Judgment:
1. This appeal is filed against the order of Additional Collector, Central Excise. The Additional Collector, in his order, had held : "I, therefore impose a penalty of Rs. 10,000/- (Rupees ten thousand only) on M/s. Amar Products, 70-B, Dadanagar, Kanpur under Rule 173Q of the Central Excise Rules, 1944. The seized goods viz. 22600 unit containers of different sizes contained in 59 cartons valued at Rs. 69,400 a|re ordered to be confiscated under Rule 173Q of Central Excise Rules, 1944. However, M/s. Amar Products, 70-B, Dadanagar, Kanpur, ate given ah option to redeem the same on payment of a fine of Rs. 10,000/- (Rupees ten thousand only) within 3 months of the date of this order. I also confirm the demand of Central Excise duty amounting to Rs. 4,60,317.33 (Rupees four lakhs sixty thousand three hundred seventeen and paise thirty three only) against M/s. Amar Products, Kanpur, under Rule 9(2) of the Central Excise Rules, 1944, read with Section 11A of the Central Excises and Salt Act, 1944. The dues adjudged shall be paid forthwith." 2. The facts of the case, in brief, are that the appellants are engaged in the manufacture of a product which they described as 'flavoured pan masala'. Intelligence was collected that it was actually edible preparation not elsewhere specified and not pan masala. A search of the factory premises of the appellants' firm was conducted on 13-2-1990 by the Central Excise Officers. During the course of search, they recovered 22.600 unit containers of different packing packed in 59 cartons and described as 'Kashmiri Sugandh'. On reasonable belief that the goods are liable to confiscation, the goods were seized. The representative samples were drawn. The appellants were asked to furnish the figures of clearance for the period from 1986-87 and 1989-90 upto 12-2-1990. A show cause notice was issued to the appellants on 24-7-1990 alleging that the manufactured the goods described as flavoured pan masala which were classifiable under Chapter sub-heading 2107.91 of the Central Excise Tariff Act. It was alleged that they had cleared the excisable goods valued at Rs. 89,63,839.23 (excluding SSI exemption of Rs. 15 lakhs for each year under the provisions of Notification No. 175/86, dated 1-3-1986 as amended) without payment of duty during the period 1-4-1986 to 29-2-1986 clandestinely, in contravention of provisions of Section 6 of the Central Excises and Salt Act, 1944 and Rules 9(1), 52A, 53,173F, 173G, 174 and 226 of Central Excise Rules asking them to show cause as to why the offended goods should not be confiscated, why duty should not be demanded and why penalty should not be imposed. After consideration of the submissions made by the appellants, the learned Additional Collector confiscated the goods, confirmed the demand for duty and imposed a penalty.
3. Shri J.S. Sinha, the learned Advocate appearing for the appellants submitted that the seizure effected was without reasonable belief; that the ingredients marked on the containers are not conclusive proof of the ingredients actually used; that no trade opinion was obtained; that the Department has failed to controvert their claim of classification of the product under Chapter sub-heading 2106.90; that their product was used in the betel leaf and was known as pan masala; that the product contained betelnut, menthol etc.; that the burden of proving that a particular item falls under a particular Tariff Heading lies on the Department which the Department has not discharged; that their product was classifiable under Chapter sub-heading 2106.90 which attracted nil rate of duty and therefore, the demand was not warranted; that the demand was time-barred for the period 25-1-1990 to 12-2-1990; that the product was pan masala and was within the knowledge of the Department. The learned Counsel therefore, submitted that there is no case made out inasmuch as even the report of the Chemical Examiner was not conclusive; that the product did not contain betelnut.
4. Shri J.M. Sharma, the learned JDR appearing for the respondent submitted that all the points raised by the appellants have been exhaustively dealt with by the lower authorities. He reiterated the findings.
5. Heard the submissions of both sides and perused the records. We find that three issues arise in this case. The issue number one is whether there was a reasonable belief to effect the seizure and to confiscate the goods subsequently. The second issue was whether the product contained betelnut or not and the third issue was whether the demand was time-barred.
6. So far as reasonable belief is concerned, we find that there was intelligence; that the appellants were manufacturing the product which did not contain betelnut and was liable to pay duty. When the officers, in pursuance of this intelligence visited the factory, they actually found certain product and labels affixed to the containers did not show that the product contained betelnut. It was therefore, reasonable for the officers to seize the goods. We do not find any legal infirmity in this reasonable belief. We therefore, hold that it was reasonable for the officers to seize the goods.
7. On the second issue that the product did not contain betelnut, we find that a lot of arguments were adduced by the appellants stating that the product was known in the market as pan masala and pleaded that had an expert trade opinion been obtained, the trade would have testified to the fact that the product is known as pan masala in the trade and is understood and used as such. As against this, the Department contended that the label affixed to the containers did not show that the contents contained betelnuts. It was also contended by the Department that a reference was made to the Chemical Examiner to specifically find whether the sample contained betelnuts or not. The Chemical Examiner in his report, found out that the betelnuts could not be detected in the sample forwarded to him. The Department also relied on the statement of the appellants who stated that the product did not contain betelnuts. When all these three contentions relied upon by the Department are put together. We find that there was no necessity of further taking of a trade opinion or expert opinion or a subsequent chemical test or executive checks to prove that the product did not contain betelnut. Having regard to this fact, we hold that the product did not contain betelnut. Now coming to the question whether the product was pan masala as claimed by the appellants or edible preparation as held by the Department. Pan masala has been defined in the Tariff that it must contain betelnut with one or more ingredients stated therein. In the instant case the product did not contain betelnuts and therefore, it could not be classified as pan masala. It was argued before us that the Department did not discharge the burden of proving that the item was classifiable under Chapter sub-heading 2107.91. We find that this burden need not be discharged in the instant case inasmuch as the definition of pan masala is already given in the Tariff and the proof before the authorities was that the product did not contain betelnut. Having regard to the above discussion and findings, we hold that the product was classifiable under Chapter sub-heading 2107.91.
8. On the question of limitation, the argument of the appellants was that only a part of the demand is within time and the remaining demand is barred. We find that show cause notice clearly speaks that there was suppression and therefore, it was alleged in the show cause notice, that as to why the demand of duty should not be confirmed under the proviso to Section 11A of the CESA, 1944. In view of this specific allegation in the show cause notice and the facts of the case, we hold that there was sufficient cause to extend the demand beyond a period of six months. We also hold that the limitation of time is not applicable in the instant case.
9. In view of the above findings, the impugned order is upheld and the appeal is rejected.
10. I propose to dispose of the present appeal as follows and since relevant facts have already been stated by my Ld. Brother in his proposed order I straightaway take up the issues which fall for my consideration :- 11. Regarding classification of the subject goods, namely, flavoured pan masala. The Ld. Collector has classified the flavoured pan masala under heading 2107.91 rejecting the claim of the appellants for its classification under heading 2107.90. For classifying the subject goods, namely, flavoured pan masala, the Ld. Collector has held that since there was no mention of betal nut or supari as one of the ingredients on the container it is classifiable under heading 2107.91.
It was contended by the Ld. Counsel for the appellants that the samples were drawn and tested by the Chemical Examiner, who in his report has stated that presence of betelnut, katha, lime could not be detected in the absence of raw material. It may be verified by executive checks. He stressed that no such executive check was done nor the appellants were ever informed about it and therefore in the absence of any acceptable evidence on the record it cannot be held that the subject product does not contain the betelnut or the supari. And since the burden was on the Department which it had failed to discharge, the subject product has to be classified under heading 2107.90 as claimed by the appellants. I find force in the submissions made by the Ld. counsel inasmuch as from the report of the Chemical Examiner (see page 50 of the paper book) it is clear that he has not given any positive opinion that the subject product did not contain the supari or betelnut and advised the Department to get it verified by executive checks. The Ld. Collector has not said about any executive check in her order. No other acceptable evidence has been adduced by the Department to prove that the subject goods did not contain the betelnut or supari and, therefore, these goods are classifiable under heading 2107.90.
Consequently, I hold that the subject product was classifiable under heading 2107.90 as claimed by the appellants.
12. As regards the applicability of Notification No. 175/86, dated 1-3-1986 it may be stated that the benefit of the same has already been given to the appellants'. Hence it was not argued before us.
13. Regarding time bar. The ld. Collector has justified the invocation of the extended period of limitation of 5 years observing that the appellants manufactured and removed excisable goods without obtaining the licence and without observing other formalities and there is no evidence to indicate that the manufacture of goods was declared to the Department after 15-4-1985 and that there was no declaration regarding their products, brand name or in- gredients thereof. It was contended by the ld. Counsel that the appellants were manufacturing the subject goods since long and were selling openly and that Central Excise Officers also visited their factory at the time of Budget changes on 18-3-1985 and verified the stocks too and that earlier also a Show Cause Notice dated 15-4-1985 was served upon them for allegedly undertaking manufacture of excisable goods under Tariff Item 68 without licence and the proceedings so initiated were dropped wide Order-in-Original dated 27rl-1986. However the ld. Collector repelled the said contentions of the appellants advanced before her observing that no declaration regarding ingredients or flavoured pan masala was submitted on or after 1-3-1986 when the CET, 1985 came into force. The Officer was not in a position to knew whether their products contained betelnut or not. Thus the appellants apparently suppressed the facts with regard to ingredients contained in their products with intent to get the goods classified differently and evade payment of duty due thereon. It was not disputed before us that the classification list was submitted by the appellants wherein they stated that they were manufacturing sugandhi masala and mentioned the same as non-excisable goods. The ld. Collector has not denied that the goods seized are not sugandhi masala and since the sugandhi masala was declared by the appellants in their classification list onus fell on the Department to prove that the said sugandhi masala was liable to duty under heading 2107.91 and for this purpose it was for the Department to ascertain the ingredients of the subject products. Instead of doing so the classification lists filed by the appellants were duly approved by the Department without any demur. Under these circumstances, I hold that the demand raised beyond six months was time-barred.
14. In view of the above, I set aside the penalty and the confiscation of the seized goods (consequently the redemption fine) also.
16. Since there is a difference of opinion between us the case is referred to the Hon'ble President to resolve the following points :- (i) whether in the facts and circumstances of the case the appeal is to be disposed of as proposed by the ld. Technical Member or as proposed by the ld. Judicial Member? 17. The point of difference referred to me involves the classification of the product described as flavoured pan masala'. The learned Technical Member had held that the goods were classifiable under Chapter sub-heading 2107.91. The learned Judicial Member in Paragraph 11 of his order had held that the impugned goods were classifiable under heading 2107.90. In Paragraph 13 of his order the sentence occurs :- "Consequently I hold that the subject [product] was classifiable under heading 2107.90 as claimed by the appellants" (emphasis supplied). The fact that the appellants had claimed classification of this product under heading 2106.90 has been stated in Paragraph 3 of the order of the Ld. Member (Technical). The order of the Ld.
Member (judicial) upholds the claim of the appellants. Thus, it appears that "heading 2107.90" is clearly a typographical error and requires to be rectified as "heading 2106.90". I hold so and proceed to determine the issue placed before me.
18. The subsidiary issues are whether there was reasonable belief in the mind of the Seizing officer and whether the demand was barred by limitation.
19. The facts of the case have been narrated in Para 2 of the order of the Member (Technical) and need not be reiterated.
20. The matter was heard by me on 8-7-1996 when Shri J.S. Sinha, Advocate appeared along with Shri Randhir Singh, Advocate for the appellants. The respondents were represented by Shri A.K. Agarwal, ld.SDR. Shri Sinha stated that as per the Chapter Note 3 to Chapter 21, pan masala was defined to be a preparation containing betelnuts. The appellants were in fact using betelnuts in this preparation. Before the authorities, the assessees had submitted evidence in the form of several invoices under which substantial quantity of betelnuts was purchased by them at regular intervals. The learned Advocate submitted that the assessees were engaged in the manufacture of pan masala only and were not dealing in betelnuts. This evidence had not been discussed in the order of the Additional Collector. As regards the opinion of the Chemical Examiner, he submitted that it was not conclusive and could not certainly support the conclusion that the sample did not contain betelnuts because of which he had recommended executive checks. These checks had not been conducted by the officers. However, on a number of occasions, their factory had been visited by the officers of the department who were satisfied that betelnuts were used in the preparation. The learned Advocate further claimed that the fact that betelnut was not declared to be an ingredient on the packages, cannot lead to a conclusion adverse to them. He stated that a claim made in the advertisement of their product could not be used as means of classifying the product under the Central Excise Tariff. He mentioned that the assessees had deliberately not listed betelnut as an ingredient on the package to maintain that trade secret. He further claimed that the impugned goods were known as pan masala in trade parlance.
21. On the point of limitation, the learned advocate maintained that the department knew for quite sometime about the processes and the ingredients and an offence case was booked in 1985 which was dropped in 1986. Since the department was aware of the process of manufacture, no allegation as to suppression of facts could be made against them. Shri A.K. Agarwal, learned SDR reiterated the points made in the order of the learned Member (Tech.).
22. I have carefully considered the matter. Headings 21.06 and 21.07 as they stood at the material time, read as under :-21.06 Pan Masala - containing lime or Katha (catechu) or both, whether or not containing tobacco.21:07 Edible preparations, not elsewhere specified or included.
"In this Chapter, pan masala means any preparations containing betel-nuts and any one or more of other ingredients such as lime, katha (katechu), cardamom, copra, menthol and tobacco; and in relation to such a preparation, labelling or relebelling of containers and 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'." 24. The presence of betelnut was therefore essential for classification under this heading. The Additional Collector had relied upon the findings of the Chemical Examiner to hold that the impugned goods did not contain betel-nuts. The material part of the test report reads, "Each of the two samples is light brown coloured powder, composed of menthol, starch, sugar, saccharin, vegetable cellulosic matter and flavouring agents. Presence of betelnut, katha could not be detected in the absence of raw material in each of the two samples. It may be verified by the executive checks." 25. These samples were received in tin containers. Therefore, the observation of the Chemical Examiner should be so read as to mean that in the absence of the listing of the raw materials on the tins, he could not detect presence of betelnut, katha or lime. Perhaps there were no chemical tests to determine the existence of these goods. He, therefore, suggested that their use in the products could be verified by executive checks. On a perusal of the test report, it cannot be said to be a comprehensive finding on the absence of betelnuts. On the other hand, he had detected the presence of vegetable cellulosic matter. Such cellulosic ingredients could come only from betelnuts. Thus the test report is itself suggestive of the existence of betelnuts. The appellants had at regular intervals purchased betel nuts. Before the original authority, the appellants had placed a number of bills certifying their purchase of betelnuts. There is nothing in the order to show this vital evidence was examined by the original authority.
26. The presence of this evidence coupled with the averment that they were vising betelnut in manufacture and not for trading, goes to establish the appellants' case that betelnuts were an ingredient in the impugned goods. The original authority's finding that the label did not contain any reference to supari as an ingredient has found mention in the finding of the Member (Technical). The relationship between advertisement and label of the product and classification has been discussed in the order of the Madras High Court cited by the learned Advocate. In this case, the. goods advertised as 'bath oils' were sought to be classified as perfumed hair oil by the department on the basis of a lebel a lady with long hair. The Hon'ble Court has observed in the case of Union of India and Ors. v. T.S.R. & Co. [1985 (22) E.L.T. 701 (Mad.)] as under: "Tax on a product cannot be levied merely on the basis of suggestive aspect of a picture found in the label on the product which is intended to attract the customers to use that product. Therefore, it has the advertising effect or value and nothing more. Thus a lebel of woman with long hair is not suggestive of that the product contained therein is a hair oil." 27. The ratio of this observation would apply to the case in hand. As regards the confession of the factory Manager that they did not use betelnuts, I find that the retraction of the statement was not accepted by the Assistant Collector. From his order, it is not clear as to when the retraction was made and what were the circumstances. But in the presence of the evidence such as the bills for purchase of betelnuts and also the finding of the cellulosic material in the sample by Chemical Examiner, this statement cannot be relied upon for classification of the product. The learned Member (Judicial) has upheld the classification as suggested by the appellants on the observation that the department has not adduced enough evidence to justify the classification made by them. In view of the reasons narrated by me above, I agree with the order proposed by the learned Member 0udicial) as regards the classification of the subject goods.
28. As regards the first subsidiary point whether there was reasonable belief in the mind of the seizing officer, there is no dispute in the order. The finding of the learned Member (Technical) is that there was reasonable belief in the mind of the officers. The learned Member (Judicial) not having expressed any opinion thereupon, no difference arises.
29. On the time bar aspect, the learned Member (Judicial) has held that the extended period could not be applied since there was no mis-declaration. He observed that the appellants were manufacturing sugandhi masala and claiming it to be non-excisable. He observed that the classification lists were duly approved and, therefore, extended period would not apply.
30. The learned Member (Technical) has relied upon the contentions made in the Show Cause Notice to uphold the extended period. The finding of the Additional Collector on this aspect have been suitably dealt with by the learned Member (Judicial). In view of my finding that there was force in the appellants contention that the impugned products contained betelnuts, I agree with the order proposed by ld. brother Member (Judicial) on this aspect also.
31. The paper may now be referred back to the original Bench to enable them to make appropriate orders.
32. In view of the majority opinion, the order confiscating the seized goods (consequently the redemption fine) and penalty is set aside and the appeal is disposed of accordingly.