Dept. Can’t Classify Product as Zarda Scented Tobacco After Repeatedly Approving It As Chewing Tobacco: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a central excise duty demand, interest, and penalties imposed on Rajasthan-based tobacco manufacturer holding that the department could not alter the classification of the product after consistently treating it as “chewing tobacco” for several years. The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) allowed four appeals filed by the company and its associated persons against an adjudication order passed by the Additional Director General (Adjudication), Directorate General of GST Intelligence (DGGI). The dispute centered on the classification of the product marketed under the “MAMA” brand. The department alleged that the product was “zarda scented tobacco” classifiable under Tariff Item 2403 99 30, whereas the assessee consistently classified it as “chewing tobacco” under Tariff Item 2403 99 10. The distinction was significant because zarda scented tobacco attracted a higher rate of excise duty during the relevant period. According to the record, the appellant had commenced manufacturing activities in 2012 and informed the excise authorities that it would manufacture MAMA zarda under the category of chewing tobacco in powder form. Following the declaration, departmental authorities repeatedly issued orders classifying the product under Tariff Item 2403 99 10 as chewing tobacco. The company also filed ER-1 returns from 2012 to 2016 reflecting the same classification, and no objection was raised by the department during that period. The controversy arose after changes in excise duty rates in 2015 resulted in a substantially higher duty burden on zarda scented tobacco. Acting on intelligence inputs alleging evasion of duty, departmental officers conducted a search of the appellant’s premises in January 2016 and drew samples of the finished product. A laboratory report from the Central Revenues Control Laboratory (CRCL) indicated that the sample was a preparation containing tobacco, lime, and flavouring compounds. The department relied on this report and statements recorded during the investigation to conclude that the product was in fact zarda scented tobacco. A show cause notice issued in February 2017 proposed recovery of differential excise duty for the period March 2015 to February 2016, along with interest and penalties. The adjudicating authority subsequently confirmed the demand, holding that the assessee had wrongly classified the product as chewing tobacco and thereby obtained an unwarranted financial benefit after duty rates on zarda scented tobacco were enhanced. Before the Tribunal, the appellant argued that both the assessee and the department had consistently classified the product as chewing tobacco for years. The company relied on multiple departmental orders and ER-1 returns demonstrating that the classification had been accepted throughout the relevant period. It also cited the Supreme Court’s decision in Commissioner of Central Excise and Service Tax, Alwar v. Tara Chand Naresh Chand to contend that the department could not subsequently adopt a contrary stand. The Tribunal observed that the department itself had repeatedly classified the product under Tariff Item 2403 99 10 between 2012 and 2016. It noted that all ER-1 returns filed by the appellant described the product as chewing tobacco and that no objection had been raised by the authorities during those years. The Bench relied on the Supreme Court’s ruling in Tara Chand Naresh Chand, where the Court had recognized that a product consistently classified in a particular manner by both the assessee and the department could not subsequently be treated differently without justification. Applying the same principle, the Tribunal held that the department could not now contend that the appellant’s product should be classified as zarda scented tobacco. The Tribunal found it unnecessary to examine the remaining arguments concerning the laboratory reports and other evidentiary issues. Consequently, the entire excise duty demand, interest liability, and penalty imposed on the manufacturer were set aside. The Tribunal also quashed penalties imposed on M/s R.R. Jhiriwal, Robin Jhiriwal, and Rajan Jhiriwal under Rule 26 of the Central Excise Rules, 2002. It held that a penalty under Rule 26 can be sustained only when the goods are liable to confiscation and there is a specific finding to that effect. Since the adjudication order contained no substantive finding that the goods were liable to confiscation, the essential condition for invoking Rule 26 was absent. Referring to its earlier decision in Shri Ramesh Garg v. Commissioner, CGST, Customs & Central Excise, the Tribunal reiterated that penalties under Rule 26 cannot be imposed merely as a consequence of duty demands without a clear finding regarding confiscability of the goods. The CESTAT set aside the adjudication order and allowed all four appeals, granting complete relief to the appellants. Case Details Case Title: M/s. Rajan Jhiriwal Versus Additional Director General (Adjudication) Citation: JURISHOUR-1510-HC-2026(DEL) Case No.: Excise Appeal No. 51464 Of 2022 Date: 02.06.2026 Counsel For Appellant: Gaurav Gupta and Shri Saurabh Dahiya, Advocates Counsel For Respondent: S.K. Ray, Authorized Representative Click Here To Read Order Read More: Consignment Sales Can’t Be Reclassified as Inter-State Sales Based on Pre-Agreement Evidence: CESTAT

Dept. Can’t Classify Product as Zarda Scented Tobacco After Repeatedly Approving It As Chewing Tobacco: CESTAT

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