower Machine (Hand), were found. Supervisor of the unit Shri Salimbhai Yakubhai Momin, who was present during the visit informed the officers that the machines were used to produce powder from the materials of tobacco and that the goods are to be dispatched to M/s SEPL, Borsad for export. Statement of Shri Salimbhai Yakubhai Momin was recorded on 28.10.07, i.e. day of the visit, wherein he stated that since last 2 years, tobacco is grinded and processed in machines and are packed for dispatch to M/s SEPL. Similarly, statement of Shri Sirajbhai Gulamnabi Vekariya, Accountant was recorded on 29.10.07 who stated that they are engaged in purchasing tobacco and selling it after cleaning. That except powder of tobacco, which is known as Gadia powder, no other process is carried out and the same is transferred to the appellant. Statement of Shri Faizal Yunusbhai Fazlani, director of M/s SEPL was recorded on 30.10.07 wherein he stated that they have taken some portion of the factory premises from the appellant and they are manufacturing Gadia Powder known as snuff tobacco. That the units have not taken any central excise registration as Gadia Powder is not chargeable to central excise duty. That M/s SEPL , after receipt of snuff, i.e. gadia powder, from the appellant, are exporting the same under ARE-1 / ARE -2 by stuffing the same in containers. M/s SEPL also claimed the ownership of the seized goods and the same were ordered to be released to them on execution of appropriate bond and guarantee. Statement of Shri Rafique Sattar Kachhi, Manager of the Appellant was also recorded on 31.10.2007 wherein he stated that the appellant is engaged in purchase and processing of tobacco at the portion of the factory, which has been taken on lease by M/s SEPL. They pack gadia powder in 50 kg bags and transfer the same to M/s SEPL. That gadia powder is nothing but tobacco powder with kandi bits. M/s SEPL is then exporting the gadia powder in the name of Afzal snuff. Shri Arif Abdul Kader Fazlani, director of the appellant, in his statement dated 13.11.2007 also narrated the same. The officers had drawn the sample of Afzal (Regd.) snuff tobacco and tobacco powder, which were sent to the Chemical Examiner on 25.1.2008 for testing. The Chemical Examiner vide report dt. 28.03.2008 in respect of snuff tobacco, opined that " the sample is in the form of coarse brown powder. It is 18 | P a g e E/10484-10489/2018-DB other than snuff. The sample U/R may be considered as manufactured tobacco". In respect of tobacco powder, he opined that " sample is in the form of coarse brown powder. It is other than snuff. The sample U/R may be considered as manufactured tobacco." However, on 22.4.2008, the Chemical Examiner, CECL, Vadodara communicated the ingredients in both the samples of manufactured tobacco that the same are Tobacco powder mixed with calcium oxide (CaO), katha, flavouring agents etc. In respect of such reports, statements of Shri FaizalYunusbhai Fazlani, director of the appellant firm and Shri Salimbhai Yakubhai Momin, supervisor were recorded wherein they both disagreed with the report of the Chemical Examiner, Vadodara since it mentioned that the goods " may be considered" as manufactured tobacco. They also stated that the seized goods belonged to M/s SEPL. The Appellant M/s SEPL had also requested for re-testing of sample which was not acceded. We find that firstly during the visit of the officers , the machines which were found were only for cutting and sieving operations and no machines like mixture or any processing machine which can mix tobacco powder with katha, calcium oxide or flavouring agents were found to be available in the factory premises. It is coupled with the fact that when the machines were found to be in a running position, then processing and mixing machines for manufacture of chewing tobacco would also have been found. However, no such machines were found, which gives credence to the claim of the appellant that they were not manufacturing any chewing tobacco. We also find that the appellant and M/s SEPL were having the same management and M/s SEPL claimed to be the owner of the finished goods. In fact, the finished goods were released provisionally by the Revenue on the application filed by M/s SEPL. Thus, it appears that the Department itself accepted the fact that M/s SEPL are the owners of such impugned goods. We find that the Chemical Examiner in his report dated 28.3.2008 merely stated that the samples are in the form of coarse brown powder. It is other than snuff and the samples under reference may be considered as manufactured tobacco. It is only on 22.4.2008 that the Chemical Examiner stated that the tobacco powder is mixed with calcium oxide, kathaand flavouring agents. Whereas the director and the supervisor of the appellant company in their statements dated 3.4.2008 had 19 | P a g e E/10484-10489/2018-DB clearly disagreed with the chemical examiner report and even M/s SEPL, who was also made co-noticee in the subject show cause notice, requested for retesting of the samples, however, no such exercise was undertaken by the Revenue, which leads to the inference that the Revenue did not allow the principles of natural justice to be followed. The report dated 28.03.2008 of the chemical examiner did not state the contents of the products in question and it appears from the show cause notice that the communication dated 22.4.2008 was in response of the communication made by the revenue vide letter F. No. 11/15-93/P1/078-08-GR-V dt. 21.04.2008 which was not even provided to the Appellant. The Appellant should have been made aware of the fact as to what communication did the revenue made to the chemical examiner that made him change the composition of the impugned goods vide letter dt. 22.04.2008. Whereas in his report he stated that the 28.03.2008 he had shown the goods to be coarse brown powder, in his communication he says that the goods are containing katha, CaO and Flavouring agent. If the goods contain Katha, CaO and Flavouring agent, it would not have remained coarse as the presence of such items would have led to powder becoming soft and lacquered. It is only this communication dt. 22.04.2008 which resulted into impugned. On the other hand, if any communication was made by the Department after 28.03.2008 with the Chemical Examiner, it was necessary for them to bring such communication on record since such communication only led to Chemical examiner to change his views on composition and to state that the goods in question are mixed with calcium oxide, katha, flavouring agents etc. In such case, the impugned order passed on the basis of chemical examiners communication dated 22.4.2008 is not correct. It is coupled with the fact that the Appellant M/s SEPL had produced the test examination report of product which was done by the Tobacco projects, Anand Agricultural University, Anand for test. DR. A.P. Patil, Unit officer in his report dt. 18.12.2007 has informed that the "The sample is of size from 5 # to 30#. No addictive seems to be added in it added in it and is purely un - manufactured tobacco". Thus the opinion clearly states that the goods are unmanufactured tobacco. Further the chemical examiner report cannot be relied upon in the light of the fact that when M/s SEPL had applied for retest of the samples 20 | P a g e E/10484-10489/2018-DB by an independent entity, the department did not accept such request. We also find that there is no fault of the Appellant if the samples could not be re-tested after 9 years only due to lacuna on the part of the Revenue. We also find from the statement of the directors and supervisors and employees of the appellant as well as M/s SEPL that they were purchasing "Culcutti tobacco / raw tobacco from farmers and undertook during, cutting, crushing and grinding of tobacco and convert the same into "Gadia Powder", which was packed in 50 kg bags. We also find that no evidence has been adduced by the Department to show that the appellants purchased any katha, calcium oxide or flavouring agents. Even the chemical examiner in his report never stated that the goods were fermented and subsistence like calcium oxide, katha were added to the goods in order to hold the goods as chewing tobacco; the process of chewing tobacco is not complete unless it is fermented and liquored. Whereas the report of the chemical examiner says that the same is a coarse brown powder and if the same would have been chewing tobacco, it would not have been coarse brown powder as after mixing of katha and calcium oxide, the product may not remain so.
5.2 We also find that the appellants had requested for cross examination of the chemical examiner as well as the cross examination of persons, under the provisions of Section 9D of the Central Excises Act, whose statements were relied upon. However, no such opportunity was granted to them. We also find that the Department did not undertake any investigation to ascertain the fact as to how the impugned goods are being sold by the appellant or M/s SEPL in the market. It was more so required when the contents of the impugned goods and the chemical examination were in doubt. The Department could have at least verify the fact from the market as to how the appellants are marketing their finished goods. Obviously, such an exercise has not been undertaken, which leads only to the conclusion that the allegation of the show cause notice is not based either upon the facts or the contents of the impugned goods. Even the department did not re-test the samples, which again vitiate the whole adjudication proceedings. When the appellants since the very first day itself were claiming their goods to be tobacco powder, it was 21 | P a g e E/10484-10489/2018-DB imperative for the Revenue to test the samples properly and conduct a market enquiry. It is coupled with the fact that the officers did not find any mixtures or machines in which the process of mixing the tobacco flakes with katha, calcium oxide and flavouring agents takes place. Since the goods has remained un manufactured tobacco, the same cannot be classified under impugned classification. Our views are based upon following judgments :
In case of SREE BISWA VIJAYA INDUSTRIES 1997 (96) E.L.T. 712 (Tribunal), it was held :
"We agree with the appellants' learned Counsel that it is merely a change from one form of unmanufactured tobacco to another form. This is also clear from the definition of manufacture in relation to tobacco. None of the processes mentioned in Section 2(f) of the Central Excise Act, 1944 which sets out the various processes of manufacture in relation to tobacco, are carried out in the present case. No other evidence has also been brought on record by the Revenue that tobacco powder so produced by appellants is known in the market as a manufactured tobacco. This burden squarely rests on the Revenue if they want to levy duty under Tariff Heading: 24.04 on the said product under consideration. We also observe that there is a Judgment of the Tribunal in the case of Shree Chand Agarwal v. Collector of Central Excise reported in 1990 (48) E.L.T. 115 (Tribunal), which helps the appellant company in this case. In view of the foregoing discussion, we, therefore, hold that the tobacco powder manufactured by the appellants herein would fall under the Tariff Heading 2401.00 being manufactured tobacco carrying nil rate of duty. The appeal is thus allowed with consequential relief to the appellants."
This aforesaid Tribunal‟s order stands approved by Hon‟ble Apex Court as reported in 1998 (104) ELT A136 (SC).
22 | P a g e E/10484-10489/2018-DB In case of ISWAR GRINDING MILLS 2000 (117) E.L.T. 743 (Tri), it was held that ;
"5. After carefully considering the submissions on both sides and going through the impugned Order, we find that all these judgments relied upon by the learned Advocate, were considered by this Bench in a recent Judgment delivered in the case of Shri Shrikant Prasad and Others, Vide Order Nos. A-920-924/CAL/99, dated 20-8-1999 [2000 (117) E.L.T. 345 ]. Para 7 of the said judgment is reproduced below for better appreciation :-
After hearing the submissions from both sides, we find that the issue is no more res integra. The various decisions cited by the learned Advocate have earlier been followed by the Tribunal in the case of M/s. S. Akbar Khan & Co. v. Collector of Central Excise & Customs, Bhubaneswar by Order No. A-813/CAL/1997, dated 15-7-1997. We also note that all the pleas now raised by the learned Advocate for the Revenue were raised in the earlier cases and were taken note of, but not found favour with. We also note that the said decisions of the Tribunal have been upheld by the Hon'ble Supreme Court while dismissing an appeal filed by the Revenue against the same. The distinction which the Commissioner has tried to draw between the decision of Shree Chand Agarwal and the facts of the present case, is not appreciable inasmuch as the classification of a product will not change depending upon its use in the manufacture of different final products. Whether the tobacco powder is used further in the manufacture of Gul or Hooka Tobacco Paste or Gudakhu, will not affect the classification of the Tobacco Powder as unmanufactured tobacco under sub- heading 2401.00. On the contrary, the decision relied upon by the adjudicating authority in the case of Ajanta Marble and Chemical Industries (supra), is not applicable to the facts and circumstances of the present case inasmuch as the same involve a question relating to crushing/grinding of lime-stone to obtain chips of powder and not powdering 23 | P a g e E/10484-10489/2018-DB or crushing of tobacco leaves. Accordingly, following the ratio of the earlier decisions which are directly on the issue, we hold that the tobacco powder fell under Heading 24.01 as unmanufactured tobacco and attracted nil rate of duty. A demand of duty and penalty on the first appellants, M/s. Shree Prasad Grinding Mills is thus set aside."
6. It has been held in the various judgments that crushing/grinding of tobacco results into unmanufactured tobacco classifiable under Heading 24.01 attracting nil rate of duty. Accordingly, following the ratio of the above decisions, the appeal of M/s. Iswar Grinding Mills is allowed.
7. As the appeal of the main appellants has been allowed, there is no justification for imposition of penalty either on the appellant company or on the other appellants under the provisions of Rule 209A. Resultantly, we set aside the impugned Order and allow all the appeals.
8. Since all the appeals are disposed of, all the Stay Petitions stand automatically allowed."
In case of SHRIKANT PRASAD 2000 (117) E.L.T. 345 (Tri) it was held :
"After hearing the submissions from both sides, we find that the issue is no more res integra. The various decisions cited by the learned Advocate have earlier been followed by the Tribunal in the case of M/s. S. Akbar Khan & Co. v. Collector of Central Excise & Customs, Bhubaneswar by Order No. A-813/CAL/97, dated 15-7-1997. We also note that all the pleas now raised by the learned Advocate for the Revenue were raised in the earlier cases and were taken note of, but not found favour with. We also note that the said decisions of the Tribunal have been upheld by the Hon'ble Supreme Court while dismissing an appeal filed by the Revenue against the same. The distinction which the Commissioner has tried to draw between the decision of Shree Chand Agarwal and the facts of the present case, is 24 | P a g e E/10484-10489/2018-DB not appreciable inasmuch as the classification of a product will not change depending upon its use in the manufacture of different final products, Whether the tobacco powder is used further in the manufacture of Gul or Hooka Tobacco Paste or Gudakhu, will not affect the classification of the Tobacco Powder as unmanufactured tobacco under sub- heading 2401.00. On the contrary, the decision relied upon by the adjudicating authority in the case of Ajanta Marble and Chemical Industries (supra) is not applicable to the facts and circumstances of the present case inasmuch as the same involve a question relating to crushing/grinding of limestone to obtain chips of powder and not powdering or crushing of tobacco leaves. Accordingly, following the ratio of the earlier decisions which are directly on the issue, we hold that the tobacco powder fell under Heading 24.01 as unmanufactured tobacco and attracted nil of rate of duty. Demand of duty and penalty on the first appellants, M/s. Shree Prasad Grinding Mills is thus set aside.
8. As the appeal of the main appellants has been allowed, there is no justification for imposition of penalty on the other appellants under the provisions of Rule 209A. The same is accordingly set aside and their appeals are allowed."
The same view was taken by the Tribunal in case of PRAMILA GUDAKHU FACTORY 2003 (151) E.L.T. 720 (Tri. - Kolkata).
5.3 We also find that the appellants and M/s SEPL were group companies and during the course of proceedings, they had produced the lease agreement copy, in which M/s SEPL had taken a part of the factory premises on lease. We also find that the seized goods itself were ordered to be released to M/s SEPL by the Joint Director (Preventive) , Central Excise, Ahmedabad - III. This clearly shows that even the Department had accepted the fact that M/s SEPL are the owner of that goods. It is also not in doubt that the goods were ultimately for exports for which the relevant Bond / LUT were filed 25 | P a g e E/10484-10489/2018-DB by M/s SEPL and evidence of exports was produced duly certified by the jurisdictional Superintendent of M/s SEPL before the adjudicating authority, which shows that otherwise also the goods were for export purpose and not liable for duty. Since the chemical examiner report being inconclusive and the appellants were not granted re-test of the samples, therefore the goods cannot be considered as chewing tobacco. It is coupled with the fact that no machines used for mixing of katha, calcium oxide or flavouring agents were found to be installed in the factory of the appellant, even though the factory was in running condition. We also find that the Appellant are merely getting the raw leaves and grinding them and after making powder putting them into 50 Kgs pack which is a bulk pack. The intention is not to market. Hence the nature of product would not take it into category of manufacture. Thus, in view of the facts, as discussed above, we are of the view that the goods cannot be considered as manufactured chewing tobacco and would merit classification as unmanufactured tobacco falling under CTH No. 2401 since the only operation undertaken in respect of tobacco leaves was drying, cutting and seining. Thus we hold that the impugned order holding classification of goods under CTSH No. 2403 99 10 is not sustainable and the confiscation of goods, demand of duty and penalty imposed upon all the Appellants are not sustainable. We, thus, set aside the impugned order and allow the appeals filed by the Appellants.
(Order pronounced in the open court on 04.06.2019) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) Neha