M/S.Haji K.P.M.Abdul Kareem vs. The Assistant Commissioner

Held

The Court held that the petitioners' attempt to change the classification of their products from Heading 2403 99 10 to 2403 99 90, or for one petitioner from 2403 99 10 to 2401 20 90, was not justified. The Court found that these products were manufactured and attracted compensation cess under the GST enactments. The Court emphasized that a change in classification is permissible only if there is a change in the facts, fresh facts brought on record, a change in the process of manufacture, modification in tariff entries, or a subsequent pronouncement by a High Court or Supreme Court. The Court found no such circumstances existed. The Court also rejected the plea of res judicata as a rule of thumb in taxation matters, stating that earlier decisions are cogent factors but not absolute bars, especially when the classification is challenged. The Court dismissed the writ petitions, stating that the adoption of a classification contrary to the product's nature to pay lesser compensation cess was not permissible. However, it left open the option for petitioners to alter their processes for future periods and for some petitioners to file statutory appeals.

Facts

The petitioners, manufacturers of chewing tobacco, challenged Orders-in-Original issued by the Assistant Commissioner of GST & Central Excise, which confirmed the demand and levy of Compensation Cess. The dispute centers on the classification of their product. The petitioners argued their product should be classified under Heading 2403 99 90, while the Revenue classified it under Heading 2403 99 10. One petitioner (W.P.(MD)No.204 of 2021) challenged an order of the Appellate Authority for Advance Ruling which upheld the Authority for Advance Ruling's decision that their product fell under Heading 2403 99 10, attracting a 160% cess. The petitioners claimed their product was unmanufactured tobacco under Heading 2401 20 90, attracting a 71% cess. The tax periods in dispute were July 2017 to March 2019, with disputed amounts ranging from Rs. 2,56,642/- to Rs. 5,52,90,163/-.

Key Issues

1. Whether the classification of chewing tobacco products by the petitioners under Heading 2403 99 90 of the Customs Tariff Act, 1975, is legally sustainable, or if the classification under Heading 2403 99 10 by the Revenue is correct, thereby attracting a higher Compensation Cess rate under Notification No.1/2017 – Compensation Cess (Rate)? (Question of law and fact, turning on interpretation of Customs Tariff Act, 1975 and Notification No.1/2017). Petitioner's arguments: The petitioners contended that their products were manufactured products but should be classified under Heading 2403 99 90. They also argued that a Tamil Nadu Government Notification dated 23.05.2017 banning certain tobacco products, while not directly applicable, forced them to alter their classification to avoid harassment. For W.P.(MD)No.204 of 2021, the petitioner argued their product was unmanufactured tobacco under Heading 2401 20 90. Revenue's arguments: The Revenue classified the product under Heading 2403 99 10. They argued that the change in classification by the petitioners was to evade tax and was not justified without a change in the nature or use of the product. The Revenue also raised the plea of res judicata.