Jarda Scented Tobacco Misclassified as Chewing Tobacco to Evade Excise Duty: CESTAT Confirms Demand and Penalty [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Jarda Scented Tobacco was misclassified as Chewing Tobacco to evade excise duty and confirmed the duty demand, interest, and penalty imposed by the adjudicating authority.

Kaipan Pan Masala Pvt. Ltd., the appellant, is engaged in the manufacture of tobacco-based products. For the relevant period, the company classified its product as “Chewing Tobacco” under Tariff Entry 2403 9910, thereby availing the benefit of duty assessment based on the Maximum Retail Price (MRP) under Section 4A of the Central Excise Act, 1944.

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The department alleged that the product was actually “Zarda Scented Tobacco” (JST), falling under Tariff Entry 2403 9930, which is not covered under MRP-based valuation and must be assessed under Section 4 of the Act on transaction value.

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A Show Cause Notice was issued on February 2, 2016, leading to the adjudication order dated July 16, 2018, which reclassified the product as JST and raised a demand of Rs. 7.47 crore in duty, along with interest and equal penalty.

The appellant challenged this order before the Tribunal, arguing that the facts in its case differed from those in the Supreme Court’s judgment in CCE v. Urmin Products Pvt. Ltd. and that the reclassification was made with proper intimation and prospectively.

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The department counsel submitted that the appellant was a party in the Urmin Products case, where the Supreme Court had already decided that such a product was JST and not chewing tobacco. They argued that the appellant had changed the classification solely to benefit from lower tax liability and that lab reports (CRCL Report dated June 3, 2015) confirmed that the product’s composition and manufacturing process matched JST.

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The two-member bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the classification of the product as JST had already been settled by the Supreme Court, which is binding on all courts and tribunals.

The tribunal upheld the imposition of interest, citing the compensatory nature of such levy, and also affirmed the penalty imposed under Rule 18 of the Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010, read with Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002. The appeal was accordingly dismissed.

To Read the full text of the Order CLICK HERE

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