By TIOL News Service

NEW DELHI, AUG 18, 2017: THE appellants were manufacturing "kimam" on which they were paying CE in terms of s.4 of the CEA, 1944. Classification was made by appellant under SH 2404.41 as "Chewing tobacco and preparation containing chewing tobacco" during the six-digit tariff regime.

The manufacturing process goes thus -

i. Kimam is manufactured by soaking tobacco leaves in several times its quantity of water. The aquatic portion is separated and is kept boiling till such time it attains the required thickness.

ii. The extract / liquid kimam thus produced is admixed with other items like spices and condiments, natural and artificial flavours, tobacco dura and silver leaves.

iii. The kimam is then packed into unit containers of 50 grams or 10 grams.

iv. The refuse tobacco leaves are dried under the sun in the open and stored in bags.

With the introduction of the eight-digit based tariff, the appellant changed the classification to 24039960 as "Tobacco extracts and essence" and continued to pay duty on advalorem basis.

The department was of the view that the impugned goods are rightly classifiable under SH 24039920 and is to be valued on MRP basis u/s 4A of the CEA, 1944.

The demands were confirmed along with penalties and, therefore, the appellant is before the CESTAT.

The appellant submitted that the goods have been correctly classified by them and take the support of the observation in paragraph 19 of the apex court decision in Dharampal Satyapal . It is also pleaded that the demand is hit by limitation. Inasmuch as they have not suppressed anything from the Department and have been filing the ER-1 returns indicating classification of the impugned goods under 2403 9960 and the dispute has arisen only as a result of audit objection.

The Bench adverted to the manufacturing process and the apex Court decision in Dharampal Satyapal - (2005-TIOL-75-SC-CX-LB) and observed -

On Merits:

++ In the light of the Supreme Court judgment, holding it to be covered under the scope of "preparation containing chewing tobacco (i.e. under the tariff sub-heading 2404.41: Chewing tobacco, preparation containing chewing tobacco)", there is no scope for any discussion in this regard because it can be no-body's case that if the impugned goods were covered under the expression "preparation containing chewing tobacco" at the time when the Supreme Court said they did, they would not be excludible from the said expression merely because of the passage of time. It is seen that under the eight digit tariff regime, "preparations containing chewing tobacco" are covered under tariff sub-heading 24039920. Consequently the impugned goods are thus classifiable under sub-heading 240399.20. Once the impugned goods are held classifiable under sub-heading 240399.20, their assessment admittedly has to be in terms of Section 4A ibid and therefore, prima-facie, the impugned demand is sustainable on merit.

Limitation:

++ It is seen that the Commissioner (Appeals) held them guilty of suppression for not taking "initiative" and not consulting the department if they had any doubt while the appellants never stated that they had any doubt. In fact they have claimed that they were clearly of the view that their goods were classifiable where they classified them. The Commissioner (Appeals) has not mentioned anywhere as to what they suppressed which was required to be disclosed as per law. Not taking suo moto initiative has never been a valid ground for sustaining charge of suppression . Indeed, this point is too well settled to warrant judicial citations like  Cadilo Laboratires vs. CCE Vadodara  =  2003-TIOL-01-SC-CX, Padmini Products vs. CCE, Bangalore =  2002-TIOL-289-SC-CX, CCE, Hyderabad vs. Chemphar Drugs & Liniments = 2002-TIOL-266-SC-CX. The very fact that they have been paying duty as per Section 4 also goes to show that prima facie they had no intention of hoodwinking the department.

Conclusion:

+ "Kimam" is classifiable under sub heading 2403 9920 as held by the lower authorities.

+ Assessment has to be in terms of section 4A and hence the impugned order is sustained on merit.

+ However, since there is nothing on record to substantiate the fact that appellant had suppressed any fact from the Department, the demands will need to be restricted to normal time limit.

+ There is no justification to impose any penalty, this being a classification dispute.

+ The adjudicating authority is directed to re-quantify the demands accordingly.

The appeals were partly allowed.

(See 2017-TIOL-2988-CESTAT-DEL)