2022 (7) TMI 714 - AT - Central Excise

Supreme Court directs Tribunal on appeal merit post pre-deposit; 'Sikko Sol' not under tariff item

The Supreme Court directed the Tribunal to decide on the appeal's merit after compliance with the pre-deposit requirement. The Tribunal found 'Sikko Sol' ... Classification of goods - Sikko Sol - to be classified under tariff item 38140010 as thinner or under tariff item 27101213 as Special boiling spirit Confiscation - levy of redemption fine - penalty - extended period of limitation - HELD THAT:- It is noted that tariff item 27101213 is the sub classification of sub heading no. 271012 of CETA. Sub heading Note 4 of Chapter 27 provides that for the purpose of Sub Heading 271012 “Light Oil and Preparation” are those of which 90% or more by volume (including losses) distilled at 210°c (ASTMD 86 Method). On perusal of the Serial no. 5 of Test Report, it is seen that Sikko Sol 90% by volume is distilled at 106°c. So, the condition of the Sub heading Note 4 of Chapter 27 would not satisfy Sikko Sol as per Test Report. When sub- heading 271012 would not satisfy Sikko Sol then, sub classification under tariff item 27101213 cannot be sustained. The Adjudicating authority observed that the Chemical Examiner has opined that the two samples of Sikko Sol being the finished products is a Special Boiling Point Spirit. On perusal of the Test Report, it is found that the Chemical Examiner opined that it is Special Boiling Spirit. The word “point” is not mentioned in the Chemical Examiner Report. So, the finding of the Adjudicating authority at this regard is not correct and beyond the scope of Chemical Examiner Report. In any event, it is required to examine the Chemical analysis of the Test Report. It is well settled that the Chemical Examiner has only to give composition of the goods and not to comment on the classification of goods in any manner. It is well settled that while determining the classification of the goods, the broad description of the articles fits in with the expression used in the tariff is relevant. It is also required to examine the meaning of the product in the commercial parlance. The End Use of the goods would strengthen the conclusion that it is known in the market - In the instant case, the appellant purchased raw material “Condensate” (which is a regulated item) from Oil India Limited, a Public Sector Undertaking. In exercise of the Essential Commodities Act, 1955 ( 10 of 1955), the Ministry of Petroleum and Natural Gas issued Order dated 05.06.2000, which may be called “Solvent, Raffinat and Slop (Acquisition, Sale, Storage and Prevention of use in Automobile) Order 2000”. It is seen that the appellant filed the End User Certificate to Oil India Limited as well as the District Magistrate as per provision of Order dated 05.06.2000 of the Ministry of Petroleum & Natural Gas. Thus, it is evident that Sikko Sol is not used in Automobile. There are no evidence that Sikko Sol is used as Light Oil and/or motor spirit suitable for use in Spark Ignition Engine as mentioned in the Supplementary Note (a). So, there is no merit to classify Sikko Sol under tariff Item 27101213 of CETA 1985. The demand of duty along with interest and penalty by the impugned Orders classifying the product under Tariff No. 27101213 cannot be sustained. Confiscation of seized goods - levy of redemption fine - HELD THAT:- The Central Excise Officer seized Sikko Sol and raw materials under the provision of Rule 24 of the Central Excise Rules, 2002. Rule 24 of the Central Excise Rules provides that if a Central Excise Officer has reason to believe that any goods which are liable to excise duty but no duty has been paid thereon, or the goods were removed with the intention to evading Central Excise duty payable thereon, the Central Excise Officer may detain or seize such goods. In the present case, the goods were lying in the appellant’s factory. There is no material available on record that the appellant had any intention to remove the goods without payment of duty. Hence, the confiscation of goods and imposition of redemption fine cannot be warranted. Extended period of limitation - HELD THAT:- The finding of the Adjudicating authority are not convincing, in so far as there is no material available on record to establish willful misclassification and/or misstatement as the ingredients to invoke extended period of limitation under Section 11A of the Central Excise Act, 1944. The decision of M/S BIOMAX LIFE SCIENCES LTD VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE & SERVICE TAX, HYDERABAD-IV [2020 (7) TMI 585 - CESTAT HYDERABAD] on limitation is applicable in the instant case and therefore it is held that demand of duty for extended period of limitation cannot be invoked. In the facts and circumstances of the instant case, the “Sikko Sol” cannot be classified under tariff item 27101213 of the CETA, 1985. Accordingly, the demand of duty with interest and imposition of penalty would be set aside on merit and on limitation. The confiscation of goods, imposition of redemption fine and recovery of credit are also set aside. Appeal allowed - decided in favor of appellant. Issues Involved:1. Condonation of delay in filing appeals.2. Classification of the product 'Sikko Sol'.3. Demand of central excise duty, interest, and penalty.4. Confiscation of seized goods and imposition of redemption fine.5. Recovery of inadmissible Cenvat Credit.6. Invocation of extended period of limitation.Detailed Analysis:1. Condonation of Delay in Filing Appeals:The Appellant filed appeals with applications for condonation of delay against two orders passed by the Commissioner of Customs, Central Excise, and Service Tax, Siliguri Commissionerate. The Tribunal initially dismissed the appeal and COD application due to non-compliance with the pre-deposit requirement under Section 35F of the erstwhile Central Excise Act, 1944. The Supreme Court restored the appeal and directed the Tribunal to decide on its own merit after the Appellant complied with the pre-deposit requirement.2. Classification of the Product 'Sikko Sol':The core issue was whether 'Sikko Sol' should be classified under tariff item 27101213 as 'Special Boiling Point Spirit' or under tariff item 38140010 as 'Solvent and Thinner'. The adjudicating authority classified 'Sikko Sol' under tariff item 27101213 based on the Chemical Test Report, which indicated it as a 'Special Boiling Spirit'. However, the Tribunal found that the product did not meet the criteria of 'light oils and preparations' as defined in Sub-heading Note 4 of Chapter 27, which requires 90% or more by volume to distill at 210°C. The Test Report showed that 90% by volume distilled at 106°C, thus not satisfying the sub-heading note. The Tribunal concluded that the classification under tariff item 27101213 could not be sustained.3. Demand of Central Excise Duty, Interest, and Penalty:The demand for central excise duty along with interest and penalty was based on the reclassification of 'Sikko Sol' under tariff item 27101213. Since the Tribunal found the reclassification incorrect, the demand for duty, interest, and penalty was set aside on merit and limitation grounds. The Tribunal emphasized that the department did not provide sufficient evidence to justify the reclassification and failed to discharge the burden of proof.4. Confiscation of Seized Goods and Imposition of Redemption Fine:The confiscation of goods and imposition of a redemption fine of Rs. 1,57,592.00 were based on the findings of excess and shortage of goods during stock verification. The Tribunal noted that there was no evidence of intent to evade duty as the goods were still within the factory premises. Consequently, the confiscation and redemption fine were deemed unwarranted and were set aside.5. Recovery of Inadmissible Cenvat Credit:The adjudicating authority ordered the recovery of re-credit amounting to Rs. 42,088.00 and inadmissible Cenvat Credit of Rs. 44,100.00 due to alleged shortages. The Tribunal found that the appellant's explanation regarding the shortage due to data reconciliation errors was not adequately examined by the Enquiry Officer. The Tribunal concluded that the finding of the adjudicating authority on this matter could not be sustained.6. Invocation of Extended Period of Limitation:The Tribunal held that the extended period of limitation under Section 11A of the Central Excise Act, 1944, could not be invoked merely on the grounds of misclassification. It cited the decision in Biomax Life Science Ltd., which stated that extended limitation could only be invoked in cases of fraud, collusion, willful misstatement, or suppression of facts. Since there was no material evidence of willful misclassification, the demand for the extended period was set aside.Conclusion:The Tribunal set aside the impugned orders, allowing both appeals with consequential reliefs. The confiscation of goods, imposition of redemption fine, and recovery of credit were also set aside. The Miscellaneous Application for condonation of delay was disposed of accordingly.