Customs, Excise and Gold Tribunal - Delhi
Krishna International vs Collector Of Central Excise on 7 March, 1994
Equivalent citations: 1994ECR76(TRI.-DELHI), 1994(71)ELT694(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. The Collector of Central Excise (Meerut) has confirmed a duty amount of Rs. 41,40,866.00 under Section 11A and has also imposed a personal penalty of Rs. 10,00,000/- under Rule 173Q of the Central Excise Rules, 1944, on the ground that the appellant has contravened provisions of Rules 9(1), 52(A), 173B, 173C, 173G, 173F and 174 of the Central Excise Rules, 1944. The case against the assessee was built up in this manner. The assessee is engaged in the manufacture of Audio Cassettes. They were issued with show cause notice dt. 14-2-1991 alleging contravention of the above noted rules with a specific allegation that they had evaded the Central Excise duty on Audio Cassette Housing by way of clandestine removal without payment of duty in as much as it is alleged that:
(i) The appellants were engaged in the manufacture of various parts of Audio Cassette Housing viz. (1) Shell (2) Hub and Hub Pin (3) Roller (4) Black Paper/paper file (5) Shield /Patti (6) Screw (7) Pressure Pad and (8) Stickers in their factory premises and out of these parts, they were further manufacturing and assembling the said 'Audio Cassette Housing' which in addition to being consumed in their factory in the further manufacture of Audio Cassettes (blank and recorded) was also being sold to outside parties.
2. It is also stated that they manufacture various parts of audio cassette housing in the following manner :
1. Shell- The two sides of the shell are manufactured by moulding plastic granules on plastic moulding machines.
2. Hubs and Hub- The two Hubs and Hub-pins are also manufac-
pin tured by moulding plastic granules on plastic
moulding machines.
3. Roller- The two rollers are also manufactured by moulding
plastic granules on plastic moulding machines.
4. Black Paper/ Sheets of black paper are imported/procured and
paper file - then are cut to size.
5. Shield/patti - Sheets of Patti are imported/procured and then cut
to size.
6. Screw - It is imported/procured from outside suppliers in
bulk.
7. Pressure Pad - Metal sheets and padding are imported/procured
from outside sources and then cut to size and fixed
together.
8. Sticker - Headlines of songs, codes, monograms and ex-
clusive patterns/designs are printed on a
plain paper and procured from outside.
3. It is stated that there are only two main components of an 'Audio Cassette viz. (a) Magnetic tape in the form of 'Cut' and (b) Audio Cassette Housing (also commonly known as co;). It is stated that the appellant procured the magnetic tape from outside sources but they were themselves engaged in the manufacture of "Audio Cassette Housing" by individually manufacturing each part of the Audio Cassette Housing described in para 2 above and assembling them into "Audio Cassette Housing".
4. The said 'Audio Cassette Housing' and parts thereof, it is stated, are 'goods' as they are capable of being bought and sold in the market and are known by the description 'Audio Cassette Housing' or co; and parts by their respective name by the persons associated in the trade of such 'goods'.
5. It is stated that the said parts of the 'Audio Cassette Housing' are essential and indispensable components of a blank/recorded cassette and in the absence of any one of them, the audio cassette shall not be able to function at all as is evident from the details of functions performed by each individual part as described hereunder :
(i) Shell: It holds all the said parts alongwith the
'cut' at their respective places by
functioning as a specifically
designed casing for their said purpose.
(ii) Hub and Hub- The 'cut' is wound on by one Hub and
pins: one end of the cut is fastened securily
by 'Hub Pins' on the 'Hub' and the other
end of the 'cut' is also fastened
securily on the second 'Hub'. During
the 'play' the magnetic tape winds
on the second 'Hub'.
(iii) Roller : It smoothly facilitates the passing of the magnetic
tape from one hub to the other and through between
'Head' of the cassette player and the 'pressure pad'.
(iv) Black paper : It is placed on both sides of the 'cut' to keep the
edges of the tape intact and in their proper roll.
(v) Shield/Patti: It bears the pressure applied by the 'Head' of the
cassette player during 'Play' on magnetic tape and
helps in keeping intact the 'pressure pad'.
(vi) Pressure pad : It provides cushion to the magnetic tape and thus
facilitates the reproduction of coherent sound.
(vii) Screws : These keep all the parts of the audio cassette at
their respective places, thus facilitating the audio
cassette to function normally by screwing the two
sides of the shell.
6. It is alleged that all the said parts of the 'Audio Cassette Housing' are solely and principally designed to function as essential and integral part of the 'audio cassette'. These goods have got no other use at all except to be used as essential and integral parts of the audio cassette.
7. It is further stated that said 'Audio Cassette Housing' and parts thereof are not articles of general use but are articles specifically made to work for specific purpose i.e. to take the precut tape. Thus, essentially the said 'Audio Cassette Housing' and parts thereof are parts of the principal item as they are specific and distinguishable parts of an Audio Cassette, which simply emerges when a 'cut' is put inside an 'Audio Cassette Housing'.
8. For the purpose of classification of Audio Cassette Housing, the department has referred to the relevant section notes and chapter notes in Central Excise Tariff Act, 1985 viz.:
(I) Section Note 2 of Section XVI of Central Excise Tariff Act, 1985 : "Subject to Note 1 to this section, note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of Heading No. 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules:
(a) Parts which are goods included in any of the headings of Chapters 84 and 85 (other than Heading Nos. 84.85 and 85.48) are in all cases to be classified in their respective headings.
(b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of Heading No. 84.79 or 85.43) are to be classified with the machines of that kind. However, parts which are equally suitable for use principally with the goods of Heading No. 85.17 and 85.25 to 85.28 are to be classified in Heading No. 85.17).
(c) All other parts are to be classified in Heading No. 84.85 or 85.48".
(II) Section Note 5 to Section XVI of Central Excise Tariff Act, 1985 :
"For the purpose of these notes, the expression 'machine' means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of chapter 84 or chapter 85".
Thus Section Notes 2 and 5 to the Section XVI of the Central Excise Tariff Act, 1985, confirm that 'parts' particular kind of machines (of Chapter 84 or 85) are to be classified with the machine of that kind.
9. Thus referring to Chapter 39 and the 'exclusion' notes to Chapter 85 it is alleged that it tends to confirm that the said 'Audio Cassette Housing' & parts thereof are not classifiable under Chapter 39.
10. Reference to Section Note 4 to Section XVI of the Central Excise Tariff Act is also made and alleged that it also confirm that 'Where a machine consists of individual components, even if they are separate, but are intended to contribute together to a clearly defined function, covered by one of the headings in Chapter 85, then the whole falls to be classified in the heading appropriate to that function.'
11. It is further alleged that the above Section note 4 to Section XVI and the rules of interpretation of the said Tariff also confirm that the 'unassembled machines' or 'in complete machines' are also to be classified with the heading of the machines.
12. It is stated that the Central Excise Tariff Act, 1985 is an Act in itself and so the notes, rules of interpretation and explanations appearing in the present tariff are solely to be taken into account for deciding the classifiability of any product.
13. It is further stated that the Heading 85.23 covers alike both 'Audio Cassette (Blank) and Video Cassettes (Blank) so also the 'Audio Magnetic Tape' and Video Magnetic Tape and so the same yardstick should be applied while classifying the 'Audio Cassette Housing' and parts thereof and Video Cassette Housing and parts thereof.
14. Therefore, it is alleged that the 'Audio Cassette Housing and parts thereof would merit classification under Heading 85.23 w.e.f. 1-3-1986 with introduction of Central Excise Tariff Act, 1985 and not under Chapter 39 which deals with articles of plastics of general use. It is further stated that 'Audio Cassette Housing and parts thereof is an intermediate product, which is further used in the manufacture of final product Audio Cassette (Blank as well as recorded) and as the final product Audio Cassette (blank) and Audio Cassette (recorded) are not chargeable to duty therefore this intermediate product, would be chargeable to duty with effect from 1-3-1986.
15. It is further stated that the appellants did not give full description of the product as "Audio Cassette Housing and parts thereof" in their classification list filed with the Range Office w.e.f. 6-3-1986, instead, it is alleged that they had fraudulently misdeclared their intermediate product as "plastic cassette component i.e. Housing I/C Hub, stopper roller only in the column 17 of their classification list and claimed it as non-dutiable. It is stated in this context that the word 'Housing' appearing in column 7 of the said list, they had meant it as the 'part' 'shell' only which holds all the parts of Audio Cassette Housing alongwith the cut at their respective places. Shell being only a part of 'Audio Cassette Housing' whereas, 'Audio Cassette Housing' is a separate fully functional entity consisting of eight different parts fully assembled together. Thus, it is alleged that the appellants had fraudulently misdeclared their intermediate product, by merely describing its three, four parts and totally suppressing the facts of its manufacture. This is a common allegation made in respect of classification lists filed and got approved on 24-7-1986 and also in respect of revised classification lists filed on 8-4-1986. As the revised classification list had not been approved, they surrendered their L-4 licence on 5-6-1986 and later cleared manufactured goods without L-4 licence and without payment of CED, thus contravening the provision of various rules of Central Excise Rules. Allegations are also made on the aspect pertaining to correct valuation of this intermediate product. It is alleged that the cost of these products would come to Rs. 1.48, while the manufacturing expenses incurred are Rs. 0.69 on the total component cost of Rs. 4.71. On pro rata basis, the manufacturing cost would come to Rs. 0.22, and the profit would be Rs. 0.60 on the total expenditure of Rs. 5.40; and in respect of the components manufactured, the profit would be Rs. 0.19. Thus, it is alleged that the total value of 'Audio Cassette Housing' consisting of cost of components manufactured by them, manufacturing expenses plus profit (pro rata) comes to Rs. 1.89 (Rs. 1.48 to 0.22+0.19). It is stated that the above said value had also been declared in price list filed in part I with the department. On the basis of the clearance details of 87,63,738 nos. of the said product, firms had by their letter dated 26-5-1988 for the period 1-3-1986 to 13-10-1987, the department has valued the same at Rs. 1,65,63,464.00 and demanded duty @ 25% ad valorem of Rs. 41,40,866.00.
16. The appellants filed their reply dated 13-12-1991 to the show cause notice. Inter alia, they submitted that 'Audio Cassette Housing' (ACH) consists of 2 panels and it is itself a part of "Audio Cassette Tape" and the said ACH does not have any parts as stated in the show cause notice. They say that it is so because the various parts like Hubs and Hub-pins, rollers, black paper/paper file, shield/patti and pressure pad are "housed" in the "Audit Cassette Housing" i.e. in the aforesaid two panels, the said two panels put together are called as "Audio Cassette Housing". They submit that 'Audit Cassette Housing' 'shell' and 'casing' are one and the same. They state that they are not manufacturing black paper, shield, patti, pressure pad and screws and the same were purchased as such by them from the market. They state that alongwith the plastic component parts manufactured by them, they are simultaneously assembled in the housing and thereafter the two panels of the housing along with the aforesaid parts and magnetic tape were screwed together with 5 screws and the resultant product was Audio Cassette. Therefore, they contend that at no stage they had manufactured "Audio Cassette Housing and parts thereof" without the magnetic tape and consequently, the various allegations made in the show cause notice are baseless. It is their case that they do not manufacture "Audio Cassette Housing with the aforesaid parts" without magnetic tape and as such the question of having manufactured the said product i.e. Audio Cassette CO "CO stands for zero tape or without tape" by them and the question of clearing such "Audio Cassettee CO" or "Audio Cassette Housing and parts thereof" does not arise. They have also contended that the department has not placed any evidence to show that they had sold outside parties "Audio Cassette CO" or "Audio Cassette Housing and parts thereof". It is further stated by them that as is evident by their letter dated 25-6-1987 (S. No. 1 of Annexure to show cause notice), they had received a consignment of "Video Cassette Parts" 'CO.' of 45,000 pieces on 8-6-1987 and the said consign merit had been cleared by them on payment of appropriate duty including the additional duty of Rs. 1,26,755.32 leviable under Section 3 of Customs Tariff Act, 1985. They state that the said 'Video Cassette Parts' 'CO.' were to be utilized for the manufacture of Video Cassettes after inserting magnetic tape inside the said 'Video Cassette Parts, "CO" and as such they opted for Modvat credit of duty. Therefore, they state that they were purchasing 'Video Cassette Parts 'CO' or Video Cassette, 'CO' or Video Cassette Housing and parts thereof, the terminology used in the show cause notice with reference to 'Audio Cassette Housing and parts thereof, for manufacture of Video Cassettes and as such it could not be said that they imported Video Plastic Parts 'CO' or 'Video Cassette' 'CO' or Video Cassette Housing and parts thereof without magnetic tape.
16. They further submitted that the classification list dated 1-3-1986 filed by them, they had declared Audio Cassette tape (blank) under sub-heading No. 8520.00 and claimed Basic Excise Duty leviable on the said 'Audio Cassette Tape' (blank) at 15% ad valorem in respect of the clearance exceeding Rs. 15 lakhs and at the rate of 25% ad valorem in respect of clearances exceeding Rs. 75 lakhs but not exceeding Rs. 1.5 crores. They state that on the reverse of the said classification list, they had declared that the plastic cassette components i.e. housing, I/C 'International Cover', Hubs, stopper and roller and claimed nil rate of duty in respect of the aforesaid plastic Cassette Components by classifying the same under sub-heading No. 3923.00 of the said schedule. They state that the said Plastic Cassette Components are exempted from duty under S. No. 38 of the Table annexed to Notification No. 132/86-CE., dated 1-3-1986. They state that the said classification list was verified by the Jurisdic-tional Superintendent of Central Excise on 18-3-1986 and thereafter the same was forwarded to the jurisdictional Assistant Collector for approval. They state that before the aforesaid Assistant Collector could approve the said classification list they had submitted a revised classification list effective from 2-4-1986 whereunder they had showed the following products :
"i. Audio Cassette Tape (blank) - Type C. 60 and C. 90 ii. Sound recorded cassette Tape - Type C-60, C-45, C-36 and articles of plastic i.e. housing, I/C (International Cover), hubs, stopper and roller. On the reverse side of the classification list dated 8th April 1986 and effective from the 2nd April, 1986 we mentioned the following goods, viz.
(a) plastic cassette components i.e. housing, I/C (International Cover), hubs, stopper and roller
(b) sound recorded cassette tape".
17. They state that they claimed nil rate of duty in respect of goods mentioned at 'A' above has been exempted in view of Notification No. 132/86-CE., dated 1-3-1986. Similarly, in the case of goods mentioned at 'B' above, they claimed nil rate of duty under sub-heading 8524.00 vide Notification No. 68/86 dated 10-2-1986 as amended by Notification No. 157/86, dated 1-3-1986. They state that the said classification list has not been returned to them.
In conclusion they have pleaded that "Audio Cassette Housing and parts thereof" is not manufactured by them and, therefore, the question of its clearances either for captive consumption or for sales outside their factory premises are of the separation of facts as alleged in the show cause notice did not arise. They also have stated that the amount of duty demanded require to be reworked out on the following grounds :-
"(a) the value of "Audio Cassette Housing and parts thereof i.e., Audio Cassette (CO.), which we do not manufacture, and shown in the captioned show cause notice will be treated as cum-duty price and the amount of duty payable will have to be deducted from the value shown in the captioned show cause notice so as to arrive the assessable value and thereafter the amount of duty payable will have to be worked out.
(b) the value of the "Audio Cassette housing and parts thereof which we do not manufacture, will have to be re-worked out after deducting the MODVAT credit of duty paid on the raw materials used in, or in relation to the manufacture of "Audio Cassette Housing and parts thereof so as to arrive at a national assessable value, otherwise it would defeat the basic purpose of having the Modvat Scheme in as much as if the duty paid on the raw material is not deducted from the notional assessable value there would be a tax on tax which is not contemplated under the Modvat credit as is evident from the instructions issued by the Central Board of Excise and Customs and published in the form of pamphlet captioned "Guide to Modvat" and published by the Directorate of Publication, New Delhi.
(c) The amount of duty paid on the various raw materials used in, or in relation to the manufacture of "Audio Cassette housing and parts thereof", which they did not manufacture, will have to be taken into consideration as Modvat credit of duty and adjusted against the Central Excise duty held to be payable to them."
18. The ld. Collector on a careful consideration of their reply rejected their pleas and confirmed the demands/raised in the impugned show cause notice besides imposing personal penalty of Rs. 10 lakhs under Rule 173Q of Central Excise Rules, 1944. The ld. Collector has held that the two penals and other parts are designed in such a fashion that when the Audio Cassette Tape come into existence ipso-facto Audio Cassette Housing, comes into existence. He has further held that Audio Cassette Housing is an essential and integral part of Audio Cassette Tape and is meant solely and principally to be used in the manufacture of Audio Cassette Tape. He has further held that the application for licence for manufacture of Audio Cassette Tape was made without giving the details of manufacturing process. And after making further discussions on this point the ld. Collector has concluded that the allegation of suppression and mis-declaration on the aspect of manufacture of said Audio Cassette Housing is proved. The ld. Collector has also rejected the claim of the appellant for MODVAT credit on the ground that they had not filed any declaration in respect of Audio Cassette Housing in the manufacture of product and hence held that the benefit cannot be granted to them.
19. We have heard Sh. V. Lakshmi Kumaran, ld. advocate for the appellant and Sh. S.K. Sharma, ld. J.D.R. for the Revenue. Ld. Advocate reiterating the differences raised by appellant submitted that they are not manufacturing cassette without magnetic tape, and in the course of manufacture of these Audio Cassette Tapes, the appellants are merely assembling various components and what emerges is audio cassette tape. It is also argued that Audio Cassette Housing or audio cassette C-O (i.e. without magnetic tape) at no point of time in the course of manufacture of audio cassette tape, emerge independently. It is also pleaded that audio cassette without magnetic tape cannot be manufactured. The audio cassette without magnetic tape but with other parts is known as audio cassette C-O. Therefore, the ld. counsel submitted that the question of first manufacturing this audio cassette C-O and then putting the tape inside is not possible with the machineries installed by the appellants. He, further, argued that the burden of proving that the product is a manufactured one and that duty is leviable on the department which has not been discharged. It is argued that audio cassette housing or audio cassette C-O is nothing but a cassette without magnetic tape in it. Thus the audio cassette housing or audio cassette C-O is made of plastic shells and other parts of plastic components, like stopper, hub, etc. and that this is nothing but packing for magnetic audio cassette tape. Therefore, the magnetic housing made of plastic would be classifiable under chapter 39 as articles of plastics and thus exempt from payment of duty under Notification No. 132/86 dated 1-3-1986. Referring to HSN Explanatory Note to Heading 85.23 at page 1372, the Heading 85.23 excludes articles intended for use as media for recording sound or other phenomena but not yet prepared as such, and that they are classified in the respective Heading like Chapter 39 or 48. The audio cassette housing or audio cassette C-O which is nothing but article of plastic intended for use in the manufacture of goods falling under Heading 85.23. It is thus excluded from Heading 85.23 as per the said Explanatory Note. He, further, argued that the Section 2(a) or (b) of Section XVI cannot be applied in the present case. The counsel argued that as per this Section Notes, parts which are suitable to use solely and principally with a particular kind of machine are to be classified with that particular kind of machine. He submitted that the appellant had manufactured sound recorded cassette tape falling under Chapter 85.24 which is exempted from whole of duty vide Notification No. 68/86 dated 10-2-1986 vide Serial No. 12 to the table annexed therein. Therefore, arguing further the ld. counsel submitted that even if Section Note 2(b) is applied even then the expression "sound recording cassette tape" would cover even the parts which are suitable for use solely or principally with sound recorded cassette tapes. Even going by the department's own case, the audio cassette would fall under Heading 85.24 and thus were exempted under Serial No. 12 of Notification No. 68/86. Further, he contended that there is no entry for audio cassette housing parts and that they would come under their original Heading as per Section Note 2(a). He further submitted that the items can go both under sub-heading 85.23 and 85.24, as the item could be used for both record or pre-record cassettes. In that view of the matter, the ld. counsel argued alternatively, the Section Note 2(a) and 2(b) could not be applied. However, if Note 2(c) is applied then the item could go under Heading 85.48 as "Electrical parts of machinery or apparatus not elsewhere specified" but that heading would not be appropriate and as such sub-heading 39.26 is correct classification, by treating the item as plastic parts. He, further, pointed out that by reading HSN Explanatory Note appearing at page 1408 in respect of Sub-heading 85.48, the item is not an electrical operated machine or apparatus, and hence the classification under Sub-heading 85.48 would also be eliminated. The item is also not a part of general use and it cannot be classified as parts of general use. In the circumstance, the plea of classification under sub-heading 39.26 has to be accepted. He argued that the appellants plea for MODVAT claim has been unjustly denied. He, further pointed out that there has been no mis-declaration of the fact and all the details had been disclosed to the department and hence larger period cannot be invoked in the present case. In support of the various context contentions, the ld. counsel relied on the following rulings :-
(i) Stormac India Ltd. v. Collector of Central Excise, Ahmedabad [1989 (40) E.L.T. 343 (Tri.)
(ii) Collector of Central Excise, Calcutta v. Air Conditioning Corporation Ltd. [1993 (66) E.L.T. 384 (Tri.)
(iii) Indian Hydrolics v. Collector of Central Excise, on the Order No. 358/93-B1, dated 22-10-1993.
20. Ld. J.D.R., Sh. S.K. Sharma arguing for the Revenue submitted that the various parts of the audio cassettes are capable of being sold and are in marketable condition. He submitted that the item in question could be utilised by them for recorded audio cassette tape and unrecorded also falling under sub-heading 85.23 and 85.24 respectively. Therefore, by applying Note 2(b) the item is required to be classified under sub-heading 85.24. He, further, pleaded that the appellants had not disclosed the manufacturing process and had filed a wrong classification list and hence invoking of larger period is fully justified.
21. Ld. Counsel further pointed out that Note 1 (c) of Section XVI which reads with as follows : Bobbins, Spools, Cops, Cones, Cores, Reels or similar supports of any material (for example Chapter 39, 40, 44 or 48 of Section XV). Ld. Counsel pointing out to the above note submitted that items which are acting as support of any material in the nature of item described in Note l(c) are excluded from Section XVI. Therefore, Chapter 85 is excluded for the purpose of classification. The item is also not an apparatus or a machinery and, therefore, Note 2(a) and 2(b) refer to parts of machine and hence the item cannot be classified under sub-heading 85.23 and sub-heading 85.24 and hence the departments classification is not correct.
22. The questions that arises for our consideration is :
(i) as to whether the impugned products are marketable and whether they can be treated as goods for the purpose of classification.
(ii) if so the correct classification ?
(iii) whether the applicants are entitled for MODVAT credit ?
(iv) whether the demands are time barred ?
As can be seen from show cause notice the appellants are alleged to have manufactured "audio cassette housing (ACH)", which are alleged to be 'parts' which go into the manufacture of audio cassette tapes, recorded and unrecorded. In para-2 supra the eight parts on which duty liability has been claimed are noted above. It is also not the case of department that all the eight parts are manufactured by the appellants themselves as for instance Black Paper/Paper file is said to be imported and purchased from outside, likewise Shield/Patti; Screw, Pressure Pad and Sticker; these items are either imported or procured from outside. It is only Shell, Hub and Hub Pins and Roller which are said to be manufactured by the appellants. The department's case is that these eight parts are intermediate products and they are solely and principally designed to function as essential and integral part of the audio cassette and, therefore, by applying the Note 2 of Section XVI of Central Excise Tariff, 1985, and also Note 4 & 5 of the said Section, the goods are classifiable under Chapter 85.23 with effect from 1-3-1986 and not under Chapter 39 which deals with articles of plastics of general use. The assessee on the other hand has totally denied the allegation, that these eight parts are marketable and that they are goods. It is their contention that these parts cannot be classified at all, as they are not emerging independently but they are manufactured simultaneously and the final product that emerges is the audio cassette tape. It is their contention that these final products cannot be manufactured without these products being assembled and what emerges by assembling the various components is the audio cassette with tape and not ACH as alleged by the department. Alternatively, they have contended that even if that be so they have to be treated as articles of plastics, to be appropriately classified under Chapter 39 and that they are not parts of machinery or accessories of machineries, to be classified under Chapter 85 along with the final product in terms of Section Note 2(b). It is their contention that even if that be so, even then it is exempted in view of the final product being exempted under serial number 12 of Notification No. 68/86. There is much force in the contention of the appellants. The burden of proving that the product is marketable and that they are goods is on the department. In this case there is no evidence to show that these eight parts have been marketed by the appellants. Even if they emerge in the intermediate stage, the department has to show that the said product emerging at that stage is independent goods, which are marketable and duty is imposable thereof. This burden has not been discharged by the department. It is for the department to have shown that in the trade and commercial parlance, they are goods with a name, character and use of "Audio Cassette Housing". The allegation itself discloses that only three of the parts are manufactured by the appellants, while rest of the other items are procured from outside. The three items which are manufactured are essential items for the final product, and, therefore, the appellant's contention that the tape is required to be fitted and assembled by them along with other items and what emerges is final goods itself, is a submission which has not been controverted by the department. There is also no tariff entry specifying audio cassette housing, as goods. The first three items Shell, Hub and Hub Pins and Roller are undoubtedly made out of moulding plastic granules on plastic moulding machine. They are in the nature of plastic articles. But even to consider them as marketable and goods, the Revenue should discharge their burden and also show that trade recognise these three items as goods and that they are independently available in the market. It is common knowledge that these parts cannot be purchased by any customer to make his own audio cassette, as what is sold in the market is audio cassette with a tape. The Hon'ble Supreme Court has also laid down in the case of Bhor Industries v. Collector of Central Excise, 1989 (40) E.L.T. 280 in paras 5 to 8 that the goods should be marketable and even mere mention in the Tariff Schedule is not a criterion for the Revenue to demand duty. The relevant para is noted herein below :
"... Therefore, the marketability * * * *.
* * * * * * * *
8. It appears from the facts as aforesaid before that the crude PVC films as produced by the appellant in this case were not known in the market and could not be sold in the market and was not capable of being marketable."
23. In view of these findings, we hold that the department has failed to discharge their burden of proving that the products emerging in the intermediate stage are marketable and are goods. In view of the matter appellants succeeded on this ground itself. Therefore, the question of entering into its classification does not arise. However, for the purpose of academic interest, we have to accept the appellant's plea that the first three items which they manufactured are in the nature of plastic articles.
24. As regards the demands being time barred the appellants submission that they had declared the final product in classification list and the department had been approving the same and also collecting duty is not denied. They had also been filing price bifurcation along with the classification list. This bifurcation clearing indicated about the various parts which are used in the manufacture of the final product. There is no necessity to have furnished the manufacturing process, in a case of this nature. As it is common knowledge that a audio cassette is made up of shells & tape. Before granting approval of the classification list, it is for the department to have called for all the informations, which they may find it necessary for granting approval. Having not done so, the department cannot charge the appellants of mis-declaration. In that event of the matter, the allegation that the appellants had wilfully mis-declared and suppressed the manufacture of the goods is totally without any basis and therefore, demands are barred by time and not recoverable. In that view of the matter, the appellants succeeded and appeal is allowed.
P.C. Jain, Member (T)
25. I have perused the order proposed by my learned brother, Shri S.L. Peeran, Judicial Member.
26. Learned Judicial Member has held that the Audio Cassette Housing (CO) which is the subject matter of the dispute in the present case has not been proved to be marketable by the department the burden of which lies on the Revenue. Hence the impugned goods are not liable to duty. I agree with the conclusion of non-duty liability of the Audio Cassette Housing (CO) on different grounds, as set out below without recording my views on the plea of marketability taken by the appellants.
26.1 I feel that on the basis of manufacturing process undertaken by the appellants and the finding thereon recorded in the impugned order itself, I am of the view that no product which can be described as Audio Cassette Housing (CO) has come into existence in the course of manufacturing process before coming into existence of Audio Cassette Tape which is the ultimate product manufactured and cleared by the appellants on payment of duty. On the basis of the manufacturing process brought on record and the findings of the adjudicating authority itself, it is apparent that the Audio Cassette Housing (CO) and the Audio Cassette Tape come into existence simultaneously. In this connection, I reproduce para 3(a) of their reply to the show cause notice dated 13th December 1991 after hearing on 3rd December 1991 :-
"During the course of personal hearing on the 3rd December, 1991 before your kind honour, all the parts of the 'Audio Cassette Tape' as well as the 'Audio Cassette Tape' itself in finished form were shown to your kind honour when prima facie it appeared that your kind honour were convinced that the 'Audio Cassette housing' itself consists of 2 panels. The said 'Audio Cassette housing' is itself a part of 'Audio Cassette tape' and the said 'Audio Cassette housing' does not have any parts as stated in the captioned show cause notice. It is because the various parts like Hubs and Hub-pins, rollers, black paper/paper file, shield/patti and pressure pad are 'housed' in the 'Audio Cassette housing' i.e. in the aforesaid two panels, the said two panels put together are called as 'Audio Cassette housing'. It was submitted that Audio Cassette "Housing", 'Shell', 'Casing' are one and the same. It was also submitted that we were not manufacturing black paper, shield patti, pressure pad and screws and the same were purchased as such by us from the market and were, along with the plastic component parts manufactured by us and also the magnetic tape, simultaneously assembled in the housing and thereafter the two panels of the housing along with the aforesaid parts and magnetic tape were screwed together with five screws and the resultant product was Audio Cassette.
Thus at no stage we were manufacturing Audio Cassette Housi7ig and parts thereof without the magnetic tape and consequently, the various allegations made in the captioned show cause notice are baseless. In short, we do not manufacture 'Audio cassette housing with the aforesaid parts' without magnetic tape and as such the question of having manufactured the 'Audio Cassette housing and parts thereof i.e. Audio Cassette CO (CO stands for zero tape or without tape) by us and consequently the question of clearing such 'Audio Cassette Co or Audio Cassette housing and parts thereof does not arise."
[Emphasis supplied by the advocate] 26.2 Findings recorded on this plea by the adjudicating authority in the impugned order is also reproduced below :-
"In so far as only the component parts can make the whole. The 'Whole' in the case is the Audio Cassette Housing whereas the component parts are 'Shell' 'Hub' 'Hub Pins' etc. Audio Cassette Housing as per the argument of the noticee itself is an independent goods commonly known as Co. But it has been contended that this Audio Cassette Housing does not come into existence in the process of manufacture of Audio Cassette Tape. The two panels of Housing alongwith other parts and magnetic tape are screwed together with 5 screws and the resultant product is Audio Cassette Tape. It has been declared so by the noticee while taking out the L-4 licence. Thus as per contention of the noticee in the course of manufacture of Audio Cassette Tape, Audio Cassette Housing does not come into existence and so it has been contended that Audio Cassette Housing is not manufactured at all. But the fact remains two panels and other parts are designed in such a fashion that when the Audio Cassette Tapes came into existence ipso facto Audio Cassette Housing comes into existence being the Audio Cassette Housing is an essential and integral part of Audio Cassette Tape and is meant solely and principally to be used in the manufacture of Audio Cassette Tape." [Emphasis supplied by the advocate] 26.3 Learned advocate has, therefore, submitted that there is no separate existence of Audio Cassette Housing (CO) before existence of the Audio Cassette Tape in the course of process of manufacture of the latter, there is no question of removal of Audio Cassette Housing (CO) for use in the manufacture of Audio Cassette Tapes in terms of Rule 9(1) of the Central Excise Rules, 1944. He, therefore, submits that there is neither manufacture of Audio Cassette Housing nor removal thereof causing any duty liability on them.
27. I find force in this submission of the learned advocate. There is no rebuttal to the process of manufacture undertaken by the appellants for manufacture of their ultimate product, Audio Cassette Tapes. On the other hand, there is a clear admission of this process of manufacture in view of the finding in the impugned order as emphasised above by the learned advocate. Accordingly, I hold that Audio Cassette Housing (CO) is not manufactured by the appellants. Therefore, its question of removal for use in the manufacture of Audio Cassette Tapes and consequently duty liability on such Audio Cassette Housing (CO) in terms of Rule 9 does not arise.
28. In view of the aforesaid finding, the plea regarding the demand being time barred is merely of academic interest. Nevertheless, I agree with my learned brother on the reasoning and the conclusion relating to this aspect in para 24 of his order. Various findings by the adjudicating authority to the effect that no proper declaration was made regarding the process of manufacture, that there were discrepancies in two classification lists submitted once in March 1986 and another in April 1986 and that the plea of non-manufacture of Audio Cassette Housing (CO) on account of its not coming into existence before Audio Cassette Tape being an afterthought, cannot act as an estoppel on the question of time bar.
29. Hence I allow the appeal with consequential relief to the appellants.