Customs, Excise and Gold Tribunal - Delhi
Prabhat Zarda Factory vs Commissioner Of C. Ex. on 11 December, 1996
Equivalent citations: 2004(0)ELT485(TRI-DEL)
ORDER J.H. Joglekar, Member (T)
1. The appellants manufactured flavoured chewing tobacco and sold it in containers bearing a registered trade mark/brand name. Prior to 1-3-94, unmanufactured tobacco was classified under Heading 24.01 attracting nil rate of duty. Chewing tobacco including sweetened and flavoured preparations falling under Heading 2404 bearing a brand name attracted duty and the un-branded chewing tobacco attracted nil rate of duty. The appellants were, therefore, paying duty only at the time of clearance of their branded chewing tobacco. On 1-3-94, by virtue of changes introduced by the Budget, duty was imposed both on unmanufactured tobacco as well as on un-branded tobacco. Therefore, the preparations of chewing tobacco, manufactured by the appellants before being packed in cointainers bearing a brand name, falling under Heading 2404.49 was also required to pay duty. In fact in the absence of a set-off notification, duty was required to be paid at two points. Later, vide Notification No. 14/94-C.E., dated 8-3-94, the provisions of Rule 56A were extended to the chewing tobacco whereby credit of the duty paid on the inputs, namely, unbranded chewing tobacco, could be used at the time of clearance of the branded chewing tobacco on payment of duty. At this stage also, duty was required to be paid at two stages. On 20-5-94, vide notification 23/94-C.E., Rule 56A was omitted. Vide notifcation 24/94-C.E. also dated 20-5-94, the Modvat facility was extended to chewing tobacco. Vide notification 23/94-C.E. (N.T.), Sub-rule (4) of Rule 49 and third proviso to Rule 9(1) of the Central Excise Rules, 1944 were also omitted. Even after this amendment, the liability of the unbranded tobacco to pay duty continued. Later, vide issue of Notification No. 121/94, dated 11-8-94, unbranded chewing tobacco, captively consumed in the manufacture of branded chewing tobacco, was exempted from payment of duty. The jurisdictional Assistant Collector issued separate show cause notices dated 28-29/11/94 to the two units demanding the duty not paid on the unbranded chewing tobacco during the period 20-5-94 to 10-8-94. The duty was quantified on the valuation arrived at by working backward from the valuation of branded chewing tobacco. In the show cause notices, the demand was made for duty short-levied to the extent of Rs. 3,41,94,463.00 in respect of unit No. 1 and Rs. 43,67,973.00 in respect of unit No. 2. The Collector in his order dated 29-3-96 confirmed the total demand, but refrained from imposing any penalty upon the appellants. These two appeals are directed against this common order.
2. On hearing the applicants for waiver of pre-deposit and stay of recovery, the Tribunal vide their order dated 18-9-96 dispensed with the pre-deposit and ordered the case to be posted for out of turn hearing.
3. On 29-10-96, Sh. K. Narasimhan, ld. Advocate appeared for the appellants. Sh. P. Das, ld. S.D.R. represented the Revenue. In his arguments, Sh. Narasimhan stressed the following points :
1. The changes made in the Budget 1944 (sic) as also extention of Modvat scheme were neither known to the appellants nor to the field formations. Due to this communication gap between the assessees and the department and within the department themselves, the situation leading to the issue of the show cause notice arose. He stated that even when the assessees have not conformed to the changes brought about by the introduction of Modvat, the jurisdictional Range Officer had completed the assessment the R.T. 12 returns for the months of May and June.
2. That the unbranded chewing tobacco, not being marketable, was not at all excisable.
4. Even if it is assumed the unbranded chewing tobacco was dutiable, the provisions such as the proviso 3 to Rule 9 and of Sub-rule (4) of Rule 49 did away with the necessity of payment of duty thereupon. When these provisions were removed from the statute, the extention of Modvat did away with the need to pay duty on unbranded chewing tobacco.
5. The law does not accept levy of duty on final products as a two stage levy. Where the provisions of Modvat are extended, what is paid at the second stage, is only the difference between the duty chargeable on the final product and that paid on the input. Here in this case since full duty had been paid on the end-product, there was no question of short levy as envisaged under Section 11A at all. It was submitted that in spite of procedural drawback, the benefit of Modvat scheme was available to them.
6. The order of the Commissioner was deficient. Whereas full duty had already been paid by the assessees, the Commissioner was confirming the demand of duty on the inputs. Even if this duty, if paid by the appellants, was permitted by the Commissioner towards purpose of taking credit, the duty already paid on the final products was paid in excess. The Commissioner should have not confirmed the demand or in the alternative should have ordered refund of the duty already paid on the branded chewing tobacco. It was submitted that the adjudicating authority as well as the Tribunal, at the time of granting stay of recovery and dispensation with the deposit, had accepted that there was no loss of Revenue. The entire proceedings before the Commissioner were, therefore, an excercise in futility.
7. Shri P. Das, ld. S.D.R. stated that the facts are not in dispute. He stated that the unbranded chewing tobacco manufactured by the appellants, before being packed in cartons bearing their brand name, although not marketed by the appellants, were fully finished goods capable of being marketed. Referring to the judgments of the Supreme Court reported in 1994 (70) E.L.T. 3 (S.C.) in the case of A.P. State Electricity, he stated that the marketability was a question of fact to be decided in each case. He claimed that even unbranded chewing tobacco was sold in the market. He stated that there is no intentment but that the assessee must follow dictates of the law. He stated that lack of knowledge could not be extended as an evidence. The responsibility to pay the correct amount of duty was at all times on the assessee. He stated that duty levied at two stages did not amount to double tax. Referring to paragraph 9 of the Commissioner's order; he stated that even when the appellant complies with the order, the benefit of Modvat shall be available on the duty so paid.
8. We have carefully considered the submissions made by both sides.
9. In the scale of importance, the first question that requires determination is whether the chewing tobacco manufactured by the appellants before being packed in the containers is a manufactured excisable product. The relevant tariff heading reads as under :
"The Chewing tobacco, including preparations commonly known as "khara masala", "kimam", "dokta", "zarda" "sukha" and "surti".
2404.41 -- bearing a brand name 2404.49 - other"
10. The preparations of chewing tobacco enumerated in the definition are a combination of tobacco leaves, flavouring substances, sweetners as also colouring matter. The additives include exotic substances like saffron, musk etc. In fact in certain preparations, the percentage of tobacco is less than 40%. Under the old tariff, in some cases, it was held that such preparations would not be classifiable under the then tariff item No. 4 but under the residual category No. 68. For the purpose of chewing, it is not necessary that the tobacco be in the form of preparation. The inclusive description makes it clear whereby even plain chewing tobacco falls under this category. Tobacco grown in certain areas as also of certain types are more specifically suited for certain uses. Thus, Virginia tobacco is ideally suited for cigarettes and for making of outer wrappers of cigars. Nipani tobacco is acknowledged to be suitable for making bins. But in the lower end of the price spectrum the leaves become inter changeable. At this level even unprocessed leaf merely cut, may be packed and sold as smoking tobacco or chewing tobacco. These may be packed in paper packets branded or otherwise. It is a common sight in South India that long leaves in clusters are sold as chewing tobacco. Thus the term "chewing tobacco" covers a wide distance. Whereas at the prepared compound stage, it may fetch a value of Rs. 50.00 for 20 gms; the air cured leaves may be sold for a few paise. But both would deserve the title, "chewing tobacco."
11. The fact that unmanufactured tobacco is used for the purpose of smoking or chewing is evident from Notification 118/86-C.E. (N.T.), dt. 1-3-86, as amended by Notification 14/95-C.E. (N.T.), dt. 16-3-95.
12. In view of this reality, it is to be held that the preparation of chewing tobacco immediately before being packed in the tin and plastic containers, bearing the appellants' brand name, were marketable and excisable goods appropriately classifiable under Heading 2404.49.
13. Sh. Narasimhan was at pains to point out that the amendments introduced in the Budget 1994 and thereafter were not known to the assessees nor to the department and, therefore, the failures committed by the appellants were condonable. Sh. P. Das, ld. S.D.R., in this connection, submitted that it is the as-sessee, on whom burden is placed for discharge of duties under the law. We find that the High Court of Madras in the case of Assistant Collector of Central Excise, Madras v. Nagappa Chettiar reported in 1979 (4) E.L.T. (J 179) had this to say on the maxim of "ignorance of law" as under :
"Ignorance of law is undoubtedly no excuse. Ignoratia juris non ex-cusat, as the saying goes. Therefore, the respondent cannot plead ignorance of law as a sufficient excuse for his failure to file the declaration. If this contention of the accused is to be upheld, no accused can be convicted for a similar offence because illiteracy or ignorance due to other causes can always be pleaded. Mens rea is not a necessary ingredient for commission of offence under Section 85(iii) and Section 16(g) read with Section 86 of the Act. The accused cannot also plead ignorance about the quantity of gold in the possession of his family, because he has declared the correct weight in his statement to the Wealth-tax and Income-tax authorities."
14. We now come to next point raised by the ld. Advocate when he states that since there was no short levy in this case, no demand could arise or be sustained. He stated that when the unbranded chewing tobacco was not dutiable, there was requirement to pay duty only at one stage i.e. at the stage of branded tobacco. Even if the unbranded tobacco were dutiable, the provisions of Rule 9 or Rule 49 would ensure that the duty would be paid only at the stage of clearance of the final product or end-product. He, further, stated that even under the Mod-vat rules, there is only one stage duty because the duty paid on dutiable inputs is permitted to be set off at the time of clearanace of the final product. From arithmetical calculation Sh. Narasimhan showed that when the duty demanded is paid and is allowed to be set off, the final product would bear the same burden of duty as has already been paid by the appellants, when removing the goods in this case. It was suggested to Sh. Narasimhan that any duty calculated for the clearance of final product would be at least incrementally higher than the duty paid on the various goods going in the manufacture thereof. Sh. Narasimhan, ld. Advocate conceded this point but stated that the Tribunal had accepted this position when granting waiver of the duty demanded by Stay order No. 44-45/96-D. We do not think that the interpretation of our stay order as made by the ld. Advocate, is correct. In considering the stay application, we had observed that since the ld. Collector himself had considered that the duty demanded and confirmed by him in these proceedings would be available for use to the appellants for Modvat credit. In this manner, we had held that there was really no loss of revenue to the exchequer. As regards the calculation made by the ld. Counsel, we observed that in Para 2 of his order, when stating the facts, the Collector had held that in calculating the value of the unbranded chewing tobacco backward from the branded chewing tobacco, a remissions of 15% of the price of branded chewing tobacco was claimed by the party on account of packing charges. In his calculation, Sh. Narasimhan, however, has claimed that the value of unbranded chewing tobacco, as determined by the excise officers was 15% of the value of the branded chewing tobacco. Even if this grave error was not there, it would have been difficult to accept Sh: Narasimhan's contentions in this regard.
15. On the analysis above, we find that the appellants were required to pay the duty on the unbranded chewing tobacco which they had failed to pay. We find that the order of the Collector confirming the demand is correct in law.
16. We would, however, be doing a grave injustice to the appellants if we omit to consider the peculiar circumstances urged as existing in the case, as pointed out by Sh. Narasimhan. It is correct that the duty demanded, when paid by the appellants, would entitle them to take credit thereof when clearing their final goods. This situation has been admitted and accepted by the ld. Commissioner in the concluding portion of his analysis. But when the duty is paid on the inputs and when the credit of the duty so paid is permitted, only incremental duty is paid at the time of clearance of the final goods. Sh. Narasimhan submitted that in this case the full duty has been paid on the final goods and, therefore, unless an adjustment is ordered, the appellants would suffer for no fault of theirs.
17. He has suggested that we should either hold that the duty paid by the appellants on the final products to be deemed to have been paid on the intermediate product, or in the alternative while up-holding the confirmation of the demand of duty on the intermediate product, we should ask the Commissioner to refund the duty already paid by them on the final products. Shri Narasimhan was not able to show us any authority nor can we find any such authority whereby we could make such an order. We, however, find that these requests by the Id. Counsel arise out of the wrong presumption that there is no incremental duty payable at the time of clearance of the final goods. As we have observed above, the value of the unbranded tobacco is not 15 per cent of the branded tobacco, but is about 85 per cent after giving remission for 15 per cent from the value of the branded chewing tobacco on account of packing. Therefore, the quantum of duty payable at two stages cannot be the same. In other words, the duty payable on the branded chewing tobacco will always be higher than that paid on the unbranded tobacco. Therefore, the fear of Sh. Narasimhan that the duty paid on unbranded tobacco may never be set off, is not well founded.
18. On the analysis above, we find no merit in the various contentions advanced by the appellants. We uphold the Commissioner's order and reject this appeal.