Submission of list of raw materials and manufacturing process indicates no suppression and so larger period of limitation not invocable.

PJ/Case Laws/2012-13/1489

Case:- COMMISSIONER OF C. EX., DELHI Versus PARVEEN TOBACCO CO. (P) LTD.

Citation:- 2013 (288) E.L.T. 433 (Tri.- Del.)

Brief Facts:-The respondent is engaged in manufacture of small pouches of unbranded chewing tobacco and marketing it. Earlier the company was paying central excise duty on the pouches marketed by them @ 67.98% on the assumption that the goods fall under classification 24039910. Subsequently, vide a letter which was received in the office of Assistant Commissioner, Central Excise, Division-I Karampura, New Delhi, the respondent applied for addition in his central excise registration certificate informing the department that they are going to start packing of unmanufactured branded tobacco falling under Chapter 24 entry 24012090. Along with letter, the assessee annexed enclosures indicating the list of raw material for production of the unmanufactured branded tobacco pouches and also the manufacturing process. The flow chart annexed to the letter indicated that the respondent would be purchasing raw unmanufactured chewing tobacco and packing material from the market then fill the raw tobacco along with lime tube in small pouches for marketing the same. The request of the respondent was accepted and registration as prayed for granted to him. Thereafter, the appellant started paying excise duty @ 47.58% on the tobacco pouches marketed by him on the premise that it was unmanufactured branded tobacco falling within the classification under Chapter 24 entry No. 24012090. Later, on inspection, the department found that product being manufactured and marketed by the respondent was the same on which the respondent was earlier paying duty @ 67.98%. Thus, on the premise that it was covered under Tariff Entry 24039910 in dispute 24, a show cause notice raising excise duty demand was issued to the respondent on 19-12-2008. Respondent contested the show cause notice and took the plea that the demand under the show cause notice was time barred and also that the tobacco pouches marketed by him were covered under classification only 24012090 Chapter 24. The adjudicating authority after giving due hearing to the respondent rejected his plea and confirmed the demand and interest besides that he also imposed penalty. Penalty of Rs. 50,000/- was imposed on the Director of the Company. The excise duty and interest were recovered and appropriated against the demand. Feeling aggrieved by the adjudicating order, respondent preferred an appeal before Commissioner (Appeals). The Commissioner (Appeals) vide impugned order agreed that the view of the adjudicating authority that the tobacco pouches marketed by the respondent were covered under Chapter 24 entry No. 24039910. The appellate authority however, found that the demand was time barred. Accordingly, he set aside the order of adjudicating authority. Being aggrieved of the aforesaid order of the Commissioner (Appeals), the Department has preferred this appeal.

Appellant Contentions:-The Appellant has submitted that the impugned order holding that the demand is time barred, is not sustainable in law. It is submitted that this is a clear case of suppression and mis-statement of fact and the Commissioner (Appeals) has failed to appreciate that the respondent deceived the department by writing a mis-leading letter for addition of packing of unmanufactured tobacco alongwith the lime tube in pouches whereas even after the addition was allowed. The respondent continued to produce the same product on which he was earlier paying excise duty as per classification entry 24039910 in Chapter 24.

Respondent Contentions:-The Respondent submitted that there is no misrepresentation on the part of the respondent as the letter was addressed to the Assistant Commissioner, Central Excise, Division-II, New Delhi. The respondent has clearly mentioned the raw material used by him for manufacturing small pouches of unbranded tobacco and he even disclosed the process for manufacturing the pouches. Thus, it is contended that everything was honestly disclosed to the department. As such the Commissioner (Appeals) has rightly held that this is not a case of suppression of facts, concealment or misrepresentation which justified the extension of period of limitation under Section 11A from one year to five years. The respondent has placed on record photocopy of his letter dated 25-5-2007 addressed to the Assistant Commissioner, Central Excise, Division-II New Delhi which was received on the same day vide which he sought addition in central excise registration certificate. With the said letter he had annexed ten documents including the list of raw material and the process. Perusal of photocopy of the list of raw material and the process would show that raw material used in the pouches is disclosed as loose unmanufactured tobacco, packing material and lime tube and the flow chart would show that the process of producing the small pouches comprised of filling the bulk raw unmanufactured tobacco, in small pouches along with lime tube and those pouches after packing were to be sold in wholesale packet. From this, it is apparent that nothing was concealed by the appellant and he had disclosed the entire process of manufacturing the small pouches of chewing tobacco to the department. Thus, in our considered view the Commissioner (Appeals) has rightly concluded that limitation for raising the demand in this case under Section 11A of Central Excise Act, is one year and since the show cause notice was issued after a lapse of one year from the date of clearance of the goods, the demand is time barred. Thus, under the circumstances, we do not find any merit in the appeal.

Reasoning of Judgment:-We have considered the submission on both sided. Coming to the Cross-Objection filed by the respondent, grievance of the respondent is that the Commissioner (Appeals) has committed an error by agreeing with the adjudicating authority that tobacco pouches manufactured and marketed by the respondent fall within classification entry No. 24039910 in Chapter 24. It is contended by the ld. Counsel for the respondent that Commissioner (Appeals) has misinterpreted Chapter 24 and he ought to have classified the product in question under Entry No. 24012090 of Chapter 24. The appellant on the contrary has reiterated the order of the adjudicating authority and the Commissioner (Appeals) in this regard. In order to appreciate the contention of ld. Counsel for the respondent it would be helpful to have a look on the relevant entries in Chapter 24 as also the chapter notes.

Entry No. 24012090 falls in Chapter 24 under the heading unmanufactured tobacco; tobacco refuse and it deals with categories other than the categories classified under this heading relating to unmanufactured tobacco or tobacco refuse.

Entry 24039910 falls under the heading other manufactured tobacco and manufactured tobacco substitutes; "Homogenised" or "Reconstituted" tobacco; tobacco extracts and essences smoking tobacco, whether or not containing tobacco substitute in any proportion. This entry also deals with the items other than the items detailed under the aforesaid sub-heading.

Now the question arises whether unmanufactured tobacco purchased in bulk and thereafter converted into small pouches by mixing it with a lime tube would amount to manufacture as defined under Section 2F of the Central Excise Act. To find an answer to this question, it would be helpful to refer to Chapter Note 3 of Chapter 24 which provide thus :-

"In relation to products of Heading 2401 or 2402 or 2403, labelling or re-labelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'.

On plane reading of chapter note 3 of Chapter 24, it is clear that repacking of raw tobacco from bulk packs to retail packs amounts to manufacture. Admittedly, the appellants were purchasing bulk tobacco from the market and repacking the same into small pouches along with lime tube. This process obviously amounts to deemed manufacture of retail pouches in view of chapter note 3 of Chapter 24. Once it is concluded that production of retail packs pouches amounts to manufacture the pouches produced and marketed by the respondent would fall under the sub-heading 2403 of Chapter 24, which relates to other manufactured tobacco, and particularly classification entry No. 24039910. Thus, we do no find any infirmity in the impugned order of Commissioner (Appeals) classifying the product in question under entry No. 24039910. Result of above discussion is that there is no merit in the appeal filed by the department as well as Cross-Objection filed by the respondent. Appeals as well as Cross-Objection are dismissed.

Decision:-Appeal dismissed.

Comment:- The issue pertains to classification of the product tobacco and as there was no suppression or concealment of facts on the part of the assessee, the demand raised by invoking extended period of limitation was not sustainable.

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PJ/Case Laws/2012-13/1489

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