Nicotine Sulphate Not Tobacco Product, Examiner Can't Decide Tariff Classification: CESTAT Ahmedabad

The Ahmedabad Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 29 July held that Nicotine Sulphate falls under Tariff Heading 29399900 as a vegetable alkaloid and not under Tariff Heading 24039990 as a tobacco product. It clarified that a chemical examiner can only provide analytical findings and cannot determine the tariff classification of a product.

A Bench of Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh set aside the excise duty demand of over Rs. 4.60 crore raised against BGP International. It observed:

“The above manufacturing process clearly indicates that Nicotine Sulphate obtained by the appellant is vegetable alkaloid and therefore, it is appropriately classifiable under CTH 2939. Regarding restrictions imposed by Note 1(a) of Chapter 29, we find that sub-heading (C) under General Notes to Chapter 29 details certain exceptions to this rule as per which some goods though not separate chemically defined, still remain classified under this Chapter. We therefore agree with the arguments of the learned Advocate that restrictions put by Note 1(a) of Chapter 29 will not debar classification of Nicotine Sulphate under Chapter 29.”

The department alleged that BGP International had wrongly classified Nicotine Sulphate under Chapter 29 instead of Chapter 24 and raised a demand for excise duty along with interest and penalty, relying mainly on a CRCL test report.

The Tribunal rejected the CRCL report, noting that the department collected the sample from a third party's premises in the absence of the manufacturer and tested it more than one year after collection, contrary to the prescribed procedure and BIS standards. It held that a chemical examiner's opinion on tariff classification has no legal relevance since the examiner's role is limited to providing analytical findings.

Further, the Bench held that the department could not invoke the extended period of limitation as BGP International had disclosed the classification of the product in its statutory returns and informed the department about the product years earlier. It also set aside the related-party demand, holding that the department failed to establish the relationship between the entities through supporting evidence.

Accordingly, the CESTAT allowed the appeal and quashed the demands of duty, interest and penalty.

Appearances for the Appellant: Shri Anand Nainawati, Advocate

Appearances for the Respondent: Shri Rajesh R. Kurup, Superintendent (Authorised Representative)