No MRP-Based Excise Duty on Tobacco Pouches Below 10 Grams u/s 4A: CESTAT [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) held that no MRP-based excise duty is payable under Section 4A on tobacco pouches below 10 grams as such small packages are exempt under the Packaged Commodities Rules.

Shiva Tobacco Co. and other connected appellants filed appeals challenging the order passed by the Commissioner (Appeals) which had upheld duty demands and penalties on tobacco products manufactured by them.

The appellants were engaged in manufacturing branded chewing tobacco and later started producing a product known as “spit tobacco,” classifying it under a different tariff heading. The Department conducted investigation and alleged that the classification was incorrect and that duty should be charged under Section 4A based on MRP.

After remand by the Tribunal in earlier round, the adjudicating authority confirmed the duty demand along with penalty based on test reports and other materials. This was upheld by the Commissioner (Appeals), leading to the present appeals.

The appellants’ counsel argued that the product is different from chewing tobacco and classification adopted by them was correct. They further argued that even if classification is disputed, the goods were packed in small pouches of 4 gm and 9 gm which are exempt from MRP-based assessment under Rule 34(1)(b) of the Packaged Commodities Rules.

The Department’s counsel argued that the goods are liable to duty under Section 4A and supported the findings of the lower authorities. It also alleged that the appellants had cleared 15 gm pouches, which would not be covered under exemption.

The two-member bench comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the main issue is not classification but whether Section 4A applies. The tribunal observed that packages containing goods of 10 grams or less are exempt from MRP-based provisions under the relevant rules.

The tribunal explained that the appellants were clearing goods in 4 gm and 9 gm pouches, which fall within the exemption. It also observed that the Department failed to produce any proper evidence or data to prove manufacture and clearance of 15 gm pouches.

The tribunal pointed out that mere allegation without quantifiable evidence cannot sustain duty demand and in such situation benefit of doubt goes to the assessee. It further observed that once Section 4A itself is not applicable, the issue of classification becomes irrelevant. The tribunal held that the duty demand and penalties are not sustainable and allowed all the appeals.

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