ORDER
M. Santhanam, Member (J)
1. The revision application filed before the Government of India, on transfer is being treated as an appeal.
2. The appellants which are a partnership firm manufacture and sell ‘gudakhu’ which is nothing but manufactured tobacco within the ambit of Item 4 of the Central Excise Tariff Schedule. In the appellants’ own case the Orissa High Court has upheld the contention and the decision has been reported in 35 STC 179. While considering the provisions of the Tariff Schedule and Section 2(f)(i) of the Central Excises and Salt Act, 1944, the High Court has held that gudakhu is a kind of manufactured tobacco like cigarettes, cigars, cheroots, biri, chewing tobacco and snuff, and was very much akin to hookah tobacco, specified in the Item. In spite of the decision of the High Court the Assistant Collector, Cuttack, issued a requisition on 4-8-1977 to the appellants to take out Central Excise Licence alleging that gudakhu was liable to pay excise duty under Tariff Item 68. The appellants were forced to comply with the requirements and payment of duty despite the judgment of the High Court. They were paying the duty under protest. The appellants were directed to submit fresh classification list which was done also under protest. The Assistant Collector without giving the appellants any personal hearing approved the classification list on 20-11-1980. The appellants submit that the report of the Analytical Chemists M/s. R.V. Brigs have also given their opinion in regard to the constituents of gudakhu and hookah tobacco.
3. Against the order of the Assistant Collector the appellants preferred an appeal to the Appellate Collector who held that the appellants had filed the classification list under protest and that the goods were liable to excise duty under Item 68. The appeal was dismissed. Hence the present revision treated as an appeal.
4. Shri N. Mukherjee, Advocate for the appellants submitted that in the judgment of the Orissa High Court the identical question came up for decision. A question was referred by the Sales-Tax Tribunal which is as follows:
“Whether gudakhu is covered by the expression ‘tobacco’ as defined in Section 2(c) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, which was substituted with effect from 1st July, 1967, by Notification No. 21278-F, dated 6th June, 1967, and is exempted from tax under the Orissa Sales , Tax Act, 1947?”
The constituents of gudakhu are lime, molasses, gerumati etc. Tobacco used in gudakhu is less than SO per cent while the percentange of molasses used is higher. The Orissa High Court referred to the definition of tobacco in the First Schedule of the Central Excises and Salt Act, 1944. In para 11 the Orissa High Court has observed as under:
“It would be pertinent to remember that ‘hookah tobacco’ as referred to in Section 2(f)(i) of the 1944 Central Act is gudakhu. It is placed on the hookah and is used for smoking. The constituents of hookah gudakhu are not very much different from the gudakhu used for cleansing teeth. Gudakhu used for smoking by hookah comes within the meaning of ‘manufactured tobacco’. There is no reason why gudakhu used for teeth would not be construed as tobacco.”
Shri Mukherjee, Advocate, urged that the Gujarat High Court in the case of B. Dar Laboratories v. The State of Gujarat, 1968 (22) STC 160, considered the preparation of Ipco dental creamy snuff. That preparation contained 55 per cent snuff, 40 per cent water, 2.5 per cent preservative and 25 per cent flavouring agents. It was in the form of paste filled in collapsible tubes. The Gujarat High Court has thus observed as under:
“Thus, the principle which emerges from these decisions is that even 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 die processing would make no difference. The physical state or even the composition may change but so long as the essential character of the article continues to remain the same, it has to be taxed as that commodity alone.”
The learned Counsel submitted that the authorities should have followed the decision of the Orissa High Court. He relied on 1962 SC 1893 – 1983 E.L.T. 1342 (SC) – East India Commercial Co. Ltd., Calcutta v. Collector of Customs, Calcutta, where the Supreme Court has laid down that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceedings. The learned Counsel emphasised that the authorities should not have insisted on the appellants filing a fresh classification list.
5. Shri Vineet Kumar, S.D.R., submitted that the tobacco was not manufactured -tobacco and the decision of the High Court was only in respect of hookah tobacco and not in regard to the subject goods. In regard to Notification 59/81 dated 12-3-1981, which had exempted gudakhu in the form of granules classifiable as mixture he urged that the exemption was only in respect of gudakhu in the form of granules and not otherwise.
6. We have considered the contentions of both the parties. The point at issue Was the subject-matter of the dispute before the Orissa High Court. The dispute arose between the Sales Tax Department and the appellants herein. We also notice that the High Court had to consider the levy of additional duty of excise on the subject goods. The High Court after taking into consideration the constituents of the product have come to the conclusion that gudakhu is not very much different from hookah tobacco, and held that the item would come within the meaning of manufactured tobacco. The ratio of that decision would apply to the present facts and in the absense of a contrary decision we respectfully follow the ratio laid down by the Orissa High Court.
7. We also find that in the Notification 59/81 dated 12-3-1981 the Central Board has clarified that gudakhu in the form of granules would be exempted from duty as in excess of duty leviable on hookah tobacco. So this is yet another aspect which indicates that gudakhu in the form of granules has been treated as coming under the ambit.
8. The appellants urged that gudakhu contains tobacco dust, molasses etc. and is not a tooth paste as per the specification of the ISI. In (cited supra) the Gujarat High Court has held that the essential characteristics of the article should continue to remain the same. In this case in the absence of any proof that the essential character is not tobacco the item cannot be charged under T.1.68.
9. We also find that in 1974 Trade Notice gudakhu is essentially a tobacco product and did not satisfy most of the ‘tests’ outlined for ‘tooth paste’. The appellants have also been informed by the Range Superintendent that the Central Government has been pleased to waive the new excise levy on gudakhu, tooth paste with immediate effect. The entry tobacco refers to both unmanufactured and manufactured tobacco. When the items specifically refers to both categories of tobacco, there was no justification for the Revenue to ignore the same and bring it under T J. 68 basing their conclusions on a classification filed under protest. In view of the decision of the Orissa High Court and in the light of the other materials we are of the view that the impugned order cannot be sustained. The appeal is, therefore, allowed with consequential reliefs’, if any.
G. Sankaran, Vice-President (T)
10. I would like to add a few fines.
11. The point for consideration in the present appeal is whether “gudakhu” manufactured by the appellants falls under Item No. 4 of the CET as “manufactured tobbacco” as claimed by the appellants or under Item 68 of the Tariff as “all other goods not elsewhere specified”.
12. In the appellant’s own case, the Orissa High Court had occasion to go into the question whether the product “Gudakhu” would fall within Item No. 4 of the CET State of Orissa v. Samsuddin Akbar Khan & Co. 1968 -STC (Vol. 35) 179. The question arose in the context of the Orissa Sales Tax Act, 1947. The Court had, for the purpose before it, to construe the expression tobacco under Item No. 4 CET. It recorded the finding that the constituents of hookah gudaku are not very much different from gudaku used for cleaning teeth, that gudaku used for smoking by hookah comes within the meaning of manufactured tobacco and that there is no reason why gudaku used for teeth would not be construed as tobacco. It is seen from the judgment that the constituents of “gudaku” in that case were lime, molasses, gerumati and some flavour essence. Tobacco used in gudaku was less than 50% while the percentage of molasses was higher. In the present case, as seen from the impugned order, the product contains 49% of raw tobacco, remaining 60% being other ingredients like lime and red earth.
13. Item 4 of CET has two sub-items :-
1. “Unmanufactured tobacco” (with which we are not concerned) and
2. “Manufactured tobacco” (with which we are concerned). Under the latter sub-item, there are many specified entries, one of which is “smoking mixtures for pipes and cigarettes’ and another “hookah tobacco”. There is an exemption notification issued under Central Excise Rule 8(1) (Notification No. 59/81 dated 12-3-1981) which exempts from basic excise duty and additional excise duty smoking mixture known as gudaku in the form of grannules from so much of duty leviable thereon as is in excess of the duty leviable on hookah tobacco.
14. Considering the nature of the product under consideration and that of the product considered by the Orissa High Court and the Tariff Entries and the Exemption Notification as adverted to earlier, there is little doubt that the subject product “Gudaku” fell under Item No. 4 and not Item No. 68.
15. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any.