TMI Blog2019 (6) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of tobacco and convert the same into Gadia Powder , which was packed in 50 kg bags. 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. 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 - When the appellants since the very first day itself were claiming their goods to be tobacco powder, it was imperative for the Revenue to test the samples properly and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acco, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 smal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading 24039910 of the CETA. He confirmed excise duty demand of ₹ 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 ₹ 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture. 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 appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 SE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 CRC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 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 tobac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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