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Shri Ram Shiromani Verma, Shri Suresh Kumar Verma And Shri Sanjeev Kumar Verma Versus Commissioner of Central Excise & Service Tax, Lucknow

2017 (10) TMI 497 - CESTAT ALLAHABAD

Clandestine manufacture and removal - Tobacco - 4,91,400 pouches of chewing tobacco on which no brand was mentioned and 8,59,950 pouches of Shiv Baba Brand scented Supari also called Pan Samagri were found in the manufacturing premises and some quantity of raw material and packing material was also available - cross-examination - Two different varying stands have been taken by Revenue with regard to processes applied for manufacturing of chewing tobacco - Contention of the Revenue as put forth i .....

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ama discovery of any machine, apparatus, appliances or vessels used for processing of raw un-manufactured tobacco or mixing it with any other material. - Contention of Revenue as put forth in show cause notice, that packing of Unmanufactured tobacco in pouches converts it into manufactured chewing tobacco is totally misconceived and highly presumptive. Central Excise Tariff and the exemption notifications issued in relation to Unmanufactured tobacco and Chewing tobacco do not recognize any s .....

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he provisions of 2010 Rules and N/N. 16/2010- C.E dated 27.02.2010 further make it amply clear that the Adjudicating Authority erred in taking the view that unmanufactured tobacco is transformed into manufactured chewing tobacco simply on account of packing in pouches of FFS Machines, irrespective of the nature of tobacco packed in pouches. - With regard to the allegation that the Appellant was engaged in clandestine manufacturing and clearance of Shiv Baba Brand Scented Jarda/Chewing Tobacc .....

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IA] has held that the samples should be first sent for chemical analysis and thereafter the question of classification of the product should be taken up on the basis of the chemical analysis report and other materials. Therefore, we find that it is binding on all to decide the classification of goods on the basis of the report of CRCL laboratory on the chemical composition of the samples which were drawn from the manufacturing premises. - CRCL has reported that sample was in the form of bro .....

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s to establish that during the entire period of show cause notice any of the 14 machines were engaged in the manufacture of Shiv Baba branded scented Zarda chewing tobacco of RSP 50 Paise. On the contrary when the officers visited the manufacturing premises on 14.10.2014 it was noticed that 6 machines put together in two premises were engaged in packing of unbranded unmanufactured chewing tobacco and there was no RSP mentioned nor brand name was mentioned on them and other 8 machines were engage .....

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of appellant. - E/70374, 70375 & 70376/2017-EX [ DB ] - A/71190-71192/2017-EX[DB] - Dated:- 31-8-2017 - Mr. Anil Choudhary, Member (Judicial) And Mr. Anil G. Shakkarwar, Member (Technical) Shri H.O. Tiwari (Advocate) Shri Amit Awasthi (Advocate) for Appellant Shri Rajeev Ranjan (Joint Commissioner) AR for Respondent ORDER Per: Anil G. Shakkarwar Above stated three appeals are arising out of common impugned Order-in-Original No.LKO/EXCUS/000/COM/EX/042/2016 17 dated 01/03/ 2017 passed by Commiss .....

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Road, Sijhouli Ambedkar-Nagar and at factory premise of Shri suresh Kumar Verma situated at Yahiya Kamalpur, Akbarpur, Ambedkar-Nagar and at the residential premises of the appellants. It was found that Shri Suresh Kumar Verma was engaged in the manufacture of Shiv Baba Brand scented Supari also called as Pan Samagri which was having retail sale price of ₹ 1 per pouch and said manufacture was being undertaken at 2 unregistered premises at Malipur Road and at Yahiya Kamalpur and at the said .....

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aterial was also available. The officers carried out investigations and recorded statements. They had also seized the entire quantity of raw materials available and all the 14 packing machines. On 14.10.2014 officers recorded statement of Shri Gyanendra Verma incharge of premises at Yahiya Kamalpur premise. Further on 14.10.2014 statement of Sanjeev Kumar Verma was recorded and on the same day statement of Shri Ram Shiromani Verma was also recorded. Shri Ram Shiromani Verma was proprietor of M/s .....

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report stated that the sample was in the form of brownish bits of leaves and that it was mainly containing the tobacco and that it did not contain added lime and flavouring agent the show cause notice contended that on 14.10.2014 in one premise they found that raw tobacco was being processed with scent and it was being sent to another room for packing purpose and that stock of raw material found available also contained loose manufactured chewing tobacco about 16 Kg in the drums, 15 Kg chewing t .....

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nue that appellant Shri Suresh Kumar Verma was manufacturing Shiv Baba Brand scented Zarda chewing tobacco of RSP of 50 Paise per pouch and the same was classifiable under Tariff Item No. 24039910 of first Schedule to Central Excise Tariff Act, 1985 and said product was manufactured chewing tobacco and the same was covered as notified goods under Clause (c) of the Rule 2 of Chewing Tobacco and Unmanufactured Tobacco Packing Machine (Capacity Determination and Collection of Duty) Rules, 2010 (her .....

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been in operation since 1st day of April, of respective financial years and therefore the duty has to be determined for the period from 1 April, 2013 to October, 2014 and that the rate of duty applicable for manufacture of chewing tobacco of MRP upto ₹ 1/- under Notification No.14/2012 dated 17.10.2012 was ₹ 12 lakh per machine and under Notification No.02/2014-CE dated 24.01.2014 it was ₹ 14.07 lakh per machine and under Notification No. 17/2015 CE dated 11.07.2014 it was  .....

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xcise duty amounting to ₹ 35,55,54,387/- should not be demanded and recovered from Suresh Kumar Verma under the provisions of sub Section (4) of Section 11A of Central Excise Act, 1944 read with Rule 18 (2) of 2010 Rules along with interest thereon and why ₹ 70,04,000/- already deposited should not be appropriated. It also proposed to impose personal penalty under Rule 26 of Central Excise Rules, 2002 on the other two appellants Shri Ram Shiromani Verma and Shri Sanjeev Kumar Verma. .....

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ay of cross-examination it had come up that tobacco in question was unmanufactured which also found support from the ultimate report of CRCL and that the pouches in which tobacco was packed as found in the manufacturing premises at the time of conducting the raid the pouches were totally unbranded and retail price was not mentioned on the same. They also stated that Shri Gyanendra Verma and Panch witnesses had further stated that they were not aware of any words branded/unbranded chewing tobacco .....

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uish between manufactured and unmanufactured tobacco and also stated during the cross-examination that the packing roll which was available on the packing machines was plain green colour roll which was not having any brand name written on the same and that Panch witnesses conformed during the cross-examination that there was no perfume mixing machine lying in the manufacturing premises at the time of raid conducted by officers of Central Excise. They further contended that it had come out from t .....

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ether establishes that appellant Shri Suresh Kumar Verma was manufacturing only unbranded, unmanufactured tobacco which was being packed in the packing machines and in the pouches which did not have any brand name and MRP printed on the same and the machines were also used for packing of scented Supari which was also called as Pan Samagri. They further contended that since the goods covered by the notification were not manufactured by them and therefore they were not liable to pay Central Excise .....

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the aforementioned two unregistered premises were not done out of ignorance but was meticulously planned and supervised by Shri Suresh Kumar Verma (Noticee No.2) and younger brother of Shri Ram Shiromani Verma (Noticee No.1) who was in the knowledge of such activity and also facilitating the same. The premises of M/s Shankar Traders at Malipur Road, Sijhauli, Akbarpur, Ambedkar Nagar (whose Proprietor is Shri Sanjeev Kumar Verma) where six electrically operated pouch packing FFS machine were se .....

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s to Shri Sanjeev Kumar Verma, Proprietor of M/s Shankar Traders, Akbarpur, Ambedkar Nagar since April, '2014 and payments were received through R.T.G.S. He had accepted on record that five cylinders were used in printing those laminated rolls in bill No.2 dated 10/04/2014 and the said cylinders were supplied by Shri Sanjeev Kumar Verma and were returned back to him in October, 2014. Similarly, Shri Dinesh Nag, Director of M/s Dikun Pack Pvt. Ltd., 25-B-1, Dada Nagar, Kanpur in his statement .....

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mitted that his firm has supplied Printed Laminated Rolls and pouches for supari to M/s Shankar Traders, Akbarpur, Ambedkar Nagar for which order was given by Shri Ram Shiromani Verma and cylinders were supplied by the party themselves. Shri Dikun Nag was also cross examined by the noticee and its counsel wherein he informed that the packing materials were supplied as per their orders by both the parties to whom either the material was sent by same trucks or the parties themselves collected it. .....

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ith active participation of the noticees who are directly benefitted from such activity by evading payment of Central Excise duty thereon. In present case the Retail Sale Price of the impugned pouches of unbranded chewing tobacco was investigated and ascertained by the Assistant Commissioner, Central Excise, Faizabad and it was found that one pouch of unbranded chewing tobacco was given 'free' as combo with one pouch of 'Shiv Baba' Supari of M.R.P. Re, 1/- to retail customers. 46 .....

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Kumar Verma. Following deposits have been made by Shri Ram Shiromani Verma towards the duty liability of his brother Shri Suresh Kumar Verma which has since been deposited in the Government exchequer: i. Cash amounting ₹ 20,04,000/- seized at the residential premises of Shri Ram Shiromani Verma situated at Shanti Bhawan, Mohalla Shanti Nagar, Shahjadpur, Akbarpur, Ambedkar Nagar on 14/10/2014 as detailed in Panchanama dated 14/10/2014. ii. Two cheques of ₹ 5,00,000/- each (i.e. tota .....

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of his elder brother, alongwith manufacturing of other branded/unbranded tobacco products with the aid of 14 FFS machines in full knowledge of his elder brother Shri Ram Shiromani Verma (Noticee No. 1) proprietor of M/s Shiv Produtcts. It is also found that Shri Suresh Kumar Verma (Noticee No. 2) never declared to the department, any manufacturing activity at the two unregistered premises, both of which are his ancestral properties, at Yahiya, Kamalpur, Akbarpur, Ambedakar Nagar and at Malipur .....

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ules read with Notification No. 17/2014-CE dated 11/07/2014 as amended. The above acts of Shri Suresh Kumar Verma (Noticee No. 2) proves his mens rea, as he wilfully evaded the Central Excise duty which was due thereon by clandestine manufacturing and clearance of branded Shiv Baba Brand Zarda as well as packing unbranded tobacco through FFS machine on an unregistered premises and makes him liable to pay Central Excise duty under provisions of Section 11A (4) of the Act read with Rule 18(2) of t .....

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but also gave orders for packing laminated rolls and cylinders to the suppliers and are therefore liable to penalty under Rule 26(1) of the Central Excise Rules, 2002. After recording the above stated findings the Original Authority confiscated the goods valued at ₹ 69,27,845.50/- and gave an option to redeem the same on payment of redemption fine of ₹ 20 lakhs. Further the Original Authority confirmed the demand of Central Excise duty amounting to ₹ 35,55,54,387/- and directed .....

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s under Rule 26 of Central Excise Rules, 2002. Aggrieved by the said order the appellants are before this Tribunal. 5. The grounds of appeal include the following grounds:- (i) The report on the test memo issued by CRCL, New Delhi indicated that samples did not contain any lime or flavouring material and therefore the product was unmanufactured tobacco classifiable under Chapter 2401 and the same was not included by Notification issued under Section 3A of Central Excise Act, 1944 and that the sa .....

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nted leaves, whole or stemmed or trimmed or untrimmed, broken or cut but not tobacco ready for smoking. It was further contended that Board in Para-5 of the said Circular clarified that unmanufactured tobacco is merely broken by beating and then sieved and packed in the retail packets with or without brand name for consumption as chewing tobacco and would be classifiable under Heading 24.01. (iii). They further contended that Hon ble Supreme Court of India in the case of the Damodar J Malpani v/ .....

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d Counsels for the appellants. The contentions of learned counsels are as follows:- 6.1. The impugned show cause notice relied upon the Panchnama dated 14.10.2014 drawn at the premises of M/s. Shanker Traders, Malipur Road, Sijhouli, Ambedkar-nagar, (RUD-1) wherein it has been recorded that the officers also found that Chewing Tobacco Zarda was being manufactured in another room and that raw tobacco was purchased from the market and after mixing it with scent, etc. it was taken to other room for .....

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that if un-manufactured tobacco is packed in pouches then such tobacco is nothing but chewing tobacco and alleged in Para-40 of said show cause notice that tobacco which is packed in the pouches with the aid of pouch packing FFS machines is only used for chewing purposes and is manufactured "chewing tobacco". 6.3. Two different varying stands have been taken by Revenue with regard to processes applied for "manufacturing of chewing tobacco" 6.4. There was absolutely no factual .....

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uot; "chewing tobacco". 6.6. The investigating officers have nowhere recorded in the Panchnama discovery of any machine, apparatus, appliances or vessels used for processing of raw un-manufactured tobacco or mixing it with any other material. 6.7. Even though the said Panchnama dated 14.10.2014 states that twenty five labourer were found working at the premises, the investigating officers have not recorded the statement of even a single labourer who may have stated that raw un-manufact .....

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me packing of 'Chewing Tobacco (tobacco) was being carried out on three machines'. Thus facts recorded in the second Panchnama (RUD-5) do not support the observations and inferences drawn on the basis of facts recorded in the first Panchnama (RUD-1). 6.9. None of the above said two Panchnamas record any fact showing existence in stock or recovery of any perfumery material or aromatic substance or any other material such as lime, molasses or kathha, that could be said to have been used or .....

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scent etc, with raw unmanufactured tobacco, on the other hand it relies upon various definitions of Chewing tobacco to contend that 'tobacco packed' in pouches is used only for Chewing purposes and is therefore "manufactured Tobacco" and concludes in para 42 of the SCN that the goods prepared by Shri Suresh Kumar Verma is scented jarda Chewing Tobacco which is being packed through electronically operated pouch packing machines (FFS Machines) in unbranded as well as branded (&q .....

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fications issued thereunder that these prescribe the effective rates of duty per packing machine per month both in respect of "Unmanufactured Tobacco" bearing a brand name as well as for chewing tobacco, with and without lime tube/lime pouches. Thus, mere fact that raw un-manufactured tobacco is packed in pouches on FFS packing machines does not convert such unmanufactured tobacco into a manufactured product such as "chewing tobacco." 6.12. The provisions of 2010 Rules and No .....

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chemical analysis of the samples of tobacco drawn from said two unregistered premises. The fact regarding drawing of samples and receipt of Test Reports from CRCL is acknowledged at Paras 37 and 42 of the SCN dated 01/10/2015 and letters dated 03/09/2015 and 08/09/2015 of Assistant Commissioner, Central Excise, Faizabad. 6.14. It is an admitted fact that samples were drawn at both the said unregistered premises from out of the seized quantity (i) of stock of raw (kacchi) tobacco packed in jute .....

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below: Sample is in the form of brownish bits of leaves. It is mainly containing tobacco. It does not contain added lime and flavoring agent It is highly significant that all the Test Reports irrespective of the fact whether the samples were drawn from the unmanufactured raw (kacchi) tobacco packed in jute bags or from tobacco recovered from the drums or from the hoppers or from the unbranded pouches, have given the same results confirming the goods subjected to test being nothing more than  .....

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6.15. The impugned Order-in-Original suffers from ambiguity, lack of reasoning and logic in as much as despite availability of categorical Test Reports from the Chemical Examiner confirming the goods found at the said two factory premises being nothing but "Unmanufactured Tobacco', have completely failed to discuss the reasons for discarding the material evidence available by the way of said Test Reports and relying solely upon the contents of the Panchnamas drawn at the said two facto .....

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he nature and kind of tobacco, whether unmanufactured or manufactured chewing tobacco, being packed in unbranded pouches on pouch packing machines at the said factory premises. Neither the said two Panchnamas nor the statement of various persons recorded during the course of investigations provide any explanation as to on what physical or chemical examination basis the investigating officers recorded the tobacco packed in jute bags as unmanufactured (Kachhi) tobacco whereas the tobacco recovered .....

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er, the learned Respondent in Paras 40 to 43 of the impugned Order-In-Original has recorded his findings completely dismissing the challenge to the contents of the Panchnamas and recorded his conclusions in Para 43 as follows: "The opportunity was granted on the principal of natural justice. I am of the view that the panchas sign the Panchnama in token of having seen the proceedings conducted in proper manner. It is a settled procedure that the entire proceedings are always read out to the .....

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FFS machine which was finally sealed by the officers. 6.17. The Appellants contended that the findings and the conclusions recorded as above clearly reveal that the Original Authority has erred by not taking into consideration the contentions placed before him for decision. The challenge to the contents to the said Panchnamas by the Appellants was not merely on account of noticeable deficiencies in the manner of conducting search and stock verification proceedings, but also primarily and essenti .....

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ouch packing machines in pouches bearing no brand name. 6.18. It was contended that the Original Authority did not appreciate the significance and outcome of the cross examination of Panchas and witnesses conducted before him and has recorded a totally untenable finding that "From the cross examination nothing came out regarding the Panchnama which was challenged by the Noticee as well as nothing came out regarding their claim that the goods were unmanufactured unbranded tobacco as claimed .....

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colour bearing no brand name. They also confirmed that there exist no mixing machines and no material such as Scent or Menthol is mixed in the tobacco which is packed in pouches. The Panch witnesses as well as Mr. Gyanendra Verma further stated that being illiterate they did not have knowledge to distinguish between unmanufactured tobacco or manufactured tobacco or between branded and unbranded chewing tobacco though they could see that tobacco which was packed in jute bags was in raw form conta .....

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recorded purely on dictation by the officers and that therefore, it clearly comes out from the record of cross examination of Pancha's and other witnesses that tobacco which was being packed in pouches on the FFS machines at the said two raided premises was nothing but unmanufactured tobacco and that this fact also gets fully supported and established from the Test Reports given by the Chemical Examiner, CRCL, New Delhi which confirm that all the samples as: "brownish bits of leaves. I .....

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e said two raided premises, and for the same reasons the statements of the persons relied upon to support and corroborate the contents of the said Panchnamas could not be given any credence. 6.20. The Original Authority has erred is not taking into consideration various judgments relied upon by the Appellants in support of their contention that it has been held by numerous judgments including those of the Apex Court that it is only chemical analysis of the goods (tobacco) packed on FSS packing m .....

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lassifiable under heading 24.01 of the CETA. The learned counsel for the appellants further relied upon following case laws:- (i) Damodar J Malpani vs. CCE reported in 2002 (146) ELT 483 (SC) (ii) Yogesh Associates vs. CCE, Surat-II reported in 2006 (195) ELT 196 (Trib.-Mum) Affirmed by SC (iii) Suresh Enterprises Vs. CCE, Pune reported in 2006(203) ELT 432 (Trib.-Mum) (iv) CCE, Kanpur Vs. Ravindra & Co. reported in 2000(120) ELT 699 (Trib.) (v) TPNS Chettiar Parvathi Vilas Tobacco and Cigar .....

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andestine manufacture and clearance of chewing 'tobacco' packed in pouches bearing no brand name on pouch packing FFS machines. On the other hand, the test reports of the drawn samples furnished by the Chemical Examiner clearly establish that the goods produced and removed from the said two premises were nothing but "Unmanufactured Tobacco". Since unmanufactured tobacco not bearing any brand name is fully exempt from duty in terms of serial no. 41 of exemption notification no. .....

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ned order merely reiterated the allegations leveled in the show cause notice and without discussing any facts and evidences to substantiate the allegation and held the Appellant to be guilty of being engaged in the manufacture of the said Shiv Baba Brand Scented Jarda/ Chewing Tobacco. 6.23. It was submitted that the above allegation has been leveled in the SCN merely on the basis of recovery of small quantity (16.2 kg.) of printed packing rolls which depicted in print the brand name 'Shiv B .....

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i (RUD-8). 6.24. It was submitted that while the impugned SCN completely ignored the contrary assertions and statements made by other persons from whom enquiries were made by the investigating officers and that the Original Authority also in his impugned order in original has completely ignored the following submissions put forth before him; (a) Shri Sanjeev Kumar Verma, in charge of the premises of M/s Shankar Traders in his statement dated 14.10.2014 nowhere admitted that pouch packing machine .....

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l for packing of Shiv Baba Brand Scented Supari/ Pan Samigri belonging to his factory is carried out at the same place where the printing of rolls of Shiv Baba Brand for packing of Scented Zarda Tobacco belonging to the factory of Shri Ram Shiromani Verma is carried out and it is only by mistake that packing rolls for packing of Shiv Brand Zarda were off loaded at Yahiya Kamalpur along with packing material belonging to Shri Suresh Kumar Verma. (c) Shri Suresh Kumar Verma in his statement dated .....

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ed there in place of delivering the packing material for Shiv Baba Brand Scented Supari/ Pan Samigri. (e) While the above statement of Shri Ram Shiromani Verma is alleged in the show cause notice to be an afterthought the said statement cannot be out rightly dismissed as an afterthought since it is a responsibly tendered honest statement under Sec. 14 of the Central Excise Act, 1944. Moreover the said statement of Shri Ram Shiromani verma is fully supported and corroborated by the statements and .....

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was no other positive, tangible and credible evidence relied upon in the SCN to prove that the Appellant was engaged in manufacture and clearance of Shiv Baba Brand Scented Zarda/Chewing Tobacco at any of his said two premises. No quantity, not even a single pouch bearing the brand name of Shiv Baba and containing scented Zarda/ Chewing Tobacco was found at the time of search and verification at any of the said two premises. (g) All the test reports of samples of the so called "Chewing Tob .....

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e of Shiv Baba Brand Scented Zarda Chewing Tobacco. 7. Learned DR has submitted that as reported by CRCL the samples did not contain any flavouring compound but since the goods manufactured by the appellant were branded goods they were branded unmanufactured tobacco and therefore as per as per the said Notification issued under said Section 3A they were subjected to levy under Section 3A of Central Excise Act, 1944. 8. Having considered the rival contentions and on perusal of record at the outse .....

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ble Supreme Court of India in the above stated case of Damodar J. Malpani has held in Para-7 that the samples should be first sent for chemical analysis and thereafter the question of classification of the product should be taken up on the basis of the chemical analysis report and other materials. Therefore, we find that it is binding on all to decide the classification of goods on the basis of the report of CRCL laboratory on the chemical composition of the samples which were drawn from the ma .....

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