Commissioner Of Central Excise, Mumbai ... vs Brahans Rubber P. Ltd

(Arising out Order-in- Appeal No. BR/05/M-IV/2005 dated 17.01.05 passed by the Commissioner of Central Excise (Appeals), Mumbai IV)

For approval and signature:

Honble Shri P.K. Jain, Member (Technical) Honble Shri S.S.Garg, Member (Judicial)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : Yes 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

Commissioner of Central Excise, Mumbai IV Appellant

Vs.

Brahans Rubber P. Ltd. Respondent

Appearance:

Shri Sanjay Hasija, Supdt.(AR) for the appellant Shri R.V. Shetty, Advocate for the respondent

CORAM:

Honble Shri P.K. Jain, Member (Technical) Honble Shri S. S. Garg, Member (Judicial)

Date of hearing : 04.08.2015 Date of decision : 19.08.2015

O R D E R No:..

Per: P.K. Jain:

This is an appeal filed by the revenue against the order dated 17.01.2005 passed by the Commissioner (Appeals).

2. The brief facts of the case are that the respondent are engaged in the manufacture of processed rubber compound in different forms, some of which are being cleared without payment of duty and some on payment of duty. In the present case, the dispute is relating to classification and hence rate of duty of two items.

2.1. The first item is processed rubber compound in sheet form. The respondent has classified the same under heading 4005.10 claiming nil rate of duty while the revenue wants to classify the same under 4005.90. Revenues contention is that only such plates, sheets or strips are classifiable under sub-heading 4005.10 in relation to the manufacture of which no credit of duty paid on the inputs used has been availed under Rule 57A of Central Excise Act, 1944 and/or no Cenvat credit of duty paid on the inputs used has been availed under CENVAT Credit Rules, 2001. In the present case, credit of the duty paid on inputs under Rule 57A of the Central Excise Act, 1944 and/or Cenvat credit as per CENVAT Credit Rules, 2001 has been availed, the goods are therefore not classifiable under CSH 4005.10. The same were therefore required to be classified under CSH 4005.90.

2.2. The second item is processed rubber compound which is in the cord form. Respondent have classified this same under CSH 4005.10 while the revenue wants to classify the same under CSH 4006.90. The said item is manufactured specially for supply to manufacturers of gaskets used in the pressure cookers.

2.3. Revenues contention is that heading 4005 covers compounded rubber, unvulcanised in primary form/plates sheets or strips other than the form in articles of unvulcanised rubber described in heading 40.06. Further, in view of Chapter note 9 of chapter 40, these goods would appropriately be classifiable under heading 4006.90.

2.4. In addition to the above issues of classification, the show-cause notice has invoked the extended period of limitation.

3. Ld. AR on behalf of the revenue submitted that heading 4005.10 covers only those plates, sheets or strips in relation to the manufacture of which no Cenvat credit of duty paid on the inputs used has been availed. He further submitted that there is no dispute that respondents have availed Cenvat credit on certain inputs used in the manufacture of such goods. The Commissioner (Appeals) has taken the view that the respondent has taken the credit on minor items and therefore, the goods would continue to be classifiable under 4005.10. He submitted this view is incorrect as the said sub-heading does not make any distinction like major and minor items and the description itself says no Cenvat credit of duty paid on inputs has been availed. He further submitted that once modvat/Cenvat credit has been taken by the respondent on any of the inputs howsoever minor, the goods cannot be classifiable under said heading and would fall under residuary sub-heading 4005.90. He submitted that in view of this position, the classification by the respondent is incorrect. He further submitted the judgment of this Tribunal in the case of CCE Pune vs. Hi-Mile Rubber P. Ltd. 2011 (267) ELT 231 (Tri-Mum). In the said judgment, it has been clearly held that if credit on any input is taken then the goods would be classifiable under4005.90.

3.1. On the second item, Ld. AR submitted that the compounded rubber in the primary form is again put to an extrusion process. Compounded rubber is therefore extruded in the form of continuous length having a width of 10mm. Ld. AR further submitted that it could be seen that the compound processed rubber has gone through the extrusion process second time and the processed compounded rubbed so obtained cannot be considered in primary form, that chapter note 9 of chapter 40 clarifies that the expression plates, sheets and strips apply only to plates, sheets and strips and to blocks of regular geometric shape, uncut or simply cut to rectangular (including square) shape, whether or not having the character of articles and whether or not printed or otherwise surface worked, but not otherwise cut to shape or further worked. He further submitted that in the present case the processed rubber compound has been further worked inasmuch it has been again put to extrusion process from where 10mm width processed rubber compound has been extracted. The extruded product is suitable for making gaskets for pressure cooker. In view of this factual position, the goods are correctly classifiable under 4006.90. Ld. AR submitted that the observation of the Commissioner (Appeals) about the cord form is incorrect. He further submitted that the sample of the goods are produced by the counsel for the respondent and from that it is amply clear that the processed rubber compound has been further worked.

3.2. As far as issue relating to extended period of limitation is concerned, ld. AR submitted that the appellant vide letter submitted that they are not availing the credit of inputs in the manufacture of processed compound and it was only during the visit of the factory that it was discovered that they are availing credit of duty on certain inputs. This clear cut misstatement of facts is with the sole intention to evading duty therefore, the extended period of limitation is correctly invoked. Ld. AR further submitted that in respect of the second item, it was only when the goods were tested and the officers visited the factory along with the chemical examiner that the process was understood and the correct classification could be arrived at. In view of this position, the extended period of limitation is invocable for the said item also.

4. Ld. counsel for the respondent showed us the sample of the two products as also sample of the gaskets manufactured from the second product. Ld. counsel submitted that the goods got tested, vide report dated 20.01.03 the chemical examiner has stated that the material is composed of natural rubber, carbon block, fillers, additives including sulphur. It is unvulcanised.

4.1 Similarly in respect of second sample, similar report was given and it was also said that is in primary form of heading no.40.05. It was also submitted that the said reports were send by the Joint Director. Thereafter, the Central Excise officials along with chemical examiner visited the factory. The chemical examiner gave the report dated 25.05.2003. Ld. counsel submitted that this report cannot be relied upon for two reasons. First reason is that the first set of reports are signed by the Joint Director, while the second report dated 25.05.2003 is signed by chemical examiner Grade I, who is junior official. In case the department was not satisfied with the earlier report, it should have be referred the matter to the Chief Chemist. Ld. counsel further submitted that in the report dated 25.05.2003, the chemical examiner has expressed his opinion on the classification of the goods which is outside the purview of the chemical examiner. The chemical examiners job is only to carry out the chemical test and submit the test report. The classification of the goods is required to be determined by the Central Excise officer.

4.2 Ld. counsel further submitted that the Cenvat credit availed by them is only on minor items. They have not availed the Cenvat credit on major item and in view of this position, it has to be assumed that the goods have been produced without availing the Cenvat credit. He further submitted that there is no difference between the second item and the first item except that the first item is in the form of rectangular lump, the second is in continuous length having a width of 10mm. He further submitted that their unit was functioning for more than 10 years and the unit was audited number of times earlier also, they were filing classification declaration and the revenue had not objected to the classification and it is their bonafide belief that the items were correctly classifiable and under the circumstances, extended period of limitation is not invocable. He submitted that in view of the said position, appeal filed by the revenue may be dismissed.

5. We have considered the submissions. In order to decide the classification of the first product, we reproduce the relevant heading:

40.05

Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strip, other than the forms and articles of unvulcanised rubber described in heading no. 40.06

4005.10 Plates, sheets or strip, whether or not combined with any textile material, in relation to the manufacture of which no CENVAT credit of duty paid on the inputs used has been availed.

Nil

4005.20 Used within the factory of production for the manufacture of excisable goods falling within this Schedule Nil

4005.90 Other 16%

6. We note that as far as the first item is concerned, there is no dispute between revenue and the respondent that the item is classifiable under 40.05. The dispute is only limited to whether the item is classifiable under 4005.10 or 4005.90. It would be seen from the description of 4005.10 that the primary requirement to classify under the said sub-heading is that in relation to the manufacture, of which no Cenvat credit of duty paid on the inputs used has been availed. In the present case, there is no dispute that credit of duty paid on certain inputs have been availed by the appellant, as is clear from the show-cause notice. It is not disputed either by the ld. counsel for the respondent or not even by the Commissioner (Appeals). We find the Commissioner (Appeals) has taken a view that the respondent had classified the goods under 4005.10 and cleared the goods indicating this classification in their clearance document and their monthly return. This clearly indicates the intention of the respondent not to avail credit of the duty paid on inputs used in the manufacture of such goods. Accordingly, the appellant had not availed the credit on their main input i.e. raw rubber and fillers. However, they had availed on a minor quantity of consumables. Commissioner (Appeals) has thereafter observed that this is unintentional wrong availment of Cenvat credit and same cannot be considered as wrong classification of goods and has agreed with the contention of the respondent. We are unable to persuade ourselves to the reasoning adopted of the Commissioner (Appeals). The classification of the product itself depends upon the fact that the manufacturer has not taken the credit on inputs used in the manufacture of such item; there is nothing like major or minor item in the description. Once a manufacturer has taken the credit of any of the inputs, the goods manufactured out of such inputs goes out of such sub-heading viz. 4005.10, and would be required to be classified under 4005.90 which do not stipulate any such condition. This Tribunal in Hi- Mile Rubber (supra) has observed as under:-

7. On considering the submissions of the learned SDR, we have found a good case for the appellant. Classification of excisable goods is a fundamental part of assessment of the goods to duty of excise. The compounded rubber products manufactured and cleared by the respondent during the relevant period was rightly classified under heading 4005 and sub-heading 4005.90 by the Revenue inasmuch as, admittedly, the manufacturer had availed MODVAT credit of the duty paid on inputs used in the manufacture of the said goods. It is not in dispute that the respondent did not manufacture any intermediate product classifiable under SH 4005.20 during the material period. In this scenario, the products cleared by them after availing MODVAT credit on inputs was rightly classifiable under the residuary sub-heading 4005.90, residuary to SH 4005.10. This classification would necessarily result in levy of duty on the goods at the rate applicable to SH 4005.90 and this was done by the original authority, with which we are in full agreement. The decision taken by the learned Commissioner (Appeals), which is focused on Rule 57CC without regard to the correct classifiability of the goods, is not sustainable in law. Before application of Rule 57CC, the manufacturer should classify his final products, correctly and ascertain whether some of such products are dutiable and other exempted. If it is found that, upon correct classification of the final products, some are dutiable and others exempted, the manufacturer can start thinking of the procedure under Rule 57CC if he does not opt to maintain separate accounts in respect of common inputs used in, or in relation to, the manufacturer of the dutiable and exempted final products. The decision taken by the learned Commissioner (Appeals) has done violence to this scheme of law.

7. We are entirely in agreement with the above view and in our considered view; goods classified by the respondent in 4005.10 would be classifiable under 4005.90. We also note that the respondent has declared in various documents as also in the form of letter that he is not availing the credit of any of the inputs used in the manufacture of such item which have been found to be factually incorrect on verification. In view of this position, there has been clear cut mis-statement of facts and extended period of limitation would be invocable as far as the first product is concerned. Penalty under Section 11AC/Rule 25 will also be imposable.

8. Coming to the classification of the second item, we have seen the sample of the goods. We also observe that there is no dispute about the fact that for the manufacture of this product the compounded rubber in the primary form i.e. in the form of sheet is used as an input and the said sheet is further extruded through a die of dimension of 10x10 sq.mm. to get compounded rubber of the said dimension in running length. This product is outcome of second time extrusion process and extrusion process is carried out on the compounded rubber. This is a case where the processed compounded rubber in the primary form has been further worked upon and would therefore be classifiable under heading 4006 in view of chapter note 7 which reads as under:-

9. In heading nos. 40.01, 40.02, 40.03, 40.05 and 40.08, except as otherwise provided, the expressions plates, sheets and strips apply only to plates, sheets and strips and to blocks of regular geometric shape, uncut or simply cut to rectangular (including square) shape, whether or not the character of articles and whether or not printed or otherwise surface worked, but not otherwise cut to shape or further worked.

9. In our considered view, the classification of the second item would be under 4006.90 and we accordingly hold so.

10. As far as invoking the extended period of limitation on the second item is concerned, it is submission of the counsel that they are manufacturing this item for almost 10 years and they were filing the classification declaration and their unit was visited and audited number of times and department had never suggested that classification would be under 4006.90. We find force in the argument of the respondent as the unit was in existence and producing this item, filing the classification list which had been continuously approved by the appellant and in view of this position, in our view, the extended period of limitation invoked in respect of the second item is not correct, and only the demand which is within the normal period of limitation is upheld. We also do not see any reason to impose penalty as far as the second item is concerned.

11. Appeal filed by the revenue is allowed in above terms.

(Pronounced in Court on .)

(S. S. Garg) (P.K. Jain) Member (Judicial) Member (Technical)

//SR

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