2023 (10) TMI 1112 - SC - Central Excise

Invocation of extended period of limitation - applicability of proviso to Section 11A of the CE Act - Classification of goods - chewing tobacco - to be classified under the CET SH 2403 9910 as chewing tobacco or to be classified under CET SH 2403 9930 as zarda/jarda scented tobacco - product manufactured and cleared by the Assessee for the period 01.03.2006 to 10.07.2006 - penalty u/r 26. Invocation of extended period of limitation - applicability of proviso to Section 11A of the CE Act - HELD THAT - The tribunal has proceeded to hold that limitation would apply and show cause notice should not have been issued beyond one year in view of the fact that the Assessee intimated their intention to change without addressing the various issues which has been raised. In other words the tribunal by cryptic order has negatived the contentions of the Revenue and held that the invocation of the extended period of limitation was not warranted. This finding not being in consonance with the facts obtained on the hand we are unable to subscribe our views to the judgment of the tribunal. The question is to be answered against the Assessee and in favour of the Revenue and affirm the finding of the adjudicating authority and reverse and/or set aside the finding recorded by the tribunal which has been observed at the initial stage herein given that it is not only contrary to the facts but also contrary to law as noticed hereinabove. It is for these precise reasons the Adjudicating Authority was of the clear view that there has been a deliberate intention to avoid payment of duty by the Assessee by misclassification and willful misstatement of its product and hence it was justified in invoking the extended period as provided in the proviso to Section 11A(1) of CE Act 1944. Classification of goods - HELD THAT - The stand of the Assessee has been consistent to the effect that product manufactured by it is to be classified as zarda/jarda scented tobacco and at the insistence of the jurisdictional Deputy Commissioner the Assessee was classifying the goods under CET SH 2403 9910 i.e. chewing tobacco for which there was also an order of determination passed Under Rule 6(2) of CTPM rules. Whereas in the other matters namely URMIN PRODUCTS P. LTD. VERSUS COMMR. OF C. EX. AHMEDABAD 2010 (3) TMI 461 - CESTAT AHMEDABAD and Flakes-n-Flavourz the facts were entirely different. In Urmin Products the Assessee had declared the product as chewing tobacco and then changed the classification to zarda/jarda scented tobacco and again came back to the original position of declaring it or classifying it as chewing tobacco . These classifications in Urmin Products were at the behest of the Assessee himself - In Flakes-n-Flavourz the Assessee was alleged to be manufacturing zarda/jarda scented tobacco and clearing it as chewing tobacco and on facts it was found that there were additives added to the tobacco. In the said case this Court on facts held that there was no wilful suppression attributable to the assesssee and the Revenue had failed to establish the product as zarda scented tobaccot . In the instant case the Assessee had clearly declared his product as zarda/jarda scented tobacco falling Under Sub-heading 2403 9930 in Form 1 filed and based on the said declaration capacity determination order dated 04.03.2015 Under Rule 6(2) had been passed re-classifying the product as chewing tobacco . Accordingly for the period April 2015 in Form-1 the Assessee had described the product as Jayanti Zarda Scented- 2403 9910 . However in the capacity determination order dated 05.05.2015 the Deputy Commissioner classified the goods as chewing tobacco . As such there was no misstatement or suppression of facts collusion or fraud in the instant case and hence on facts the principles enunciated in Urmin s case is distinguishable. Penalty u/r 26 of CER - HELD THAT - There has been no penalty levied Under Rule 26 on the ground that there has been no intent to evade duty. The findings of the tribunal warrant no interference by this Court and the appeal has to fail - Appeal dismissed.

Summary

Issues Involved:

1. Delay Condonation.
2. Classification of Products.
3. Invocation of Extended Period of Limitation.
4. Determination and Adjudication under Rule 6 of CTPM Rules.
5. Burden of Proof in Classification Disputes.
6. Application of Common Parlance Test.
7. Validity of Declarations under Rule 6.
8. Consistency of Departmental Stand.

Summary:

I. Delay Condonation:

Delay condoned on 23.08.2023.

II. Classification of Products:

In Commissioner Of Central Excise Ahmedabad v. M/S Urmin Products and Ors., the issue was whether the product should be classified under CET SH 2403 9910 as 'chewing tobacco' or under CET SH 2403 9930 as 'zarda/jarda scented tobacco'. The tribunal held in favor of the Assessee, classifying the product as 'chewing tobacco'. The Supreme Court reversed this, holding that the product should be classified as 'zarda/jarda scented tobacco' due to the ingredients and manufacturing process.

III. Invocation of Extended Period of Limitation:

The tribunal's decision to not invoke the extended period of limitation was overturned by the Supreme Court, which held that the Assessee had willfully misclassified their product to evade duty, justifying the invocation of the extended period under Section 11A of the CE Act.

IV. Determination and Adjudication under Rule 6 of CTPM Rules:

In M/S Dharampal Premchand Ltd. v. Commissioner of Central Excise, the Supreme Court clarified that the Competent Authority under Rule 6 of CTPM Rules has the power to determine the classification of the product. The declaration made under Rule 6 has a direct nexus to the classification of the product, and the Department is not precluded from issuing a Notice under Section 11A or 11AC of the CE Act if there is misdeclaration.

V. Burden of Proof in Classification Disputes:

In Commissioner Of Central Excise, Chandigarh v. M/S. Flakes-N-Flavourz, the Supreme Court emphasized that the burden of proof lies on the Revenue to establish that the product is misclassified. The tribunal's decision to classify the product as 'chewing tobacco' was upheld as the Revenue failed to provide sufficient evidence to prove otherwise.

VI. Application of Common Parlance Test:

In Commissioner of Central Goods and Service Tax Excise and Customs Bhopal v. Kaipan Masala Pvt. Ltd., the Supreme Court reiterated the importance of the common parlance test for classification. The product was classified as 'chewing tobacco' based on its market understanding and consumer perception.

VII. Validity of Declarations under Rule 6:

In Commissioner of Central Excise and Service Tax Meerut v. M/S Som Pan Products Pvt. Ltd., the Supreme Court held that post facto declarations by the Assessee to change the classification of the product were invalid. The initial declaration classifying the product as 'zarda/jarda scented tobacco' was upheld.

VIII. Consistency of Departmental Stand:

In Commissioner of Central Excise & ST Alwar v. Tara Chand Naresh Chand, the Supreme Court highlighted the importance of consistency in the Department's stand. The tribunal's decision to classify the product as 'chewing tobacco' was upheld as the Department had earlier classified the same product under the same heading.

Order:

(a) Civil Appeal Nos. 10159-10161 of 2010, Civil Appeal No. ........ of 2023 arising out of Diary No. 44912 of 2019 and Civil Appeal No....... of 2023 arising out of Dairy No. 6888 of 2020 are allowed.

(b) Civil Appeal No. 5146 of 2015, Civil Appeal No. 2469 of 2020 along with Civil Appeals arising out of Diary No. (s) 3492, 2810, 3484, 3513, 3536, 3544, 3545 and 3547 of 2020, Civil Appeal No. 3596 of 2023, Civil Appeal No. arising out of Diary No. 14581 of 2019 and Civil Appeal No. 959 of 2019 are dismissed.

(c) Civil Appeal No. of 2023 arising out of Diary No. 3487 of 2020 stands remitted to the Tribunal for adjudication afresh.

(d) Costs made easy.