2025 (10) TMI 67 - AT - Central Excise

Sand lime bricks held as fly ash bricks; excise duty demand of Rs. 2.67 crore set aside under Notification No.1/2011-CE

M/s. Omkar Infracon Private Limited, Sandeep Khandelia and Shankar Saraf Versus Commissioner of Central Tax, G.S.T. and C. Ex., Kolkata

CESTAT KOLKATA - AT held that the sand lime bricks manufactured by the appellant are a type of fly ash bricks classifiable under tariff heading 68159910 ... Exemption on sand lime bricks manufactured by the appellant, under N/N. 1/2011-CE dated March 1, 2011 - whether the goods are actually Fly Ash Bricks and not applicable for exemption - interest and penalty - Penalties imposed on the Directors of the appellant company - HELD THAT:- The appellant-company manufactures sand lime bricks, which is a type of fly ash bricks. It is seen that both sand lime bricks and fly ash bricks are classifiable under the Chapter 68 only. It is found that there is no other tariff sub-heading available in the Central Excise Tariff which provides classification of sand lime bricks. It is because of this reason that the said Notification No. 1/2011-CE dated March 1, 2011, while exempting sand lime bricks, refers to such sand lime bricks being classifiable either under Chapter 68 or 69 of the Central Excise Tariff. Thus, the exemption under the said notification is available to sand lime bricks whether the same is classified under Chapter 68 or 69. The issue is no longer res integra, as this Tribunal has already decided the very same issue in favour of the appellants. While dismissing the appeal filed by the revenue, this Bench, in the case of Commissioner of C.G.S.T. & C.EX, Howrah v. M/s. Aum Bricks & Pavers Pvt. Ltd. & anr [2025 (8) TMI 1704 - CESTAT KOLKATA], has held that the sand lime bricks is a type of fly ash bricks and both are classifiable under the Central Excise tariff heading 68159910 and the same are eligible for availing the benefit of Exemption Notification No. 1/2011-CE dated March 1, 2011. Thus, the sand lime bricks manufactured by the appellant are classifiable under the Central Excise tariff heading 68159910 and the same are eligible for the benefit of Exemption Notification No. 1/2011-CE dated March 1, 2011. Accordingly, the demand of central excise duty of Rs. 2,67,83,024/- confirmed in the impugned order is not sustainable. Demand of interest and penalty - HELD THAT:- As the demand of duty is not sustained, the question of demanding interest or imposing penalty does not arise and hence, the same is set aside. Penalties imposed on the Directors of the appellant company - HELD THAT:- As the offence alleged against them is not sustained, no penalty is imposable on them. Accordingly, the penalties imposed on the Directors of the appellant company, i.e., the appellant nos. 2 and 3 herein set aside. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the goods described as 'sand lime bricks' manufactured by the assessee are distinct from 'fly ash bricks' for purposes of Central Excise classification and eligibility for Exemption Notification No. 1/2011-CE dated 01.03.2011. 2. Whether a confirmed differential central excise duty demand (with interest) predicated on classification as 'fly ash bricks' and alleged mis-declaration is sustainable where sand lime bricks fall within the tariff description covered by the exemption notification. 3. Whether penalties imposed on the principal assessee under Section 11AC and on its directors under Rule 26(1) read with Section 38A are exigible when the underlying duty demand is unsustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: Whether sand lime bricks are a type of fly ash bricks and classifiable so as to attract Exemption Notification No. 1/2011-CE Legal framework: Classification under the Central Excise Tariff (Chapters 68 & 69) and the textual scope of Exemption Notification No. 1/2011-CE dated 01.03.2011 which grants exemption in respect of 'sand-lime bricks' classifiable under Chapter 68 or 69. Precedent treatment: The Tribunal relied on its prior decision in an identical controversy (Final Order Nos. 77257-77258/2025 dated 13.08.2025) where the Bench held that sand lime bricks are a type of fly ash bricks and are classifiable under heading 68159910. A decision of CESTAT, New Delhi (Sand Plast (India) Ltd.) was noted in the reproduced extract but the Tribunal treated the issue as previously considered and decided in favour of exemption. Interpretation and reasoning: The Tribunal examined the tariff structure and observed that both sand lime bricks and fly ash bricks fall within Chapter 68 (and that the notification itself contemplates classification under Chapter 68 or 69). There is no separate tariff sub-heading that distinguishes sand lime bricks from fly ash bricks in a manner that would exclude sand lime bricks from the descriptive ambit of the exemption. The Tribunal therefore concluded that sand lime bricks are a variety of fly ash bricks and are classifiable under heading 68159910. Ratio vs. Obiter: Ratio - the legal determination that sand lime bricks are encompassed within the description of goods covered by Exemption Notification No. 1/2011-CE and are classifiable under tariff heading 68159910. Obiter - the reference to other Tribunal decisions (e.g., New Delhi decision) was noted but not treated as determinative where the Bench's earlier binding/precedential decision controlled. Conclusion: Sand lime bricks manufactured by the assessee are classifiable under tariff heading 68159910 and are eligible for exemption under Notification No. 1/2011-CE. Issue 2 - Sustainment of differential duty demand and interest premised on alleged mis-declaration/classification Legal framework: Principles governing liability for differential central excise duty, nexus between classification and entitlement to exemption, and entitlement to interest where duty is lawfully leviable. Precedent treatment: The Tribunal applied its prior ruling that interpreted the notification and tariff to permit exemption for sand lime bricks, thereby undermining the factual/legal basis for the duty demand confirmed by the adjudicating authority. Interpretation and reasoning: Since the Tribunal concluded that the goods are correctly described and fall within the exemption, the asserted mis-declaration and resultant liability for differential duty had no sustenance. The Tribunal reasoned that if the exemption legitimately applies, there is no actionable demand on which interest could properly be imposed. Ratio vs. Obiter: Ratio - when classification/entitlement to exemption is established in favour of the assessee, a demand for differential duty (and attendant interest) founded on contrary classification cannot be sustained. Obiter - none material beyond the direct consequence of the classification finding. Conclusion: The differential central excise duty demand of Rs. 2,67,83,024/- confirmed in the impugned order is not sustainable; consequential interest is also not exigible. Issue 3 - Liability to penalty under Section 11AC (for the assessee) and Rule 26(1) read with Section 38A (for directors) where the substantive duty demand is held unsustainable Legal framework: Statutory provisions imposing penalties under Section 11AC and Rule 26(1) read with Section 38A depend on the existence of a sustainable offence/contravention (mis-declaration, evasion etc.) that gives rise to duty liability or contravention warranting penalty. Precedent treatment: The Tribunal applied the logical principle that penalties contingent on an unsustained foundational finding must fall with that finding; the earlier Tribunal decision supporting exemption was applied to negate the penal liability. Interpretation and reasoning: The Tribunal held that because the allegation of misclassification/mis-declaration (which was the basis for duty and penalties) was not borne out - the goods are rightly exempt - the statutory preconditions for imposing the confirmed penalties do not exist. Consequently, imposition of penalties on the company and on its directors could not be sustained. Ratio vs. Obiter: Ratio - penalties grounded upon an unsustainable duty demand or unproven contravention are not exigible; where the offence alleged is not sustained, penalties under the cited provisions must be set aside. Obiter - none material beyond the direct application of that principle. Conclusion: Penalties imposed on the assessee and on each director under Rule 26(1) read with Section 38A (and the penalty under Section 11AC on the assessee) are set aside because the underlying allegation of ineligible exemption/mis-declaration is not sustained. Cross-references 1. Issue 1 (classification/exemption) is dispositive of Issues 2 and 3; the negation of the duty liability in Issue 2 directly negates entitlement to interest and the statutory basis for penalties in Issue 3. 2. The Tribunal expressly relied on its prior decision on the same question (Final Order Nos. 77257-77258/2025 dated 13.08.2025) as binding precedent for classification and exemption conclusions.