TaxTMI 
TaxTMI 
2010 (2) TMI 611
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.... Section 11A of the Central Excise Act, 1944 (the Act) alleging mis-declaration as regards the description Alkyd Resins. Vide Order-in-Original No. 84/97 dated 6-11-1997, Commissioner of Central Excise, Hyderabad demanded an amount of Rs. 17,41,328.65 for the period 1-6-1988 to 28-2- 1993 and imposed penalty of Rs. 10 lakhs under Rules 9(2), 173Q and 226 of CER. Vide Final Order No. 485/2000, dated 18-4-2000 [2000 (123) E.L.T. 1094 (Tribunal)], the Tribunal rejected the appeal filed by BHL sustaining the finding of the Commissioner as regards misdeclaration of the classification and evasion of duty by BHL. Aggrieved by the final order, the assessee moved the Hon'ble High Court of Madras in a Writ Petition contending that the Tribunal had passed the final order without considering several arguments it had advanced. They had made particular reference to the legality of invoking proviso to Section 1 1A of the Act and judgment of the Apex Court in the case of CCE, Baroda v. Cotspun Ltd. [1999 (113) E.L.T. 353 (S.C.) = 1999 (7) SCC 633]. On behalf of the Revenue it was submitted that all the arguments put forward by the appellants had been considered by the Tribunal before passing the f....
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....tment about the process of manufacture and composition of Alkyd Resins, BHL vide their letter dated 1641-1992 furnished the manufacturing process of various products; the pertinent answer as regards Alkyd Resins was furnished as follows: "Polyester resins are condensation products of Dihydric or Polyhydric Alcohols and Dibasic or Polybasic Acids. (Polyester such as Alkyd type where in Polyester is modified with fatty acid and drying oil)." Investigation conducted since then revealed that what was described as Alkyd Resins contained significant quantity of other resins such as phenolic resins and melamine resins. Examination of records on Alkyd Resin, Grade 003-1010 PC, Batch No. .3322/558, showed the following composition:- Raw material Description Weight (kgs.) Time Total output (kgs.) Loss (kgs.) On Off V-890 Batch No. 9262 V-1020 Batch No. 7236 156725 152110 152510 151510 645.0 260.0 260.0 2.08 28.0 80.0 30.0 - 10 - 16 - ....
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....choice. The end use of product was not determinative of classification. The Revenue had no case that the impugned goods were the same as any of the several products cleared by the assessee as insulating varnishes. The department had not discharged its onus to establish the correct classification. The impugned product was a mixture and classification had to be decided under Rule 3(b) of Interpretative Rules which provided for classifying composite goods as the component which gave its essential characteristic. Alkyd Resins gave essential character to the subject goods. Where two headings were equally applicable, the one favour able to the assessee should be adopted in view of the ratio of the Apex Court's judgment in the case of Poulose and Mathen [1997 (90) E.L.T. 264 (S.C.)]. The demand was barred by limitation since classification of the impugned goods had been approved repeatedly by the competent authority and the records relied upon to raise the impugned demand were always open for inspection by the Department. Therefore, there was no suppression by the assessee. Failure to disclose facts which the assessee was not legally bound to declare did not amount to suppression. The ass....
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....could be demanded under Section 11A of the Act. These provisions had retrospective effect from 17- 11-1980 to the date of enactment of the Finance Act, 2000. The appellants had changed the classification from 3907.50 to 3208.40 w.e.f. 1-3-1993 on their own when the department had initiated investigation. This showed that the appropriate classification was CSH 3208.40. Moreover, the appellants had paid the duty demanded for the past period before the issue of show cause notice on 24-11-1993. The impugned demand was in accordance with law. The assessee itself had classified the goods under CSH 3203.40 adopted by revenue for demanding the differential duty on Alkyd Resins cleared during the material period. The Revenue relied upon the judgment of the Apex Court in the case of CCE, Baroda v. LMP Precision Engg. Co. Ltd. [2004(163) E.L.T. 290 (S.C.)] in support of the argument that when the goods were sold under a description different from the one furnished in the classification list which was not true, the demand for differential duty was sustainable. The impugned goods were covered by the entry for insulating varnishes under CSH 3208.40. Reliance was placed on the judgment of the Ape....
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....on of the subject product and had not disclosed the details even in response to queries from the department when they had given a reply vide letter dated 16-11-1992. The demand was therefore in accordance with law and deserved to be sustained. 6. We have also heard ld. Counsel for the appellants and ld. SDR for the Revenue. 7. We have carefully perused the case records and studied the rival submissions. Appellants had classified the goods manufactured by it as follows:- (i) Alkyd Resins Whether or not modified grade references starting with the prefix 003 or 073 and followed by any number and/or by alphabet(s) 3907.50 (ii) Paints & Varnishes (including enamels and lacquers) (a) Insulating Varnishes of various grade references starting with prefix HV or V and followed by any number and/or alphabet(s) and marketed under brand name Hyvar/Hylak : 3208.40 The item Aikyd Resins admittedly is not Alkyd Resins but a blend of phenolic resin or, phenolic resin and melamine resin in significant proportion. Therefore, the product could not be correctly classified under CSH 3907.50. W.e.f. 1-3-1993, the appellants filed a classification list declaring the subject item against ent....
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....ing entries fall under the Chapter Headings 3208 and 3907 which are reproduced below. 3208 - Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, or natural resins, whether or not modified, dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 3 to this Chapter 3208.10 - Based on polyesters 3208.20 - Based on acrylic or vinyl polymers 3208.30 - Based on cellulose nitrate or other Cellulose Derivatives 3208.40 - Insulating varnish 3208.90 - Other 3907 - Polycetals, other polyethers ....
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....o include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3. Rule 3 - When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows (a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or sub stances contained in mixed or composite goods or to part only of the items in a set up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. 8.2 It was ascertained in investigation that the goods involved are insulating varnishes; 'insulating varnishes' figure under CSH 320840. This was also the classification declared by BHL w.e.f. 1-3-93. Chapter note 3 to Chapter 32 reads as follows: "3. Heading No. 32.08 includes solutions (other than collidions) cons....
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....g answer to the department's enquiry on the process of manufacture and composition of the impugned goods; - "Polyester resins are condensation products of Dihydric or Polyhydric Alcohols and Dibasic or Polybasic Acids. (Polyester such as Alkyd type where in Polyester is modified with fatty acid and drying oil)." This explanation conceals more than what it reveals about the product. Rule 173B(1) of CER prescribing procedure for filing classification list for goods manufactured by an assessee at the material time read as follows: Rule 173B. Assessee to file list of goods for approval of the proper officer - (I) Every assessee shall file with the proper officer for approval a list in such form as the Collector may direct, in quintuplicate, showing- (a) the full description of (i) all excisable goods produced or manufactured by him, (ii) all the goods produced or manufactured by him and intended to be removed from his factory, and (iii) all the excisable goods already deposited or likely to be deposited from time to time without payment of duty in his warehouse; (b) the Chapter, Heading No. and Sub-heading No., if any, of the Schedule to the Central Excise Tarif....
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....tely declared an incorrect description. Therefore the case laws cited do not assist the appellant's case. 10.1 As regards the case laws relied on by the Revenue, we find that in the case of LMP Precision Engg. Co. Ltd. (supra), the Apex Court held as follows in para 18 :- "18. The next issue is whether the extended period of limitation could be invoked by the appellant for the purpose of raising the impugned demand against the respondent. Rule 173B of the Rules requires inter alia that every assessee shall file with the proper officer for approval a list in such form as the Collector may direct showing the "full description" of the goods manufactured. The form in which the application is required to be submitted has been prescribed as the C.L.I. Form. The Form requires "a full description of each item of the goods produced, manufactured with warehouse together with the description as would appear from the invoice". Admittedly, the description of the goods given in the C.L.I. Form by the appellant for the period in question did not tally with the description in the invoices for the same period. The content of the C.L.I. Form has been excerpted in the Tribunal's order and it is....
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.... held that the respondents therein had not suppressed any material fact regarding the description of the goods, while in the present case, the appellants are guilty of concealment deliberate non-disclosure of the description of goods as chemically modified phenol formaldehyde. We, therefore, hold that the extended period of limitation has been rightly invoked and that the demand is not hit by time bar. We also hold that penalty is warranted in the facts and circum stances of the case. In the light of the above, we uphold the impugned order and reject the appeal." Apex Court in the case of Jaishri Engg. Co. P. Ltd. [1989(40) E.L.T. 214 (S.C.)], ob served as follows :- "10 ………The Tribunal noted then the appellant could hardly contend that it discharged the onus of making correct declaration if it had with held the description which was commonly used in respect of the goods not only by itself but also by those from whom it bought or to whom it sold the products. The appellant itself was both buying and selling these nuts and as such there was no conceivable reason why these nuts were described as end-fittings in the declaration to the department. It may be noted that in th....