2025 (3) TMI 898 - AT - Central Excise

Quilt panels made exclusively for exempted coir mattresses not excisable under CETH 9404 90 19 or CETH 5811 without marketability

M/s. Kerala State Rubber Co-operative Ltd Versus Commissioner of Central Excise, & Customs, Cochin, Kerala

CESTAT Bangalore held that quilt panels manufactured exclusively for producing exempted coir mattresses are not excisable under CETH 9404 90 19 or CETH ... Classification of quilt panel - can be classified under Central Excise Tariff Heading (CETH) 9404 90 19 as 'quilt' or should remain classified under CETH 5811 as 'quilted textile products'? - invocation of extended period of limitation - HELD THAT:- It is an admitted fact that the the 'quilt panel' manufactured by the Appellant are exclusively used for the manufacture of the final products 'coir mattress' and it is exempted from payment of customs duty. There is no evidence to show the marketability of the 'quilt panel' and it is also admitted fact that the 'quilt panel' manufactured by the Appellant are exclusively used for final product. Thus, considering the decision of this Tribunal in the matter of Collector of Central Excise, Jaipur Vs Meca Quilts Ltd [2000 (5) TMI 74 - CEGAT, COURT NO. IV, NEW DELHI], once the manufacturing is not complete, it cannot be considered as different marketable product, and no demand of duty can be confirmed. Conclusion - i) The intermediate products used exclusively in the manufacture of exempted final products are not excisable if they lack marketability. ii) The extended period of limitation requires evidence of willful suppression or intent to evade duty. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment is whether the 'quilt panel' produced during the manufacturing process of rubberized coir sheets and mattresses can be classified under Central Excise Tariff Heading (CETH) 9404 90 19 as 'quilt' or should remain classified under CETH 5811 as 'quilted textile products'. Additionally, the issue of whether the extended period of limitation for duty demand is applicable was also considered.ISSUE-WISE DETAILED ANALYSISClassification of 'Quilt Panel'Relevant Legal Framework and Precedents: The classification dispute hinges on the interpretation of CETH 9404 90 19 versus CETH 5811. CETH 9404 pertains to finished quilts, while CETH 5811 covers quilted textile products in the piece, used in further manufacturing. The Tribunal referenced the decision in Collector of Central Excise, Jaipur Vs Meca Quilts Ltd, which held that quilted fabric not yet made into finished products is not excisable due to lack of marketability.Court's Interpretation and Reasoning: The Tribunal interpreted that 'quilt panels' are intermediate products used exclusively in the manufacture of coir mattresses, which are exempt from duty. The Tribunal noted that these panels are not finished quilts as they are not stitched on all sides and are not sold separately in the market, aligning with the precedent that unfinished products lacking marketability are not excisable.Key Evidence and Findings: It was found that the 'quilt panels' are used exclusively within the appellant's factory for manufacturing exempted coir mattresses. There was no evidence of marketability or separate sale of these panels.Application of Law to Facts: The Tribunal applied the legal framework to conclude that the 'quilt panels' do not constitute a finished product under CETH 9404. Instead, they fit within CETH 5811 as they are further used in manufacturing exempted products.Treatment of Competing Arguments: The respondent argued for classification under CETH 9404, asserting that the panels should be valued at 110% of production cost as per Rule 8. However, the Tribunal found this inapplicable due to the lack of marketability and the exclusive use of panels in exempted products.Conclusions: The Tribunal concluded that the 'quilt panels' are not excisable under CETH 9404 due to their unfinished state and lack of marketability. The classification under CETH 5811 was upheld.Extended Period of LimitationRelevant Legal Framework and Precedents: The extended period of limitation under the Central Excise Rules can be invoked in cases of willful suppression of facts or intent to evade duty.Court's Interpretation and Reasoning: The Tribunal found that the appellant operated under a bona fide belief of non-liability due to the exemption, with no willful suppression or intent to evade duty.Key Evidence and Findings: The appellant did not register for duty payment based on the belief that the exemption applied, and there was no evidence of intent to evade duty.Application of Law to Facts: The Tribunal concluded that the extended period of limitation was not applicable as there was no willful suppression or intent to evade duty.Treatment of Competing Arguments: The respondent's assertion of the extended period applicability was dismissed due to the lack of evidence for willful suppression.Conclusions: The Tribunal ruled that the extended period of limitation could not be invoked, rendering the demand for duty unsustainable.SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'Where quilted fabric in running length is cut to size and edge bending done only when the quilted fabric is made into various items, they are not excisable to excise duty as there is no marketability and manufacture is not complete.'Core Principles Established: The Tribunal reaffirmed that intermediate products used exclusively in the manufacture of exempted final products are not excisable if they lack marketability. Additionally, the extended period of limitation requires evidence of willful suppression or intent to evade duty.Final Determinations on Each Issue: The appeals were allowed, and the demand for duty on 'quilt panels' was deemed unsustainable. The classification under CETH 5811 was upheld, and the invocation of the extended period of limitation was rejected.