2006 (12) TMI 5 - AAR - Central Excise

Central Excise Mouth freshener classifiable as pan masala under heading 2106.9020 of CETA 1985 Under Notification No. 56/2002-CE dt. 14.11.02 mouth freshener exempted from BCD but does not grant exemption from NCCD and AED of excise and education cess Interpretation

Issues Involved:
1. Classification of Indian Mouth Freshener as "Pan Masala" under CETSH 2106.9020.
2. Eligibility for exemption and refund of various duties under Notification 56/2002-CE dated 14.11.2002.

Detailed Analysis:

Issue 1: Classification of Indian Mouth Freshener
The applicant, a joint venture between a non-resident and an Indian company, sought to classify their product, Indian Mouth Freshener (Mukhwas), under CETSH 2106.9020 as "Pan Masala." The Commissioner of Customs & Central Excise, Jammu, agreed with this classification based on the supplementary note No. 1 of Chapter 21 of the Central Excise Tariff Act, 1985. According to this note, Pan Masala includes any preparation containing betel-nuts and any one or more of the ingredients like lime and katha, but not tobacco. The applicant's product, which does not contain tobacco, fits this definition and is therefore classified under Chapter Heading No 2106 90 20.

Issue 2: Eligibility for Exemption and Refund of Duties
The applicant sought clarification on whether the duties discharged under Rule 8 of the Central Excise Rules, 2002, such as Basic Excise Duty (BED), National Calamity Contingent Duty (NCCD), Additional Duty of Excise on Pan Masala (AED), and Education Cess (EC), are eligible for exemption and refund under Notification 56/2002-CE dated 14.11.2002.

1. Basic Excise Duty (BED):
- The Commissioner conceded that BED is exempt under the notification, as it is levied under the First Schedule to the Tariff Act.

2. National Calamity Contingent Duty (NCCD), Additional Duty of Excise on Pan Masala (AED), and Education Cess (EC):
- The notification exempts only the 'duty of excise' levied under the First and Second Schedule of the Tariff Act and certain additional duties under specific Acts. The NCCD, AED, and EC are levied under different Finance Acts, not the CE Act or the Additional Duties of Excise (Goods of Special Importance) Act, 1957.
- The Supreme Court's rulings in cases like Modi Rubber Limited and Rukmani Pakkwell Traders emphasize that exemption notifications must be strictly construed. Therefore, these additional duties cannot be considered 'duty of excise' under the CE Act for the purpose of exemption.
- The argument that these duties should be included because they are collected using the machinery provisions of the CE Act was rejected. The duties in dispute are additional and distinct from the basic excise duty.

3. Circulars and Precedents:
- The applicant's reliance on certain circulars issued by the Central Board of Excise & Customs was found irrelevant, as these circulars did not specifically address Notification 56/2002-CE dated 14.11.2002.
- The principle that exemption notifications should be construed liberally to promote industrial growth does not extend to interpreting the notification to include duties levied under different statutes.

4. Education Cess (EC):
- The contention that EC should be calculated excluding BED was rejected. EC is levied on the aggregate of all duties, including BED, NCCD, and AED, as specified in the Finance (No.2) Act, 2004. Exemption of BED does not alter the calculation basis for EC.

Conclusion:
- Question 1: The proposed product, Indian Mouth Freshener, is classifiable as "Pan Masala" under CETSH 2106.9020.
- Question 2: The applicant is eligible for exemption and refund of Basic Excise Duty (BED) under the notification. However, the remaining duties, such as National Calamity Contingent Duty (NCCD), Additional Duty of Excise on Pan Masala (AED), and Education Cess (EC), are not eligible for exemption and refund under Notification 56/2002-CE dated 14.11.2002.

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