1. The issue involved in both the appeals is common. The issue of the classification of the goods manufactured by the appellants is covered by the Appeal E/1669/91-D and the other appeal is a related one of demand of duty arising out of that decision on the classification of the product. On hearing both the parties since the former appeal is being taken up on merits, the latter appeal was also taken up alongwith it, granting stay.
2. Briefly, the facts are that by a Show Cause Notice issued on 28-6-1990, the Assistant Collector, Central Excise, MOD IV, New Delhi directed the appellants to show cause why duty should not be levied on their products under sub-heaqjing 2404.50 as snuff of tobacco as against the Classification list filed by them with effect from 1-4-1990 claiming classification of the goods under sub-heading 2404.60 as preparations containing snuff of tobacco in any proportion. The appellants' contention was that the new sub-heading 2404.60 was created in the Tariff in 1990 specifically to cover preparations containing snuff of tobacco. However, the Assistant Collector confirmed the classification as snuff of tobacco under sub-heading 2404.50 and changed the approved classification accordingly, by his order dated 14-9-1990. The appeal against this order was disposed of by Collector of Central Excise (Appeals), Delhi by the impugned order dated 7-3-1991 holding that the Assistant Collector has no power of reviewing his own order but that under Section 11A of Central Excises & Salt Act such power was inherent. He, further, observed certain mistakes in calculation of duty for the Assistant Collector to verify and rejected all other contentions in the appeal. The Assistant Collector of Central Excise, in his further order dated 24-10-1991 in pursuance of the Collector (Appeals) order, again confirmed the demand for duty and this order was confirmed by the Collector (Appeals) by the other impugned order dated 12-12-1991 leading to the present appeals before us.
3. Shri J.S. Agarwal, Ld. Counsel appearing for the appellants, contended that the Show Cause Notice issued by the Assistant Collector gave no reasons for changing the classification already approved for the goods under heading 2404.60 of Central Excise Tariff Act, 1985. The appellants argue that snuff of tobacco is only an input and the starting material for their product, snuff of tobacco by itself is not fit for direct use by humans. The appellants subject it to curing, serving, add flavouring substances and menthol and pack it into retail packing fit for direct human consumption. The Ld. Counsel urged that the final product is different from the starting material snuff of tobacco, has a distinct brand name by which it is marketed and as such the final product is only a preparation containing snuff of tobacco classifiable under heading 2404.60 which is specific for the product.
Relying upon the case law reported in 1991 (53) E.L.T. 425 - Srikanta Haldar v. Collector of Central Excise and 1989 (40) E.L.T. 202 (Tri.) and 1989 (40) E.L.T. 209 (Tri.), the Ld. Counsel urged that the Assistant Collector's order having confirmed the demand on grounds other than contained in the Show Cause Notice was bad in law. The Assistant Collector had relied upon the conclusions in Collectors' Conference on the classification of the product not found in the Show Cause Notice. The Ld. Counsel urged that the term 'preparation' is not defined in Chapter 24 CETA and as per dictionary to prepare is to make a product and snuff of tobacco when prepared as described above for bringing it into a fit state for human consumption falls outside the sub-heading 2404.50. The Ld. Counsel drew attention to Note 2 to Chapter 24 according to which in relation to products falling under Heading 24.04 even repacking into retail from bulk packing, or adoption of any other treatment to render the product marketable to the consumer will amount to manufacture and in their case the treatment and processing of snuff of tobacco would, accordingly, amount to manufacture of a new product, viz., preparation containing snuff of tobacco classifiable differently under sub-heading 2404.60, which being more specific is to prevail over the general sub-heading 2404.50 for which the Supreme Court decision in the case of Plasmac Machine v.Collector of Central Excise -1991 (51) E.L.T. 161 was cited. It was also urged that the Bombay High Court in the case of S. Narendra Kumar v. Collector of Customs (Bombay) - 1992 (37) E.C.C. 54 held that milk masala fell outside Chapter 8 of CTA which supports the case of the appellants. Similarly, in the case of Reckitt & Colman v. Collector of Central Excise -1985 (22) E.L.T. 216, it has been held that the prepared product is a new and different product. So also in the case of Shaw Wallace & Co. v. State of Tamil Nadu - A.I.R. 1976 1437 (SC), it was held that fertilizer mixture is not the same as the ingredients composing it and is a new product different from the ingredients composing it. In respect of appeal No. E/A. No. 5335/91-D, it was submitted that the Collector (Appeals) has partially set aside Assistant Collector's order and it was further urged that an approved classification list can be modified only prospectively for which reliance was placed on the case law reported in 1992 (57) E.L.T. 110 (T) - Chandra's Chemical Industries v. Collector of Central Excise.
4. Shri Jayanarayan Nair, Ld. D.R., submitted that prior to 1-3-1990 there were sub-headings 2404.50 for snuff of tobacco and 2404.90 for 'Other'. After 1-3-1990 sub-heading 2404.60 preparations containing snuff of tobacco in any proportion was introduced. It was urged that it can be seen therefrom that the new sub-heading was carved out of 2404.90. The appellants' product was all along classified only under sub-heading 2404.50 and there has been no change in the processes undertaken. Referring to these processes, the Ld. D.R. pointed out that snuff of tobacco itself is manufactured tobacco and at the end of all the processes at the appellants' hands, snuff of tobacco remains the same. It is not a composite material of which snuff forms a part to be described as a preparation containing snuff of tobacco in any proportion falling under subheading 2404.60. The Ld. D.R. further argued that the Assistant Collector's order was within the scope of Show Cause Notice which had been issued proposing to change the classification of the goods, and the reference, therein, to the conclusions in the Collectors' Conference was not the sole basis but a supportive reasoning and as such there was no infirmity in the Assistant Collector's order. The Ld. D.R. also contended that the point that authorities acting under 11A can disturb approved classification list for back period of six months is now well settled in the following case law of Supreme Court and High Courts:Elson Machines (P) Ltd. v. Collector of C. Ex. -1988 (38) E.L.T. 571 (S.C.)Collector of C. Excise v. Sudhakar Litho Printers -1988 (36) E.L.T. 346.
5. The submissions made by both the parties have been carefully considered. The main issue to be determined is whether the product manufactured by the appellants should be classified under sub-heading 2404.50 CETA which covers snuff of tobacco or under sub-heading 2404.60 covering preparations containing snuff of tobacco. The process involved has been described by the appellants in their reply dated 1-8-1990 to the Assistant Collector's Show Cause Notice. "It may be mentioned that snuff of tobacco falling under 2404.50 is manufactured by grinding tobacco in various forms whereafter it is fermented with lime water and dried. After necessary colouring, oil mixing and sieving, the resultant is the snuff of tobacco and the same is classified under 2404.50. Thus snuff of tobacco has to undergo further processing like adding perfumes and menthol and mixing of the resultant matter properly and sieving the same. It is later packed in different sizes and labelled according to the quality produced.... This preparation containing snuff is entirely different from snuff of tobacco falling under sub-heading 2404.50 in as much as the smell of tobacco is subdued by the ingredients added as aforesaid...."It is an admitted position that the produce is 100% snuff tobacco. When such is the case, the mere treatment thereof and addition of menthol and perfume cannot be said to be sufficient to change the product into a preparation containing snuff of tobacco because the product which is 100% snuff of tobacco retains its essential character as such and, therefore, continues to be snuff of tobacco. That the treatment and addition of perfume and menthol to the snuff of tobacco serve to bring it into a state in which it is fit for human consumption is not material for its classification under sub-heading 2404.50. No doubt, Note 2 of Chapter 24 of CETA, 1985 says that in relation to product under Heading 24.04 labelling, relabelling 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'. But as has been noted above, snuff of tobacco, itself, is the result of certain processes and is also classified under the main heading covering manufactured tobacco so that even going by the Chapter Note 2 and taking the processes, herein as those of manufacture, there will be no difference in the Tariff heading applicable to the goods, which, as found above, remains under sub-heading 2404.50 as snuff of tobacco. Further, the sub-heading 2404.60 is to cover preparations containing snuff of tobacco in any proportion. This indicates that such preparations will have snuff of tobacco as a fraction or share of the whole of the preparation, because then only it can be said to be in any proportion. But here the whole product consists of 100% snuff tobacco. Moreover, it is observed that the Gujarat High Court had dealt with the classification of Ipco Dental Creamy Snuff under Bombay Sales Tax Act wherein Entry 49 covered tobacco as defined in Item 4 of Central Excise Tariff in the case of B.Dar Laboratories v. State of Gujarat (1968) 22 S.T.C. 160. The product therein, contained 55% snuff, 40% water, 2.5% preservatives and 2.5% flavouring agent. It was held by the Hon'ble Gujarat High Court the article completely retained its essential character as snuff and it was observed that when a process is adopted for convenience of sale or making the article more acceptable to the customers, if the article, in question, retains its essential character, it has to be taxed as such article only and that the processing will make no difference. In the present case also the snuff of tobacco after flavouring, addition of perfumes and menthol remains snuff of tobacco only. It is also seen that prior to the introduction of sub-item 2404.60, the product of the appellants was being classified only under sub-heading 2404.50. If the product was totally different from snuff of tobacco, no attempt seems to have been made by the appellants to agitate this fact and seek classification under the residual sub-heading 2404.90 which was also available. Similarly, the Supreme Court decision in the case of Bharat Forge & Press Industries v. Collector of Central Excise - 1990 (45) E.L.T. 525 is also of relevance in this context. The appellants, therein, were manufacturing pipe fittings such as elbows, bends, and reducers out of steel tubes which they cut into different sizes shape them and turn them into pipe fittings. The question was whether these pipe fittings so produced also fall under Item 26AA(iv) C.E.T. covering pipes and tubes all sorts, or whether they should be classified under Item 68 C.E.T. covering goods not elsewhere specified. The appellants, therein, claimed that the products are nothing but pipes and tubes which retained their original character. The Supreme Court held that the pipe fittings are only species of pipes & tubes. It was observed as follows : "As explained above, the goods described in the tariff, namely, pipes and tubes are designed to meet various types of requirements.
Normally pipes and tubes are produced as long and straight pieces.
But by themselves they cannot fulfil all the needs or the end-use for which they are intended. To get the maximum use out of the pipes and tubes, it is necessary not only to produce long and straight pipes and tubes but also to turn out pipes and tubes of smaller dimensions and of different shapes and curves such as bends, elbows, "T" pieces, "Y" pieces, plugs, caps, flanges, joints, unions, collars and so on. This is done by a process of forging, welding, hammering and so on applied to the longer tubes but basically the items remain the same and the use also remains the same. The tariff entry calls for no distinction between pipes and tubes manufactured out of sheets, rods, bars, plates or billets and those turned out from larger pipes and tubes. In these circumstances it is difficult to say that pipe fittings, though they may have a distinctive name or badge of identification in the market, are not pipes and tubes.
It is true that all pipes and tubes cannot be described as pipe fittings. But it would not be correct to say that pipe fittings are not pipes and tubes. They are only a species of pipes and tubes." In the present case also the mere fact of addition of flavouring agents and menthol to 100% snuff of tobacco to make it fit for use for consumers would not take it away from the sub-heading 2404.50 which covers such snuff of tobacco. It is, therefore, held accordingly.
6. As regards the plea on modification of approved classification list and consequential duty demand for the back period of six months under Section 11A Central Excises & Salt Act the following case law cited before us have clearly laid down that such modification is permissible and that duty can be demanded for the back period of six months under Sectoin 11A as a result thereof: 7. In the result, there is no reason to interfere with the order passed by the lower authorities and the appeals are rejected.
Sd/- 8. I have gone through the order prepared by my learned brother Shri K.S. Venkataramani, Member (Technical). I am of the opinion that the impugned goods are classifiable under sub-heading 2404.60 as preparations containing snuff of Tobacco.
9. The appellants are purchasing duty-paid raw snuff and before it is repacked, it undergoes various processes of curing, pulverising where mixing, grinding and serving takes place and the product is added with flavouring substances, perfumes, menthol and then it is sold by a distinct brand name and marketed as a preparation of snuff of tobacco.
The value of the product also goes up and it is higher than the raw snuff as several ingredients have gone into it. It is like Vaselene (petroleum jelly) added with several ingredients like menthol, camphor, niligiri tel and then the product becomes a different one and marketed as a pain balm. Such a product cannot be again called as Vaselene.Ajanta Marble & Chemical Industries v. Collector of Central Excise [1991 (53) E.L.T. 457], the process of crushing, grinding and seiving of limestone to obtain limestone chips and powder has been held to be manufacture and the resultant items lime stone chips and powder as different goods. Even in this case, preparation of snuff of tobacco powder has arisen after several processes of manufacture and only after addition of several ingredients. Therefore, the resultant product cannot be said to be same as raw snuff. Both are different products.
11. The commercial understanding and Trade usage is an important criteria for considering the product as a different commodity. In trade practice and commercial understanding, raw snuff is understood as different from preparation of snuff of tobacco, which contains menthol, scents and which has been 'prepared after processes. So long as a customer and trade understands the product as differently and as a preparation of snuff of tobacco, such understanding cannot be brushed aside lightly. The lamination of duty paid kraft paper with polyethylene resulting in a polyethylene laminated kraft paper has been held to amount to manufacture and excisable as a different commodity by Hon'ble Supreme Court of India in the case of Babubhai Nylchand Mehta [1991 (51) E.L.T. 182] in paras 6 to 8 which is reproduced below - 12. Likewise milk and preparation of milk to obtain milk products are held to be different commodities. Milk is different from butter or ghee or flavoured milk whether sweetened or not, in the ruling -Health Ways Dairy Products v. Union of India [1978 (2) E.L.T. (J 457) (S.C.)J The original commodity has undergone a change due to processes and a new commodity has emerged and it is recognized differently in trade.
Raw snuff and preparation of snuff of tobacco are recognised by trade as different commodities. The Hon'ble Supreme Court ruling cited above covers this case. Applying this ruling and the view I have taken, the contentions of the appellants have to be accepted by allowing the appeal.
13. In view of the separate orders proposed by the two Members, the following point of difference arises for reference to a third Member by the Hon'ble President: Whether snuff of tobacco, in spite of the processes to which it is subjected to at the hands of the appellants, remains snuff of tobacco classifiable under sub-heading 2404.50 C.E.T.A., 1985 as held by Member (Technical); Or Whether the final product emerging as a result of these processes which, being in the nature of processes of manufacture, bringing into existence a product commercially different from snuff of tobacco, will be classifiable under sub-heading 2404.60 as a preparation containing snuff of tobacco in any proportion, as held by Hon'ble Member Qudicial) The point of difference are referred to Shri S.K. Bhatnagar, Vice-President.
14. This matter has been referred to me by the Hon'ble President as third Member with reference to difference of opinion between the two Members on the following point: "Whether snuff of tobacco, in spite of the processes to which it is subjected to at the hands of the appellants, remains snuff of tobacco classifiable under sub-heading 2404.50 C.E.T.A., 1985 as held by Member (Technical); or Whether the final product emerging as a result of these processes which, being in the nature of processes of manufacture, bringing into existence a product commercially different from snuff of tobacco, will be classifiable under sub-heading 2404.60 as a preparation containing snuff of tobacco in any proportion, as held by Hon'ble Member (Judicial)." 15. Both the sides reiterated their respective view points during the course of hearing before me.
16. I have considered the above submissions as well as gone through the orders of both the Hon'ble Members.
17. I consider that even after processing of product it may still have snuff as its basic ingredient or a major component but the classification would depend upon as to whether the processing was of such a nature as to result in a distinct commodity known to the market.
In this respect, the ld. Counsel's argument that amendment of the Tariff to incorporate to entry 2404.60 relating to "preparations containing snuff of Tobacco in any proportion" in addition to 2404.50 - "Snuff of tobacco under the heading snuff is significant" has strong force. This means the statute recognises the difference between snuff of tobacco simplicitor falling under 2404.50 from preparations made from the above snuff.
18. The Department has not been able to contradict the appellants' assertion that raw snuff is treated differently from the snuff of tobacco in trade practice and commercial understanding. Apparently it is this situation prevailing in the market which has been given legal recognition by introduction of 2404.60. Therefore, as from the date of introduction of this sub-heading, these two types of materials have to be distinguished and classified under the respective sub-heading to which they pertain.
19. In the instant case, the appellant's description of their process of manufacture has not been contradicted or shown to be wrong; And this process shows that the raw snuff is subjected to various processes including curing, pulverising, mixing, grinding and seiving then adding of flavours such as perfumes, menthol and then only it is sold by a distinct brand name and marketed as a preparation of snuff of tobacco.
It is significant that Section 2(f) mentions that "manufacture includes any process incidental or ancillary to the completion of a manufactured product; and (i) in relation to tobacco, includes the preparation of cigarettes, cigars, cheroots, biris, cigarette or pipe or hookah tobacco, chewing tobacco or snuff; (ii) in relation to manufactured tobacco, includes the labelling or re-labelling 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. Therefore, adoption of any treatment which would render the product marketable to the consumer is crucial. Again, in the instant case the snuff is not only repacked from bulk packs but after being subjected to processing, through which it undergoes various treatments, it is rendered marketable in a different form.
20. In the circumstances of the case, therefore the fact that the major constituents of the product is snuff and other materials added for flavouring the substance i.e. perfumes and menthols etc. are in small proportions, has to be viewed in the context of the fact that this processing and adding of flavours, perfumes etc. has converted raw snuff into a new product which is marketed as a preparation of snuff and is known to the trade as such. Further Heading 2404.60 significantly refers to the item as a preparation containing snuff in any proportion. Hence, I agree with the views expressed by Hon'ble Member (J).
21. The matter is therefore, returned to the original Bench for passing final order.
In view of the majority opinion it is held that the goods in question manufactured by the appellants herein are classifiable under sub-heading 2404.60 C.E.T.A., 1985 as a preparation containing snuff of tobacco.