2024 (9) TMI 1728 - AT - Central Excise

Palm Stearin Classification Upheld: Duty Demand Rejected Based on Consistent Board Circular Interpretation and Prevailing Administrative Guidelines

M/s Cargill India P. Limited Versus C.C.E. & S.T. Kutch

The SC/Tribunal ruled in favor of the appellant, setting aside the Department's demand for Central Excise duty. The key holding was that the appellant's ... Classification of goods - Palm Stearin (PS), manufactured by refining crude palm oil through fractionation/separation without chemical modification - classifiable under Central Excise Tariff Entry (CETH) 1511 (covering palm oils and fractions not chemically modified) or under CETH 3823 (covering chemical products)? - applicability of exemption under N/N. 3/2006-CE dated 01.03.2006 for the period June 2009 to July 2010 - HELD THAT:- It is not in dispute that during the period June 2009 to July 2010, the CBIC had issued Circular No. 81/2002-Cus dated 03.12.2002 wherein it was clearly held that PS would be classifiable under chapter 15 and not under Chapter 38. The said Circular was withdrawn only after the decision of Hon’ble Apex Court in the case of Jocil [2010 (12) TMI 24 - SUPREME COURT] vide Circular No. 31/2011-Cus dated 26.07.2011. In these facts and circumstances, it is apparent that even CBIC at the material time held a view that the goods are classifiable under Chapter 15 and not under Chapter 38 therefore, the bonafides of the appellant, therefore, cannot be doubted. In these circumstances, there are no merit in invocation of extended period of limitation to demand Central Excise duty, interest and to impose penalty under Section 11C. The Show Cause Notice is therefore, set aside on account of limitation. Conclusion - Vide Circular No. 31/2011-Cus dated 26.07.2011, CBIC at the material time held a view that the goods are classifiable under Chapter 15 and not under Chapter 38. Appeal allowed. Issues Presented and ConsideredThe core legal questions considered by the Tribunal in this appeal were:Whether the product 'Palm Stearin' (PS), manufactured by refining crude palm oil through fractionation/separation without chemical modification, is classifiable under Central Excise Tariff Entry (CETH) 1511 (covering palm oils and fractions not chemically modified) or under CETH 3823 (covering chemical products);Whether the appellant was entitled to exemption under notification 3/2006-CE dated 01.03.2006 for the period June 2009 to July 2010 based on classification under CETH 1511;Whether the demand of Central Excise duty, interest, and penalty raised by the Department by classifying PS under CETH 3823 for the said period was valid;Whether invocation of the extended period of limitation for issuing the Show Cause Notice dated 28.06.2014 was justified;Whether reliance on a subsequent decision of the Hon'ble Apex Court (delivered after the relevant period) to reclassify PS and demand duty retrospectively was legally permissible;The applicability and effect of Board Circulars, especially Circular No. 81/2002-Cus dated 03.12.2002 (which classified PS under Chapter 15) and its withdrawal by Circular No. 31/2011-Cus dated 26.07.2011 following the Apex Court decision.Issue-wise Detailed AnalysisClassification of Palm Stearin (PS) under Central Excise TariffThe appellant's position was that PS, produced by refining crude palm oil through fractionation without chemical modification, falls under CETH 1511. This entry covers palm oils and their fractions that are not chemically modified. This classification was supported by Board Circular No. 81/2002-Cus dated 03.12.2002, which explicitly stated that PS obtained by this process is classifiable under Chapter 15 and not under Chapter 38.The Department, however, sought to classify PS under CETH 3823, which covers chemical products, based on the Apex Court's ruling in the case decided on 15.11.2010. The Apex Court held that PS is classifiable under CETH 3823 1112 and not under CETH 1511 9090. Following this decision, the Board withdrew Circular 81/2002-Cus by issuing Circular No. 31/2011-Cus dated 26.07.2011.The Tribunal noted that during the relevant period (June 2009 to July 2010), the Board's official position was that PS was classifiable under Chapter 15, as reflected in Circular 81/2002-Cus. The subsequent Apex Court decision and the Board's withdrawal of the earlier circular occurred after the relevant period.Entitlement to Exemption NotificationThe appellant availed exemption under notification 3/2006-CE dated 01.03.2006, which exempted goods under Chapter Headings 1507 to 1515 (except crude palm stearin) from duty. Since PS was classified under Chapter 15 during the relevant period, the appellant claimed entitlement to this exemption.The Department's demand for duty was based on reclassification of PS under Chapter 38, which would exclude it from the exemption notification. This reclassification was premised on the Apex Court decision delivered after the period in question.Validity of Demand and Invocation of Extended Period of LimitationThe Show Cause Notice demanding duty was issued on 28.06.2014, invoking the extended period of limitation under Section 11C. The appellant challenged this invocation on the ground that there was no intention to evade duty since the Board's circular at the time supported classification under Chapter 15. The matter was under active consideration before the Apex Court, and reliance on a subsequent decision to initiate proceedings was impermissible.The Tribunal observed that the Board's Circular 81/2002-Cus was the official position during the relevant period. Since the appellant acted in accordance with this circular, the bonafides could not be doubted. The Tribunal found no merit in invoking the extended period of limitation, as the appellant's conduct did not amount to suppression or evasion of duty.Reliance on Subsequent Apex Court DecisionThe appellant relied on a recent Apex Court decision in the case of Saraswati Agro Chemicals P. Ltd. (2023), which held that proceedings cannot be initiated based on a subsequent decision of the Apex Court when the earlier position was supported by a Board Circular and the matter was under judicial consideration.The Tribunal agreed with this principle, emphasizing that the appellant's classification was in line with the Board's circular and that no malafide or evasion could be attributed to them. Therefore, retrospective reclassification and demand of duty based on a later Apex Court ruling was not sustainable.Treatment of Competing ArgumentsThe Department relied on the Apex Court decision and the withdrawal of the earlier circular to justify the demand and penalty. The appellant countered by asserting the binding nature of the Board Circular during the relevant period and the absence of any intention to evade duty.The Tribunal gave weight to the official Board Circular operative during the material period, the appellant's bona fide reliance on it, and the principle that extended limitation cannot be invoked in the absence of suppression or evasion. The Tribunal rejected the Department's argument that a subsequent judicial pronouncement could retrospectively alter the classification and justify penalty.Significant HoldingsThe Tribunal held:'It is apparent that even CBIC at the material time held a view that the goods are classifiable under Chapter 15 and not under Chapter 38. Therefore, the bonafides of the appellant cannot be doubted.''In these circumstances, we do not find any merit in invocation of extended period of limitation to demand Central Excise duty, interest and to impose penalty under Section 11C.''The Show Cause Notice is therefore, set aside on account of limitation.'Core principles established include:Classification of goods must be determined based on the legal and administrative position prevailing during the relevant period;Reliance on Board Circulars issued by the competent authority is a valid defense against retrospective reclassification and demand of duty;Extended period of limitation under Section 11C cannot be invoked where the assessee acted in bona fide reliance on the Board's circular and there was no intention to evade duty;Subsequent judicial decisions cannot be used to initiate proceedings retrospectively when the matter was under active judicial consideration and the assessee had followed the official circular;Penalty cannot be imposed without establishing suppression or evasion of duty, especially when the assessee's classification was consistent with the Board's position at the time.Final determinations were that