| Headnote |
Issues for consideration:The primary dispute in the present seven groups of appealsrevolved around classification of the product in question keepingin view two competing Central Excise Tariff Sub-Headings / entriesi.e. under CET SH 2403 9910 as ‘chewing tobacco’ or under CETSH 2403 9930 as ‘zarda/jarda scented tobacco’. Ancillary issuesrelated to invoking of the proviso to Section 11A of the CentralExcise Act, 1944 and declaration made r.6 of the ‘Chewing Tobacco’and Unmanufactured Tobacco Packing Machines (CapacityDetermination and Collection of Duty) Rules, 2010 (CTPM Rules).Central Excise Tax, 1944 – s.11A, proviso – Invoking extendedperiod of limitation – Deliberate intention to avoid paymentof duty by the assessee by misclassification and willfulmisstatement of its product – Adjudicating Authority thereforejustified in invoking the extended period as provided in theproviso to s.11A(1).Held: Notification No.2 of 2006 dated 01.03.2006 was issuedin supersession of Notification No.13 of 2002 dated 01.03.2002specifying thereunder the goods covered under Section 4A of Act1944 for MRP-based assessment. The notification did not specifythe goods falling under CET SH 2403 9930 (‘zarda/jarda scentedtobacco’) but covered the goods falling under CET SH 2403 9910(‘chewing tobacco’). Since the ‘zarda/jarda scented tobacco’ wasnot specified under MRP-based assessment under Section 4A ofCE Act, the goods had to be assessed under Section 4 of the CEAct. The abatement provided to the goods classified under CETSH 2403 9910 was 50 percent. Hence, if the goods are cleared as‘chewing tobacco’ the duty has to be paid on lower value resultingin payment of a 35 lesser amount of duty, as the value determinedunder Section 4A after 50 percent abatement was much lessercompared to transactional value under Section 4 of CE Act. It isfor this precise reason the assessee changed the classificationfrom ‘zarda/jarda scented tobacco’ to ‘chewing tobacco’. ‘Zarda/jarda scented tobacco’ was brought into the ambit of Section 4Aof the CE Act (MRP-based assessment), by virtue of amendmentto Notification No.2 of 2006 vide Notification No.16 of 2006 dated11.07.2006. In other words, ‘zarda/jarda scented tobacco’ wasnot specified for assessment under Section 4A of CE Act for theperiod 01.03.2006 to 10.07.2006. In the light of the same, theRevenue was correct and justified in issuing the show causenotice. Though one of the contentions raised by the assesseewas that they had filed a letter on 30.03.2006 to the Departmentclearly showing the change in the classification by the assessee,however, the letter dated 30.03.2006 had been cleverly draftedand it does not mention in detail the product which they weremanufacturing at that material time namely ‘zarda/jarda scentedtobacco’. It is this hiding of the fact and not specifying the detailsin their letter that led to the issuance of the show cause noticeand invocation of Section 11A and Section 11 AC of the CE Act,by the Department. It cannot be ignored that till filing of the letterdated 30.03.2006, the assessee itself was classifying the productas ‘zarda/jarda scented tobacco’ falling under CET SH 2403 9930and being a large-scale manufacturer and paying large sums ofamount as duty, to contend that it was unaware of the differencebetween these two products, or to contend that it had classifiedthe product as ‘zarda/jarda scented tobacco’ by ignorance, is nota plausible justification on part of the assessee. However, on theissuance of Notification No.2 of 2006 dated 01.03.2006 underwhich ‘zarda/jarda scented tobacco’ was excluded or in otherwords not included in the said notification, the assessee changedthe description of its product from ‘zarda/jarda scented tobacco’to ‘chewing tobacco’. The date of communication of the letterdated 30.03.2006 by the assessee also acquires significance inas much as the Notification No.2 of 2006 dated 01.03.2006 wereto take effect from 01.04.2006, just two days later. The intentionwas to evade payment of duty payable under Section 4 of CE Act;despite knowing the fact that its product was not covered underrelevant notification which provides for valuation under Section 4A,yet the assessee did so, only to pay duty on lower value as perSection 4A of CE Act, by claiming the product manufactured byit as ‘chewing tobacco’ rather than ‘zarda/jarda scented tobacco’to avail benefit of MRP-based assessment which was lowerthan the value as prescribed under Section 4 of the CE Act. TheAdjudicating Authority was of the clear view that there has beena deliberate intention to avoid payment of duty by the assesseeby misclassification and willful misstatement of its product andhence it was justified in invoking the extended period as providedin the proviso to Section 11A(1) of CE Act, 1944. [Paras 40, 41,42 and 43]Central Excise Tax, 1944 – ss. 4 and 4A - Classification –Two competing entries – ‘chewing tobacco’ and ‘zarda/jardascented tobacco’- Product manufactured and cleared bythe assessee for the period 01.03.2006 to 10.07.2006 to beclassified under the Central Excise Tariff Sub-Heading( CETSH) 2403 9910 as ‘chewing tobacco’ or under CET SH 24039930 as ‘zarda/jarda scented tobacco.Held: The principle of admission is the best proof that can beapplied to conclude that the assessee itself had classified theproduct as ‘zarda/jarda scented tobacco’ based on the declarationin ER-I returns for April 2006 and onwards – The assessee itselfright from the beginning has been consistently declaring the productmanufactured by it as ‘chewing tobacco’ till the 8-digit regime in2005 (w.e.f. 24.02.2005) sub-classified the entries as ‘chewingtobacco’ and ‘zarda/jarda scented tobacco’ – In the ER-I returnsfiled from March 2005 till April 2006 i.e., after the sub-classification,the assessee mentioned the description of the product as ‘zardascented tobacco’ and from April 2006 reclassified it as ‘chewingtobacco’ –Notification No. 2 of 2006 dated 01.03.2006 was issuedin supersession of Notification 13 of 2002 dated 01.03.2002specifying the goods covered under Section 4A of the CE Act, forMRP based assessment – The said notification did not specify thegoods falling under CET SH 2403 9930, i.e., ‘zarda/jarda scentedtobacco’, but it covers the goods falling under CET SH 2403 9910i.e., ‘chewing tobacco’ – Thus ‘zarda/jarda scented tobacco’ nothaving been specified under MRPbased assessment u/s. 4Aof the CE Act, the goods had to be necessarily assessed u/s. 4of the CE Act – The assessee being aware that there being nochange in the nature of the products, its ingredients and also themanufacturing process had changed and misclassified the productas ‘chewing tobacco’ from ‘zarda/jarda scented’ tobacco – Hadthe assessee continued its classification as ‘zarda/jarda scentedtobacco’, the duty payable as per transaction value u/s. 4 of theCE Act would have been much more than the determinationu/s. 4A of CE Act after 50 % abatement – It is for this precisereason for avoiding and evading payment of the higher duty, theclassification was deliberately changed from ‘zarda/jarda scentedtobacco’ to ‘chewing tobacco’. [Paras 44, 46 and 47]Interpretation of Statutes – Entry in Fiscal Statute – Specificentry vis-a-vis General entry:Held: It is trite law that when specific entry is found in a fiscalstatute, the same would prevail over any general entry – If thereare two or more sub-headings, the heading which provides themost specific description will have to be preferred to a headingproviding a more general description. [Para 49]Tax/ Taxation – Central Excise – Chargeability – Classification- Burden/Onus of Proof- For change in classification of theproduct – Lies on whom:Held: It is settled law that the onus/burden of proof for change inclassification of the product lies on the Department, particularlywhen it wishes to challenge a long-accepted classification –Classification is a question relating to “chargeability” –Insofar aschargeability is concerned, the burden of proof lies on the Revenueand not on the assessee. [Paras 68 and 70]Central Excise – ‘Chewing Tobacco’ and UnmanufacturedTobacco Packing Machines (Capacity Determination andCollection of Duty) Rules, 2010 (CTPM Rules) – r.6 – Purposeof declaration filed under Rule 6 of CTPM Rules – Parametersto be examined, determined, and adjudicated under Rule 6– Such declaration, if having any nexus to classification ofthe product – Whether on account of classification by suchdeclaration, would preclude the Department from issuing aNotice under Section 11A or 11AC of Central Excise Act, 1944.Held: (1) What is the purpose of the declaration filed under Rule 6of CTPM Rules? ANSWER: To ascertain the details of the productto be manufactured and the nature of the product for purposes offixing the packing capacity of the machine and determine the duty.(2) What are the parameters which are required to be examined,determined, and adjudicated under Rule 6 by the PrescribedAuthority? ANSWER: To inquire and determine the correctnessof the details furnished under the declaration, namely, FormNo.1. (3) Whether the Competent Authority have the power andjurisdiction to determine the classification or specific entry withinwhich the declared product is to be classified? OR Whether theissue of classification of a product can be the subject matter ofadjudication/decision under Rule 6(2) of CTPM Rules? ANSWER:Yes. (4) Whether a declaration made under Rule 6 has any nexusto the classification of the product? ANSWER: Yes, for the purposeof determining the packing capacity and corresponding duty. (5)Whether on account of classification by such declaration, wouldpreclude the Department from issuing a Notice under Section 11Aor 11AC of CE Act, 1944? ANSWER: No, if there is improper ormisdeclaration or improper declaration. [Para 109]Central Excise – Classification – Common parlance testcontinues to be one of the determinative tests for theclassification of a product. [Para 120]Words and Phrases – ‘suppression’- Meaning of – Discussed.[Para 42] |
