2024 (2) TMI 75 - AT - Central Excise

Ball point pen ink attracts nil duty rate, demand confirmation set aside following SC precedent

CESTAT Mumbai held that ball point pen ink attracts nil duty rate, setting aside demand confirmation. The tribunal rejected HSN reliance for ... Classification of goods - ball point pen ink - clandestine removal. Classification of ball point pen ink - HELD THAT:- Hon’ble Supreme Court of India has held that when the entries in the HSN and the said Tariff are not aligned, reliance cannot be placed upon HSN for the purpose of classification of goods under the said Tariff, in the case of Camlin Ltd. [2008 (9) TMI 1 - SUPREME COURT] - It was held that it is settled law that when the entries in the HSN and the said Tariff are not aligned, reliance cannot be placed upon HSN for the purpose of classification of goods under the said Tariff. One of the factors on which the Tribunal based its conclusion is the entries in the HSN. The said conclusion in the Order of the Tribunal is, therefore, vitiated and, accordingly, set aside - Once it is established that ball point pen ink attracts nil rate of duty, the confirmation of demand of clearance without payment on ball point pen ink and allegation of clearance of ball point pen ink by resorting to undervaluation does not sustain. Clandestine removal - HELD THAT:- The show cause notice that Revenue has compared total goods manufactured as reflected in balance sheet to the clearances effected on payment of duty by Thane unit and Revenue did not take into consideration goods cleared by Goa unit of the appellant whereas the balance sheet is common for both the units. Further, it is found that no investigation was carried out in respect of the balance amount on which duty is demanded such as dispatch particulars from the regular transporters, realization of sale proceeds and details from the regular dealers and buyers about receipt of finished goods. Therefore, relying on the ruling by Hon’ble Allahabad High Court in the case of Continental Cement Company [2014 (9) TMI 243 - ALLAHABAD HIGH COURT], it is held that the allegations of clandestine removal are not established - Once it is established that there was no requirement of payment of duty on ball point pen ink and there was no clandestine removal, the question of imposition of penalty on the appellant and the other appellants does not arise. The impugned order set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether ball point pen ink manufactured and cleared by the appellant is classifiable under Central Excise Tariff Sub-heading 3215.10 (writing ink, nil rate) or under Sub-heading 3215.90 (residuary/other inks, dutiable), having regard to the Harmonized System of Nomenclature (HSN) entries and the Rules for Interpretation of the Central Excise Tariff (including Rule 3(a)). 2. Whether reliance on HSN entries is permissible for classification where entries in HSN and the Central Excise Tariff are not aligned. 3. Whether alleged undervaluation of clearances to related parties and depots (in respect of ball point pen ink) can sustain differential duty demand once classification is determined. 4. Whether clandestine removal (duty evasion) is established by comparing production figures in a common balance sheet with clearances from a single unit, absent detailed investigation (dispatch particulars, realization of sale proceeds, dealer receipts, transporter records, etc.). 5. Whether penalties under the Central Excise Rules can be sustained where demands for duty (classification and clandestine removal) are not established. ISSUE-WISE DETAILED ANALYSIS - Classification and Reliance on HSN Legal framework: The Central Excise Tariff Act (scheduled Tariff headings) governs classification; Rules for Interpretation of the Central Excise Tariff, particularly Rule 3(a) (most specific description preferred), apply. HSN provides an international nomenclature but may be used only where entries are aligned with the statutory Tariff. Authoritative precedent: The Supreme Court ruling (Camlin Ltd.) establishes that where HSN entries and the statutory Tariff are not aligned, reliance on HSN for classification under the Tariff is impermissible. Precedent Treatment: The Court applied the principle from Camlin Ltd. (para 26) and treated it as binding on the question whether HSN may be invoked when Tariff entries differ. Interpretation and reasoning: The Court compared HSN Heading 32.15 (which divides inks into 'Printing ink' - with sub-headings for black and other printing inks - and 'Other') with the Central Excise Tariff Heading 32.15 (which divides inks into 'Writing ink' 3215.10 and 'Other' 3215.90). Finding the entries not aligned, the Tribunal held HSN could not be relied upon to re-characterise ball point pen ink as residuary/other ink under 3215.90. Applying Rule 3(a) and common knowledge that ball point pen ink is for writing, the Court concluded ball point pen ink falls within the specific description 'writing ink' under 3215.10, attracting nil rate of duty. Ratio vs. Obiter: Ratio - where HSN and the statutory Tariff are not aligned, HSN cannot be used to alter classification under the Tariff; specific Tariff descriptions (Rule 3(a)) control the classification. Obiter - observations on the wording of HSN and the Tariff headings as illustrative of non-alignment. Conclusion: Ball point pen ink is classifiable under Central Excise Tariff Sub-heading 3215.10 (writing ink) and does not attract the dutiable residue classification 3215.90; therefore, duty demands premised on classification as 3215.90 cannot be sustained. ISSUE-WISE DETAILED ANALYSIS - Undervaluation/Related-Party Clearances Legal framework: Differential duty demands based on undervaluation presuppose that the goods are dutiable and that clearances at lower values constitute revenue loss. Finding of misclassification or evasion must precede valuation/duty demands. Precedent Treatment: The Tribunal relied on established principle that if the foundational classification/duty liability fails, consequential demands based on undervaluation fall away. Interpretation and reasoning: Having held ball point pen ink to be nil-rated under 3215.10, the Tribunal reasoned that demands for differential duty arising from alleged undervaluation of such clearances lack substrate. The Tribunal therefore rejected demands tied to undervaluation of ball point pen ink clearances to depots and related entities. Ratio vs. Obiter: Ratio - consequential revenue demands predicated on an incorrect classification cannot be sustained once correct classification establishes nil duty. Obiter - none beyond logical consequences. Conclusion: Differential duty demands premised on undervaluation of ball point pen ink clearances do not survive the finding of nil-rate classification and are set aside. ISSUE-WISE DETAILED ANALYSIS - Clandestine Removal Allegation Legal framework: Allegation of clandestine removal requires investigation and evidentiary proof (dispatch particulars from regular transporters, realization of sale proceeds, dealer/buyer receipts, transporter records, and other investigative steps demonstrating undisclosed clearances). Comparisons between production figures and clearances may give rise to suspicion but are not, by themselves, conclusive. Precedent Treatment: The Tribunal followed the approach in relevant authorities (including the decision relied on from the Allahabad High Court) that mere numerical mismatch without corroborative investigative evidence is insufficient to establish clandestine removal. Interpretation and reasoning: Revenue compared total production in a common balance sheet (covering multiple units) with clearances recorded only for one unit, without accounting for clearances from the other unit(s). Further, Revenue did not conduct supporting investigations (dispatch particulars, realization, dealers' confirmations). On that basis the Tribunal held the clandestine removal allegations not established. Ratio vs. Obiter: Ratio - numerical discrepancies between balance-sheet production and unit-wise invoices do not, without further investigation and corroborative evidence, establish clandestine removal; investigative steps are necessary to convert suspicion into proven evasion. Obiter - commentary on proper forms of investigation where multi-unit accounts and common balance sheets are involved. Conclusion: Allegations of clandestine removal are unsustained for lack of proper investigation and evidentiary corroboration; duty demands based on such allegations are set aside. ISSUE-WISE DETAILED ANALYSIS - Penalties Legal framework: Penalties under the Central Excise Rules (including Rule 173Q) and related provisions are contingent upon established breaches (duty evasion, misdeclaration, adjudicated demands). Precedent Treatment: Court applied principle that penalties cannot be imposed where the substantive duty demand or evasion finding is not established. Interpretation and reasoning: Since the Tribunal set aside the substantive demands as to classification, undervaluation, and clandestine removal, imposition of penalties on the appellants (and the officials and related entity) lacked foundation. Penal liabilities therefore could not be sustained. Ratio vs. Obiter: Ratio - penalties fall with the collapse of the substantive findings on which they rest. Obiter - none beyond logical consequence. Conclusion: Penalties imposed in connection with the impugned duty demands are not sustainable and are quashed. OVERALL CONCLUSION The Court set aside the impugned order: ball point pen ink is classifiable under Tariff sub-heading 3215.10 (nil rate); demands for differential duty based on classification/undervaluation and for clandestine removal are not established; and consequential penalties are quashed. Cross-reference: findings on non-alignment of HSN and the statutory Tariff (see classification analysis) and on inadequate investigation (see clandestine removal analysis) are central to the disposal.