Changing Classification of  ‘Chewing Tobacco’ Instead of ‘Scented Zarda/Jarda Tobacco’ as Change brought in Central Excise Duty Rate: Supreme Court Sets aside Penalty initiated on  Misdeclaration [Read Order]

While considering a bunch of appeals, the Supreme Court of India, set aside the penalty initiated against misdeclaration under the Central Excise Act, 1944 changing the classification of ‘chewing tobacco’ instead of ‘scented zarda/jarda tobacco’ as the change brought in the Central Excise Duty rate.

A show cause notice stating that the assessee had been manufacturing and clearing the product manufactured by it as ‘zarda/jarda scented tobacco’ under the guise of ‘chewing tobacco.’ During the visit to the assessee's factory by the Department's officers, they noticed the process of manufacturing ‘zarda/jarda scented tobacco.’

The statement of the production manager and also the statement of the factory in charge came to be recorded, based on which the Department concluded that there was a deliberate intention to evade payment of duty by misclassification and wilful misstatement of their product to enable them to pay lesser duty. Accordingly, by invoking the extended period of limitation as provided under proviso to Section 11A(1) Central Excise(CE) Act, the Department called upon the assessee to show cause as to why the product which had been classified as ‘chewing tobacco’ should not be classified as ‘zarda/jarda scented tobacco’ and why the said product should not be accordingly assessed to duty as per Section 4 of the CE Act, for the period 01.03.2006 to 10.07.2006.

Also proposed to impose a penalty as a consequence of wilful misclassification should not be recovered. The said show cause notice came to be adjudicated and the show cause notice including the demand made thereunder, was upheld in an order dated 28.01.2008.

A search was conducted by the Director General of Central Excise in the factory of the petitioner after drawing the panchnama and recording the statement of Shri. Tara Chand Jain, partner of the assessee firm. The samples were forwarded for chemical examination. The chemical examiner opined that the samples had a characteristic odour of odoriferous substances vide report dated 07.03.2016.

It was evident that the respondent-assessee sought to make a change in the registration certificate and claimed that the product manufactured by it was Zarda/jarda. However, the appellant-Revenue called upon the respondent to withdraw the application for registration as ‘zarda’ and to show it only as ‘chewing tobacco’ and thereafter application showing the product as ‘chewing tobacco’ came to be filed on 06.07.2015, and accordingly said application was allowed on 23.07.2015 vide annexure A-45 (volume II of the counter affidavit). Thus, the registration certificate itself reflects the product as ‘chewing tobacco’.

The assessee was availing the benefit of Notification No.13 of 2002 dated 01.03.2002 and adopting MRP-based assessment. Even after the introduction of 8-digit tariff classification  (w.e.f. 28.02.2005), the assessee was availing the same benefit.

However, in the teeth of two classifications made under Notification dated 24.02.2005, re-organizing the CET SH 2403 9910 as ‘chewing tobacco’ and CET SH 2403 9930 as ‘zarda/jarda scented tobacco’, which attracted duty of 34% on both the products at the time, the assessee classified or re-classified the product manufactured and hitherto declared as ‘chewing tobacco’ to ‘zarda/jarda scented tobacco’.

It was observed that when a specific entry is found in a fiscal statute, the same would prevail over any general entry. If there are two or more sub-headings, the heading which provides the most specific description will have to be preferred to a heading providing a more general description.

Justice S. Ravindra Bhat and Justice Aravind Kumar held that “classification of the product as adjudicated by the authority deserves to be accepted and finding recorded by the tribunal deserves to be set aside and consequently allow these appeals. Thus, both the points formulated hereinabove in this group are answered in favour of the Revenue and against the assessee.”

To Read the full text of the Order CLICK HERE

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