Customs, Excise and Gold Tribunal - Tamil Nadu
Premier Footwear Products (P) Ltd., ... vs Commissioner Of Central Excise on 31 August, 2006
Equivalent citations: 2006(113)ECC483, 2006ECR483(TRI.-CHENNAI), 2007(207)ELT149(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The main dispute in this case relates to classification of two products viz. "Micro-cellular Rubber Sole sheets" for Hawai chappals and "Strap sheets (Plap)" for straps of Hawai chappals. M/s. Premier Footwear Products (P) Ltd. (M/s. PFP, for short), Pollachi were engaged in the manufacture of 'Sole sheets' and 'Strap Plap' of rubber which were used by customers in the manufacture of soles and straps for Hawai chappals. The rubber compound mix ("Sole mix") - prepared from natural and synthetic rubbers, fillers, colouring matter, chemicals etc.-required for the manufacture of Sole sheets was received from their sister unit viz. M/s. Kerala Footwear Products (M/s. KFP, for short), Calicut. The rubber compound mix ("Strap mix") required for the manufacture of 'Plap' was also received from the same unit. The Sole sheets were manufactured by the following process:
The 'upper sole mix' received from the Calicut unit is fed into a kneader mill and mixed with chemicals such as Sulphur, Ureka-F, TMT etc. and subjected to a heating process, whereby the sole mix in plastic condition becomes elastic. The output from the kneader mill is fed into the upper extruder in a sheeting machine, wherefrom vulcanized 'upper sole sheets' are obtained as extruded product in white colour. Similarly, the 'lower sole mix' received from the Calicut unit is fed into the kneader mill and mixed with chemicals such as Sulphur, Ureka-F, TMT, processing oil etc. and subjected to a heating process. The output from the kneader mill is then fed into the lower extruder in the sheeting machine, wherefrom vulcanised 'lower sole sheets' are obtained as extruded product in a different colour. The upper and lower sole sheets drawn from the extruders in the sheeting machine are joined and passed through rollers, when the two sheets, placed one above the other, get bonded into a single sheet, which is cooled in a cooling chamber and cut to size. The resultant sheets are then pressed in a hydraulic press at high temperature to make grooves and emboss designs and brandname ("Premier") on the top and bottom surfaces. The product is micro-cellular in appearance due to liberation of nitrogen gas from blowing agents in the course of the process of manufacture.
The process of manufacture of Strap sheets is as follows:
The "Strap mix" received in the Pollachi unit of M/s. PFP from their sister unit (Calicut) is mixed with chemicals such as Sulphur, Ureka-F, TMT etc. in kneader mill, and subjected to a heating process. The resultant product is fed into sheeting machine, from where plain rubber sheet is obtained as extruded product. This sheet is cooled and cut into sheets of required size, which are placed in strap moulds (dies) and pressed in hydraulic press at high temperature, whereby Strap sheet (plap) with round buttons emerges as final product, which would look like a cluster of straps webbed with films of rubber. The plap also bears the brandname "Premier" embossed on it
2. M/s. PFP had not paid duty of excise on the above products manufactured in their factory at Pollachi and removed to their customers during the period 1.5.12.1998 to 31.03.2003. The rubber waste which had arisen out of the process of manufacture of the two products was also cleared without payment of duty during the said period. They had not taken Central Excise registration for the manufacture of the above products and had not followed Central Excise procedure for the removal of the goods from the factory. The department, at the end of investigations into the manufacture and allied activities of M/s. PFP, issued a show-cause notice to them on. 12.12.2003, invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, demanding duty on Rubber Sole sheets as applicable to Sub Heading 4016.19 of the CETA Schedule and duty on Strap sheets as applicable to SH 4008.29 of the said Schedule, for the aforesaid period. Duty was also demanded on a small quantity of rubber waste. From the investigative results, it had appeared to the department that there was mutuality of interest between M/s. PFP, M/s. KFP and another unit viz. M/s. Kerala Rubber Products which was engaged in the manufacture and marketing of leather footwear and, therefore, the clearances of all the 3 units were clubbed for the purpose of demanding duty from M/s. PFP. For quantification of the duty amount, the assessable value of the goods cleared from the factory upto 30.06.2000 was determined in terms of Rule 6b(ii) of the Central Excise (Valuation) Rules, 1975 and the assessable value of the goods cleared after that date was determined in terms of the corresponding provisions of the Central Excise (Valuation) Rules, 2000. The show-cause notice also demanded interest on duty under Section 11AB of the Central Excise Act and also proposed penalty on M/s. PFP under Rule 173Q of the Central Excise Rules, 1944/ Rule 25 of the Central Excise (No. 2) Rules, 2001/Rule 25 of the Central Excise Rules, 2002 and under Section 11AC of the Central Excise Act. Separate penalties under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise (No. 2) Rules, 2001/Rule 26 of the Central Excise Rules, 2002 were also proposed on M/s. KFP and Shri M. Joy Verghese, Managing Director of M/s. PFP and Managing Partner of M/s. KFP.
3. In their reply to the show-cause notice, M/s. PFP questioned the classification of the 2 products proposed by the department. They claimed classification of the Micro-cellular rubber sole sheets under SH 4008.11 attracting 'nil' rate of duty. In respect of Strap sheets, classification was claimed as parts of Hawai chappals under SH 6401.92 attracting 'nil' rate of duty. Certain objections were raised with regard to the valuation of the goods also. The proposal to impose penalties was also contested by the noticees. After considering the submissions made by the noticees, the Commissioner passed the impugned order demanding duty of over Rs. 9 crores from M/s; PFP under the proviso to Section 11A(1) of the Central Excise Act and imposing a penalty of equal amount on them under Section 11AC of the Act, a penalty of Rs. 50 lakhs on M/s. KFP and a separate penalty of Rs. 10 lakhs on Shri M. Joy Verghese.
4. Heard both sides. Learned Counsel for the appellants submitted that the vulcanisation of rubber became complete only during the process of placing the extruded rubber sole sheets in die and pressing the same in hydraulic press and therefore the said process could only be "surface-working" and not "further working" in terms of Note No. 9 to Chapter 40 of the CETA schedule and therefore the product remained as vulcanised rubber sheets of Heading 40.08. Learned Commissioner's finding to the contra was not in keeping with the process of manufacture of the product. He erred in not applying the ratio of the decision of the Supreme Court in the case of Speedway Rubber Company v. Commissioner of Central Excise, Chandigarh to the facts on record. According to learned Counsel, the rubber sole sheets in the present case could be classified only under Heading 40.08 in terms of Chapter Note 9 as interpreted by the apex court in the above decision. Such a sheet, from which soles for Hawai chappals were to be cut out by chappal manufacturers, could by no stretch of imagination be treated as an "article" of vulcanised rubber classifiable under Heading 40.16. These rectangular sheets of vulcanised rubber, which were not shown to have been "further worked" within the meaning of this expression as used in Chapter Note 9, would remain classified under Heading 40.08 only. In this connection, Counsel relied on the Tribunal's decision in Commissioner v. Sundara Industries . In respect of Strap Plap, learned Counsel submitted that, as straps for Hawai chappals could be obtained by the simple process of cutting the thin rubber films in the Plap, the Plap should be considered to be having the essential character of straps and, accordingly, in terms of Rule 2(a) of the Interpretative Rules, the item should be held classifiable as straps (part of Hawai chappal) under SH 6401.92. In this connection, reliance was placed on Bharath Enterprises v. Commissioner of Central Excise, Delhi-I . Learned Counsel submitted that the straps were manufactured and cleared in the form of sheets only for convenience of transportation and that, at the receiving end, these sheets were cut into straps and the straps, after some trimmings, were used in the manufacture of Hawai chappals. In this connection, he referred to the Supreme Court's judgment in Nanya Imports & Exports Enterprises v. Commissioner of Customs, Chennai , wherein sheets of 'insoles' and 'midsoles' which were imported in rolled-up form for convenience of loading and transportation were held to be eligible for exemption under Notification No. 20/99-Cus. and the proposal of the Revenue for denying the benefit to the importer by treating the goods as films/sheetings was rejected. As regards rubber waste, it was submitted that its value of clearance was within SSI exemption limit and hence any duty was not liable to be demanded in respect of the item. It was also argued that, as the dispute in the case was one involving interpretation of Tariff entries, it was not correct to hold that M/s. PFP had suppressed or wilfully misstated any fact or contravened any provision of law with intent to evade payment of duty and, therefore, it was not open to the department to invoke the larger period of limitation for demanding duty for the period from 15.12.1998. For the same reason, any penalty was not liable to be imposed on them. In this connection, reliance was placed on the Tribunal's' decision in Pallipalayam Spinners Ltd. v. Commissioner of Central Excise, Trichy and Salem , wherein this Bench considered a classification dispute and held that any penalty under Section 11AC of the Central Excise Act was not to be imposed on the party in the facts of that case. Counsel also challenged the separate penalty imposed on the Managing Director of the company.
5. Learned SDR reiterated the Commissioner's reasoning for classification of the goods in the manner he had done. She also referred to the process of manufacture of rubber sole sheets and submitted that vulcanisation of rubber had taken place in the initial stage itself and that the changes undergone by the sheet in hydraulic press at the final stage of manufacture were in the nature of "further working" contemplated under Chapter Note 9 and, therefore, the product would not be a "sheet" falling within the ambit of Heading 40.08. Reference was contextually made to relevant HSN notes also. The sheets in finished form were, admittedly, of vulcanised rubber and the same, cut to regular shape, were liable to be classified as "articles" of vulcanised rubber (other than hard rubber) under Heading 40.16. In this connection, learned SDR claimed support from the Tribunal's decision in the cases of Anand Motors Ltd. v. Collector Central Excise , Aryan Exporters Pvt. Ltd. v. Collector of Central Excise, Allahabad and Raj Rubber Industries v. Commissioner of Central Excise wherein certain vulcanised rubber products (other than hardened) were held to be classifiable under SH 4016.19. As regards Strap plap, learned SDR argued that, on the reasoning adopted by the assessee for classification of vulcanised rubber sole sheets under Heading 40.08, the plap could be classified only under the same heading. A continuous sheet of rubber, from which individual straps could be obtained only by the mechanical processes of cutting and trimming, could not be considered as a part of Hawai chappal. The "essential character" test under Interpretative Rule 2(a) would fail in respect of the product inasmuch as a bundle of straps in the form of a continuous sheet could not be said to have the essential character of an individual strap. Thus learned SDR argued that Strap plap was classifiable only as a sheet of vulcanised rubber (other than hard rubber) under Heading 40.08. She ruled out its classification under SH 4008.21 and SH 4008.22 and submitted that its appropriate place was under SH 4008.29. Learned SDR also contested the appellants' plea of limitation. The appellants never informed the department that they were manufacturing Sole sheets and Strap plaps of vulcanised rubber, both of which were dutiable. They did not choose to take registration from the department for such activity. The goods were manufactured and removed clandestinely. The process of manufacture of the goods came to the knowledge of the department only after a visit by departmental officers to the factory. Thus, suppression of relevant facts by the appellants with intent to evade payment of duty on the goods was apparent. In the circumstances, the extended period of limitation under Section 11A(1) was correctly invoked in this case. In this connection, learned SDR referred to the Tribunal's Larger bench decision in Nizam Sugar Factory v. Collector of Central Excise, Hyderabad , wherein it had been held that, where a manufacturer of excisable goods had fraudulently suppressed his activity with intention to evade payment of duty on the goods, the larger period of limitation was liable to be invoked under the proviso to Section 11A(1) for demanding duty from him notwithstanding the department's prior knowledge, if any, about such fraudulent activity. Learned SDR wanted the findings of the Commissioner to be upheld and the appeals to be dismissed.
6. We have carefully considered the submissions. In respect of rubber sole sheets, the assesssee has claimed classification under SH 4008.11. In the show-cause notice, the department proposed to classify the product under SH 4016.19, but the Commissioner found it to be appropriately classifiable under SH 4016.11. However, the Commissioner chose not to find fault with the department's proposal for classifying the goods under SH 4016.11 on account of the fact that both the sub-headings carried the same rate of duty. We must, at the outset, reject this logic adopted by learned Commissioner inasmuch as rate of duty has nothing to do with classification of goods under the Tariff. As it is apparent from his order that the appropriate entry chosen for the goods on the basis of his own findings is SH 4016.11 and as this classification has not been challenged by the department, we shall take it for granted that the department has accepted the classification of the goods under SH 4016.11. The rival entries as they appeared in the Tariff Schedule during the period of dispute are reproduced below:
Heading No. Subheading No. Description of the goods 40.08 Plates, blocks, sheets, strip, rods, and profile shapes, of vulcanised rubber other than hard rubber</p>
-
Of cellular rubber 4008.11
--Plates, blocks, sheets and strip of micro-cellular rubber but not of latex foam sponge, used in the manufacture of soles, heels or soles and heels combined, for footwear 4008.19
-Other
- Of non-cellular rubber:
4008.21
- Plates, blocks, sheets and strip, used in the manufacture of soles, heels or soles and heels combined, for footwear 4008.22
-
Plates, sheets and strip, for resoling or repairing or retreading rubber tyres 4008.29
- Other * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 40.16 Other Articles of vulcanised rubber other than hard rubber
- Articles of materials of heading No. 40.08:
4016.11
-- Of cellular rubber 4016.19
-Other It is not in dispute that the rubber sole sheets are sheets of vulcanised rubber other than hard rubber and that their physical structure is micro-cellular. It has now to be decided as to whether these sheets are classifiable under SH 4008.11 or SH 4016.11. Prima facie, sheets of micro-cellular rubber used in the manufacture of soles for footwear are classifiable under SH 4008.11. Learned SDR invoked Chapter Note 9 to say that the product would not be a 'sheet' falling within the ambit of Heading 40.08. It was submitted that vulcanisation of rubber had taken place in the initial stage of manufacture and that the vulcanised rubber sheets were "further worked" in the later stages of the process of manufacture and, therefore, the expression "sheet" occurring in Heading No. 40.08 did not apply to the goods in question. It was contended that the goods could be classified only under Heading No. 40.16. According to the assessee, the vulcanisation was complete only at the final stage of the process of manufacture and the vulcanised rubber sheets were only "surface-worked" and not "further worked". On this basis, it was contended that the sole sheets were covered by Heading 40.08 and, since they were to be used in the manufacture of soles for footwear, they were correctly classifiable under SH 4008.11. We have already given an account of the process of manufacture of the subject goods. The 'upper sole mix' and 'lower sole mix' required for the manufacture of rubber sole sheets were separately processed, whereby upper and lower sole sheets of vulcanised rubber were obtained separately as extruded products. Sulphur was used as the vulcanising agent in this part of the process of manufacture of the final product. The upper and lower sole sheets were joined and passed through rollers, when the two sheets got bonded into a single sheet, which was cooled and cut to size. The resultant sheets were then pressed in hydraulic press at high temperature to make grooves and emboss designs and brandname on the top and bottom surfaces, whereby the final product (micro-cellular rubber sole sheet) emerged. What falls for classification is the single sole sheet which resulted from bonding of the upper and lower sole sheets in the hydraulic press. It is indisputable, and is not in dispute, that this single sheet is a sheet of vulcanised rubber (other than hard rubber) from the time of its formation. Whether complete vulcanisation had, or had not, taken place at the earlier stage of formation of the upper and lower sole sheets is an irrelevant question as any of these (upper and lower) sole sheets is not the item to be classified. Therefore, what remains to be examined is the nature of the processes done posterior to the bonding of these sheets, i.e., the question is whether the final sole sheet resulting from bonding of the upper and lower sole sheets was "surface-worked" only or "further worked" also. Chapter Note 9, which has made this question inevitable, reads thus:
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 strip 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.
In his endeavour to establish that the sole sheet was only "surface-worked" and not "further worked", learned Counsel relied on the apex court's judgment in Speedway Rubber Co. (supra). In that case, a vulcanised rubber product viz. "pre-cured tread" was claimed, by the party, to be classifiable under SH 4008.21 both before and after the 1990 Budget, whereas the department wanted the item to be classified under SH 4016.99 for the pre-Budget period. For the post-Budget period, the department was agreeable for classification of the item under SH 4008.21. When the dispute came up before the Tribunal, a majority of Members of the Bench held in favour of the department and classified the goods under SH 4016.99 for the pre-Budget period. The minority view was in favour of SH 4008.21. In the civil appeal filed by the assessee against the decision of the Tribunal, the Hon'ble Supreme Court endorsed the minority view. Their Lordships considered the method of manufacture of the product and proceeded to decide as to whether the process undergone by the extruded material in the final stage of manufacture was in the nature of "surface-working" or "further working" in terms of Chapter Note 9. The different stages of manufacture considered by the court are reproduced below:
1. Natural/synthetic rubber is mixed with certain chemicals including black carbon with the help of a mixing mill.
2. The material so obtained is fed into extruder hopper. Extruder dye is of the required size and shape.
3. Extruder material is taken to water tank for cooling and over conveyor belt.
4. The extruded material is placed in dye and is pressed with the help of hydraulic press and what emerges out is vulcanized, grooved material is called pre-cured tread."
The Supreme Court also considered an HSN note which provided illustrations for surface-working viz. printing, embossing, grooving, channelling and ribbing. Its judgment proceeded thus:
19. To determine the nature of the impugned goods, the difference between "surface worked" and "further worked" is significant. 'Surface working' means working on the surface of the material. 'Surface working' may include coating, polishing, colouring, embossing, corrugating or even grooving when such grooving is only on the surface of the material.
20. The Department contended that though at the initial stage the goods manufactured by the respondents emerged in the form pf plates, sheets or strips, thereafter they are moulded, when their edges are rounded off and the shape of the cross section becomes a trapezoid. As a result, the final products do not remain plates/sheets/strips as defined under Note 9 of Chapter 4, since they are further processed and hence, cannot be classified under sub-heading 4008.21. The classification under sub-heading 4016.99 as "other" articles of vulcanized rubber was more appropriate and, therefore, the exemption Notification No. 47/76, as amended, was not applicable to the appellants. The two members of a Bench of the Tribunal having difference in their view the matter was referred to the Third Member.
21. The majority view of the Tribunal held that the basic character of the goods changed when they were subjected to the process of dye and grooving by hydraulic press. In their opinion, "even after the emergence of plates, sheets or strips after extrusion, the material had to undergo the hydraulic press stage to become the plates, sheets and strips meant for resoling, repairing or retreading under the sub-heading No. 4008.21". This process fell within the meaning of "further worked" and, therefore, the impugned products could not be classified under sub-heading No. 4008.21 as held by the Collector.
22. The minority opinion held that the types of processes or activities, which lead to 'surface working' were illustrated and indicated in the bracket after the words 'surface worked'. This meant that the further working would constitute Some process or activity, which is to be undertaken after surface working. As the manufacturing process claimed by the appellants had neither been contradicted nor shown to be wrong , it was held that the impugned goods were only 'surface worked' and not 'further worked' and could, therefore, be classified under sub-heading No. 4008.21.
23. We may notice that as per Rule 3(a) of the Interpretation Rules to Central Excise tariff Act, 1985,"The heading which provides the most specific description shall be preferred to headings providing a more general description."
24. Accordingly, the Heading No. 40.08 provides more specific description to the impugned goods than Heading No. 40.16 and hence, the specific entry should overrule general entry. Moreover, the manufacturing process Involved 'surface working' of the types described above and does not include 'further working'. This is evident from the interpretation of Note 9 of Chapter 40, that further working would envisage an activity other than those mentioned therein. Hence, on the basis of the aforesaid discussion, the impugned goods would be classified under sub-heading 4008.21 and not under sub-heading 4016.99 as claimed by the Department.
25. Thus, these appeals stand allowed by setting aside the order of the Tribunal and restoring that of the Collector.
(emphasis added) In the present case, we have to decide whether the single sheet resulting from bonding of the upper and lower sole sheets was "surface-worked" or "further worked" in the last stage of manufacture, which took place in the hydraulic press at high temperature and provided grooves and embossed designs and brandname on the top and bottom surfaces of the sheet. Such grooving and embossing are among various types of surface-working illustrated in the relevant HSN Note in Chapter 40. Therefore, the single sheet which resulted from bonding of the upper and lower sole sheets was only "surface-worked" in hydraulic press and not "further worked".The department has no case that the sheet was cut to any shape other than rectangular. The samples displayed by the Counsel in court were of rectangular shape only. In the result, the vulcanised rubber sheets under classification would get covered under the expression "sheet" occurring under Heading No. 40.08, in terms of Chapter Note 9 as interpreted by the apex court in the case of Speedway Rubber Co. (supra). The facts being similar in the two cases, the decision in Speedway Rubber Co. case can be followed for classifying the sole sheet in the present case. We note that, in the case of Sundara Industries (supra), the Bench had classified vulcanised rubber sheet, cut to rectangular shape and not further worked, under SH 4008.29 and rejected the Department's claim to classify it under SH 4016.19. Further, we have noticed Note (11) under HSN Heading 40.16, which says that this heading includes: "Plates, sheets and strip merely cut to non-rectangular shapes, and articles excluded from heading 40.08 because they have been milled, turned, assembled by glueing or sewing or otherwise worked." From this note, it is clear that milling, turning etc. are illustrations of further working, which, if done on a sheet of vulcanised rubber (other than, hard rubber), would take the sheet out of Heading 40.08 and place it under Heading 40.16. The vulcanised rubber sole sheets under classification did not undergo any of such processes and, therefore, cannot be considered to have been "further worked" in terms of Chapter Note 9.
7. In the case of Anand Motors (supra) cited by SDR, certain articles of vulcanised rubber were classified under SH 4016.19 merely on the basis of Chemical Examiner's report (that "each sample is vulcanised rubber other than hard rubber") Without applying Chapter Note 9. In Aryan Exporters' case, the Tribunal was simply following an earlier decision rendered in another party's case and did not state any ratio decidendi. In Raj Rubber Industries (supra), the pre-cured tread rubber product considered by the Tribunal was found to have been manufactured by a moulding process and was classified under SH 4016.19 in view of an exclusion mentioned under HSN Heading 40.08, which was to the effect that this Heading excluded "Plates, sheets and strip, whether or not surface-worked (including square or rectangular articles cut therefrom) with bevelled or moulded edges, or with rounded corners, openwork borders or otherwise worked, or cut into shapes other than rectangular (including square) (heading 40.14, 40.15 or 40.16). None of these decisions can be advantageously applied to the facts of the case on hand.
8. For the reasons already recorded by us, we hold that the micro-cellular rubber sole sheets manufactured by M/s. PFP and removed without payment of duty during the period of dispute are classifiable under SH 4008.11 and, therefore, no duty of excise is leviable thereon as the goods falling under that sub-heading were chargeable to 'nil' rate of duty during the said period.
9. In respect of Strap plap, it is not in dispute that it is in the form of a sheet of vulcanised rubber other than hard rubber. Unlike the Sole sheets, this item has a non-cellular structure. Learned Commissioner examined a sample of the goods and found it to be ;a rectangular slab from which straps could be extracted by trimming with a sharp instrument such as scissors. This finding of the Commissioner is not under challenge. Further, the appellants have no case that this sheet of rubber was "further worked" within the meaning of this expression contained in Chapter Note 9. Therefore Strap plap would remain classified under Heading 40.08. Sheets of vulcanised rubber (other than hard rubber), remaining within the meaning of "sheets" in terms of Chapter Note 9, belong to Heading 40.08 and such sheets of non-cellular structure would get classified under sub-heading 4008.21, 4008.22 or 4008.29. It appears that such sheets, used in the manufacture of soles, heels or sole-heel combination, for footwear, are classified under SH 4008.21, while sheets for resoling, repairing or retreading of rubber tyres are classified under SH 4008.22. Hence non-cellular sheets of vulcanised rubber (other than hard rubber), used in the manufacture of straps, for footwear must be classified under the residuary sub-heading 4008.29. This view taken by learned Commissioner requires to be sustained. The assessee has claimed classification of Strap sheet under SH 6401.92, which entry can be had from the following extract from the Tariff Schedule:
Heading No. Subheading No. Description of goods 64.01 Footwear and parts thereof
- Footwear 6401.11
-- ..............
6401.12
-- ...
6401.13
--Chappals (sole without upper, to be attached to the foot by thongs passing over the in-step but not even round the ankle) commercially known as hawai chappals, of materials other than leather.
6401.19
--Other
- Parts 6401.91
- ....
6401.92
-Of the hawai chappals of subheading No. 6401.13 6401.99
--Other Learned Counsel has invoked Interpretative Rule 2(a) for canvassing SH 6401.92 for Strap plap. It was submitted that, as straps, in the plap, were fully formed in shape and size with three buttons each for fitment to sole and as it was possible to obtain individual straps from the plap by the simple activity of cutting and trimming, it must be held that the plap had the "essential character" of straps. Interpretative Rule 2(a) reads thus: Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled. According to the first part of the above Rule, where an incomplete or unfinished article has the essential character of the complete or finished article, it can be classified under the Tariff Heading covering the latter. In the present case, for classification of the plap as strap under SH 6401,92, it must be shown that it has the essential character of a strap. Even according to the appellants, by cutting/trimming activity, a plap would yield numerous individual straps. Therefore it will be erroneous to hold that a Strap sheet (Plap) has the essential character of a strap, complete and finished. A Strap sheet cannot be classified as individual straps on the "essential character" test. The factual position in the case of Bharat Enterprises (supra) was different. In that case, the question considered by the Tribunal was whether a semi-finished die had the essential character of a finished die. Learned Counsel submitted that straps were manufactured in the form of sheets on commercial feasibility considerations and were cleared in the same form only for the sake of convenience of transportation. In this connection, he relied on the Supreme Court's judgment in the case of Nanya Imports and Exports (supra), wherein the importer's plea that the goods (sheets) were imported in rolled-up form for convenience of handling and transportation was accepted by the court while examining their claim for exemption under a Notification. The HSN Notes under Interpretative Rule 2(a) indicate that such a plea of convenience will be valid only where the second part of Rule 2(a) is applicable. According to the second part of Rule 2(a), a complete/finished article, when presented unassembled or disassembled, would still be classified under the Tariff entry for the complete/finished article. The HSN Notes say that, when goods are so presented, it is usually for reasons such as requirements or convenience of packing, handling or transport. Learned Counsel was relying on the first part of Rule 2(a) and not the second part. The plea of convenience of transportation is not relevant to the first part of Rule 2(a). Therefore the decision in Nanya Imports cited by learned Counsel is not apposite to his own case. It also heeds to be noted that, in the cited case, the apex court was not dealing with any classification dispute. In the result, the claim of the assessee to have their Strap sheet classified under SH 6401.92 as a part of Hawai chappal has only to be rejected. The item is appropriately classifiable under SH 4008.29 as a sheet of vulcanised rubber (other than hard rubber) of non-cellular structure, from which straps for Hawai chappals could be manufactured. Accordingly duty of excise is leviable on the product as held by learned Commissioner. Contextually we note that the activity of cutting/trimming the sheets into straps was to take place at the consignee's end where straps would emerge as parts of Hawai chappals, classifiable under SH 6401.92.
10. The question now is whether the demand of duty on the Strap sheets manufactured and removed by M/s. PFP during the period of dispute is hit by limitation. It has been contended that the case involves interpretation of Tariff entries and it cannot be said that the appellants had any intention to evade payment of duty and, therefore, it was not open to the department to invoke the larger period of limitation for demanding duty. M/s, PFP were aware of the fact that only cutting and trimming operations on a Strap sheet would yield individual straps to be used as parts of Hawai chappals and that the sheet as such was not usuable as a part of Hawai chappal. A plap as such being used as strap for Hawai chappal was not even in their dreams of legendary humans with mammoth feet! There was no room for doubt regarding the classification of this item. There was no question of this item being classified under SH 6401.92 as part of Hawai chappal. On the other hand, it was easily classifiable under SH 4008.29 as a sheet of vulcanised rubber (other than hard rubber), of non-cellular structure, used in the manufacture of straps. But, as it is on record, M/s. PFP chose to classify the product in discordance with the clear terms of the specific Tariff entry (SH 4008.29) and engaged themselves in the manufacture and clearance of the goods clandestinely without taking Central Excise registration or following other formalities under the Central Excise Act/Rules. Had they had a different interpretation of the Tariff provisions under any Interpretative Rule, they should have kept the Central Excise department informed of the same. They did not do so. It was only when the show-cause notice was received that the party ventured into "interpretations". Obviously, the conduct of the party reflects intent to evade payment of duty on the goods. M/s. PFP never intimated the above activity to the department. It was only when the departmental officers visited their premises that their activity came to the notice of the department. Hence we do not find any reason to interfere in the finding recorded by learned Commissioner that M/s. PFP suppressed material facts with intent to evade payment of duty on Strap sheets. The larger period of limitation was rightly invoked in this case.
11. It appears from the Commissioner's order that the method of valuation of goods adopted in the show-cause notice was not contested by the assessee before the adjudicating authority. In the present appeal also, there is no serious challenge with regard to valuation of the goods. Counsel for the appellants also have not raised any valuation dispute.
12. In view of our findings, learned Commissioner has got to work out the amount of duty to be paid by M/s. PFP in respect of Strap sheets for the period of dispute and to demand the same. The penalty on the assessee under Section 11 AC of the Central Excise Act has accordingly to be redetermined. Appeal No. E/743/2005 is disposed of by directing the lower authority to requantify the demand of duty on strap sheet under Section 11A(1) of the Central Excise Act and to redetermine the penalty on the appellant under Section 11AC of the Act after giving the party a reasonable opportunity of being heard.
13. We have not found any good reason for imposing penalties on M/s. KFP and Shri M. Joy Verghese under Rule 209A (1944) and Rule 26 (2001 and 2002). There is no evidence on record indicating abetment, by these appellants, of any offence committed by M/s. PFP. There is no finding in the impugned order that any excisable goods manufactured by M/s. PFP are liable to confiscation and that M/s. KFP and Shri M. Joy Verghese rendered the goods so liable. Hence the above Rules are not invocable against them. In the result, the penalties on M/s. KFP and Shri M. Joy Verghese are vacated and their appeals [Nos. E/744 & 745/2005] are allowed.
(Pronounced in open Court on 31.8.06)