Customs, Excise and Gold Tribunal - Bangalore
Chamundi Die Cast (P) Limited vs Cce on 23 January, 2004
Equivalent citations: 2004(94)ECC453, 2004(171)ELT102(TRI-BANG)
ORDER K.C. Mamgain, Member (T)
1. This is an appeal filed by M/s. Chamundi Die Cast (P) Limited against the Order-in-Original No. 8/2000 BNG-II dated 13.3.2000, passed by the Commissioner of Central Excise, Bangalore-II Commissionerate.
2. The appellants are manufacturing excisable goods classifiable under Chapters 84, 85 and 87 of Central Excise Tariff Act, 1985. Among other things, the appellants are manufacturing Side Covers, Rear Covers, Fan Bracket, Oil Supply Ring and Balance Shaft Covers. They classified these goods under sub-heading 8432.00 of Central Excise Tariff Act, 1985 in the classification lists filed by them from time to time under Rule 173B of Central Excise Rules, 1944, by declaring these goods as parts of Power Tillers and availed the exemption notifications applicable to the goods classifiable under sub-heading 8432.00. On verification, it was noticed by the Department that the goods are actually used in the manufacture of Internal Combustion Engines by their customers M/s. Kerala Agro Machinery Corporation Limited, Angamally, Ernakulam district. Since part of IC Engines are classifiable under sub-heading 8409.00 of the Central Excise Tariff Act, 1985, therefore, a Show Cause Notice was issued to the appellants for demanding duty/differential duty involved under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of Central Excise Act, 1944. The Show Cause Notice was adjudicated by the Commissioner of Central Excise, Bangalore-11 Commissionerate under Order No. 2/98 dated 30.4.1998 where he confirmed the differential duty of Rs. 30,42,131 and imposed mandatory penalty of equal amount under Section 11AC of Central Excise Act, 1944. He also imposed a penalty of Rs. 5,00,000 on the appellants under Rule 173Q of the Central Excise Act, 1944. Against this Order-in-original No. 2/98 dated 30.4.1998, the appellants had filed an appeal before the CEGAT, Chennai. The Tribunal vide its Final Order No. 2913/99 dated 16.11.1999 had remanded the entire matter to the adjudicating authority for de novo consideration and decision in the light of the observations made in the said order. The present appeal is against the Order of the Commissioner, which has been passed by him as per the direction of the above said order of the Tribunal.
3. Shri G. Sampath, Advocate appeared for the Appellants and Smt. Radha Arun, SDR appeared for the Revenue.
4. During hearing, Shri G. Sampath stated that he is contesting the order of the Commissioner on 3 grounds viz. (i) Challenging the classification of the products arrived at by the Commissioner, (ii) disputing the application of extended period of 5 years, and (iii) challenging the imposition of penalty under Section 11AC of the Central Excise Act, 1944.
5. On classification issue, Shri Sampath pleaded that the learned Commissioner did not consider section Note No. 2 of Section XVI of the Tariff in proper perspective. Section Note 2 of the said Section lays down the principles of classification of the parts. For the classification of the parts in question, note 2(a) is not applicable. The principle governing the classification of parts suitable for use solely or principally with a particular kind of machine is contained in Section Note 2(b). It is clearly mentioned therein that such parts are to be classified with the machine of a kind or with the sub-heading mentioned therein. If these provisions of note 2(a), (b) & (c) are read harmoniously, the only conclusion is that the parts which are solely and principally meant for use with a particular kind of machine has to be classified according to their heading only. Even though, specific heading has been provided for classification of parts, the legislature has made an exception to such parts, which are used solely with a particular machine. He further submitted that even as per Rule 3(a) of the interpretation of the schedule, "The heading which provides the most specific description shall be preferred to heading providing a mere general description". Therefore, specific entry for the goods in question is 8432.00 only. Once it is conceded that the parts in question are classifiable under 8432.00 only, then the benefit of Notification No. 46/94, 56/95 and NIL rate of duty from 1996 are applicable here. He further pleaded that Commissioner has not taken into account that part of a part is also part of the whole and also classification of essential parts as per Section Note 2(b) of Section XVI. He relied on the following decisions.
1. Diesel Components Works, Patiala v. CCE, 2000 (40) RLT 641
2. CCE v. Bansal Industrial Corporation, 1997 (23) RLT 379 (E.R.)
3. CCE v. M.P.(I) Ltd. v. CCE, Pune, 1990 (46) ELT 68 (Special Bench)
4. Bajaj Auto Ltd. v. CCE, Pune, 1993 (67) ELT 134 (Special Bench)
5. CCE v. Mahendra Engineering Works, 1993 (67) ELT 134 (Special Bench)
6. Kirloskar Oil Engines Ltd. v. CCE, Pune, 1998 (27) RLT 344
6. Regarding time bar issue, Shri Sampath pleaded that duty was being paid on the said goods under the very same sub-heading 8432.00 and in all the classification lists, they have classified the goods which were approved under sub-heading 8432.00. From 1.3.1994, they claimed the exemption after the issuance of Notification No. 46/94. In the 1st classification list dated 12.5.1992 approved on 28.5.1992 they claimed benefit of SSI exemption No. 175/86. The classification list from 1.4.1993 was approved on 14.5.1993. Classification list from 1.3.1994 where they claimed benefit of exemption Notification No. 46/94 was approved on 20.4.1994. Duty was paid by them on disputed items during 1992-93 and 1993-94 and RT12 returns are the evidence. Their RG1 Register was scrutinized by Audit parties on 26.3.1993 and 26.10.1995. They did not claim modvat credit from 1.3.1994 when they started availing exemption.
7. From the relevant case law, it is clear that when modvat credit is availed, there is no scope to hold any intention to evade duty and to invoke extended period. The Commissioner has not considered the ratio of the decision of the Supreme Court in the case of Cosmic Dye Chemical, 1994 (48) ECC 55 (SC) : 1995 (75) ELT 721 (SC) and Pushpam Pharmaceuticals, 2002 (80) ECC 6 (SC) : 1995 (78) ELT 401 (SC) wherein it was held that when the omission is "wilful with an intention to evade duty", larger time limit can be invoked. The Show Cause Notice demands duty from December 1992 to 30.6.1997. SCN was issued only in January 1998. It is required to be held as time barred. He relied on the following decisions in support of his plea that larger time limit is not invocable.
1. Pushpam Pharmaceutical, 2002 (80) ECC 6 (SC) : 1995 (78) ELT 401 (SC)
2. Cosmic Dye Chemical, 1994 (48) ECC 55 (SC) : 1995 (75) ELT 721 (SC)
3. Ambika Steel Rolling, 1991 (31) ECC 229 (Del) : 1991 (52) ELT 15 (Del)
4. Thermo Electrics Madras Mnfrs, 1991 (32) ECC 68 (Tri) : 1991 (54) ELT 82 (T)
5. Applied Industrial Product 1991 (32) ECC 104 (Karnt): 1992 (61) ELT 364 (Kar)
6. Raymond Cement Works, 1995 (76) ELT 340 (Tri)
8. It was also pleaded that Section 11AC and 11AB are not applicable as these provisions are being applicable only from 28.9.1996 and this view has been held by the Tribunal in various cases. He relied upon the following cases:
1. Brij Mohan v. CIT, 120 ITR 1
1. Lakshmi Pakaging (P) Ltd., 1998 (98) ELT 91
3. M.P. Tapes, 1998 (27) RLT 692
4. Elgi Equipments, 2001 (74) ECC 284 (SC): 2001 (128) ELT 52 (SC)
9. Smt. Radha Arun, SDR appearing for the Department, pleaded that the plea of the appellants regarding classification is not correct. She relied on the decision of the Tribunal in the case of Shri Ganesh Gears Pvt. Ltd. v. CCE, Bangalore, 2002 (79) ECC 258 (Tri) : 2002 (139) ELT 307, Luman Metal Industries v. Collector of Central Excise, New Delhi, 2001 (130) ELT 338, Punjab Tractors Limited v. Commissioner of Central Excise, New Delhi, 2002 (149) ELT 596. She pleaded that in the case of Shri Ganesh Gear Pvt. Ltd. v. The Commissioner of Central Excise, Bangalore, the cases relied upon by the appellants have been distinguished. She pleaded that part of the part cannot be considered as part of the whole in all the situations. In the present case, the parts are specially designed for the IC engines. Therefore, they are correctly classified under 8409.00. She conceded that penalty under Section 11AC is not imposable for the period prior to 28.9.1996. Regarding the time bar issue, she pleaded that the classification lists were approved on the basis of declaration made by the appellants. Only on investigation, it was found that the parts in dispute are of IC Engines and not of Power tillers and this fact was known to the appellants which was concealed by them. Then the Show Cause Notice was issued by applying the extended period. Therefore, the application of extended period for demanding duty is correct.
10. We have carefully considered the submissions made by both the sides.
11. We find that for classifying the products recourse is to be taken to Note 2 to Section XVI, which is as under:
"2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and Note 1 to Chapter 85, parts of machines (not being parts of the particles of heading No. 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified
(a) Parts which are goods included in any of the headings of Chapter 84 or Chapter 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 heading No. 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 Nos. 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. From clause (a) of this Note, it is clear that parts which are goods included in any of the headings of Chapter 84 are, in all cases, to be classified in their respective headings. In this case, the parts, which are in dispute, are undoubtedly used in IC Engines. Therefore, they have to be classified under sub-heading 84.09.00 as this sub-heading is for "parts suitable for use solely or principally with engines of heading under 84.07 or heading under 84.08". Therefore, going to clause (b) of Note does not arise. Once the goods are classifiable as parts of IC Engines, they have to be classified under heading 84.09 of the Central Excise Tariff Act, 1985. In the case of Bajaj Auto Limited v. Commissiner of Central Excise, Pune, 1994 (74) ELT 599, it was held that 'Unspecified parts of such IC engines are also motor vehicle parts and hence legible for exemption under Notification No. 167/79-CE dated 19.4.1979'. At that time, in the Tariff under consideration, the parts which were dutiable as motor vehicle parts were specified and the issue was for allowing exemption under Notification 167/79-CE dated 19.4.1979. In the case of Diesel Components Works, Patiala v. Commissioner of Central Excise, 2000 (40) RLT 641, it was held that principal use of components manufactured by the appellants was admittedly as parts of locomotives. In other cases relied upon by the appellants in this case, there was no specific entry for these parts, hence these were taken as parts of the main machine/item. However; in the present case, there is no dispute that the parts in dispute are used in the IC engine. Therefore, the ratio of the decision relied upon by the appellants is not applicable. We find that in this case, the appellants are selling the parts of M/s. Kerala Agro Machinery Corporation Limited, Angamally, Ernakulam district who are partly using these IC engines in Power Tillers and some of the IC Engines are sold by them, as is evident from Final Order No. 1522/2003 passed in the case of Commissioner of Central Excise, Cochin v. Kerala Agro Machinery Corporation Limited dated 28.11.2003. Therefore, the question of going to Note 2(b) or 2(c) of Section XVI does not arise.
12. Now coming to the question of time bar issue, we find that the appellants in their classification lists were classifying the disputed parts as parts of Power Tiller even though, they were knowing that these were going in the IC engines. It is evidence from the Order-in-Original No. 2/98/Bang-II dated 30.4.1998 passed by the Commissioner of Central Excise, Bangalore on the Show Cause Notice in this case. In para 15 of the said order, the Commissioner has given a clear finding that--
"...............Facts disclosed in the SCN were not disputed by the Learned Counsel.
It is their submission that their customer used these parts in the ultimate manufacture of Power Tiller. However, it was fairly admitted by them that the parts cleared by them are first used in the manufacture of IC engines.."
13. Thus, it is clear that the appellants were aware that the goods, which they are classifying as Power Tiller were parts of IC Engine. We find that the Commissioner in the impugned order on page 5 (last para) has given, the following finding:
"Coming to the issue of applicability of extended period of limitation of five years for demand of the differential duty the fact remains that the assessee had been claiming al along in their classification lists that the goods in question were parts of power fillers and at no point of time during the disputed period they had disclosed that the said items were actually the parts of IC Engines. The Counsel of the assessee submitted before the Tribunal that the assessee were paying duty on the impugned goods manufactured by them upto 31.1.1994 till the power tillers were exempt from duty liability. On this Hon'ble Tribunal expressed the view that if the above statement of the Counsel were to be correct the demand of duty for the period from December 92 to January 94 cannot be sustained. On perusal of the classification list effective from 12.5.1992 and 1.4.1993, I find that the assesses had classified the said items under heading 8432 as parts of power tiller and indicated the Tariff Act of duty applicable thereto and also SSI exemption Notfn. and were paying duty accordingly. It is an undisputed fact that the assessee had not disclosed the fact to the department either before 1.2.1994 or after that date that the said items were actually the parts of IC Engines and hot of the Power Tillers. In the circumstances and without prejudices to the above observations of the Tribunal, I am of the humble view that there cannot be any two situations (one where there was no suppression, when the assessee were paying duty and vice versa) so long as the conduct of the assessee remained the same throughout the disputed period. Hence, the assessee have to be held to have suppressed the facts from the department with an intention to evade payment of duty. In this another attempt to convince the authorities that there was no intention on the part of the assessee to evade payment of duty, the whatever duty that became payable and paid by the assessee would have been taken as Modvat credit by the customer and thereby there would be revenue neutralization. In support of his argument, the Counsel has cited the letter dated 7.4.1997 of the Superintendent of Central Excise, Angamally Range it, Kerala addressed to the Superintendent, Range-1, Tumkur, wherein the former had stated ' that the duty liability would have been neutralized by modvat credit. I find on perusal of the said letter that the version of the Counsel in this regard was correct; However, for the sake or arguments, if the Contention of the Counsel of the assessee is taken as correct, what would happen, when the customer choose opt out of the modvat scheme and the manufacturer pays a lesser rate of duty by classifying the products under a different heading than the correct one. In such circumstances, the department is hound to lose its legitimate revenue. Here, I would like to mention again that the Superintendent of Central Excise Angamally Range II had stated in the said letter, the items impugned were classified by the customer M/s. K.AMCO under heading 8409. Hence, availment of modvat credit by the customer, cannot be a ground to substantiate their contention that there was no suppression of facts with an intent to evade payment of duty. Similarly, it was held in the case of Collector of Central Excise v. India Linoleum's Ltd., 1993 (67) ELT 678 that it is only the amended rule that will be relevant and the limitations as in force on the date of issue of show cause notice is applicable and not the once in force during the period to which the demand relates. Further when the suppression/wilfulmis-statement on the part or the assessee with an intention to evade payment or duty is proved, the adjudicating authority has no discretion and the imposition of penalty under Section 11 AC is mandatory. Hence, penalty under the provisions of Section 11 AC of CEA, 1944 is imposable on the assessee".
14. Since the appellants knowingly not declared these parts in dispute as the parts of IC engine, but declared them as parts of Power Tillers, this shows clear suppression with an intention to evade duty and only in such circumstances, the extended period of 5 years would be applicable. In the present case, the appellants very will knew that the goods which they are clearing to M/s. KAM CO are parts of IC engines. However, they never disclosed this fact in their classification lists to the Department and classified these under sub-heading 84.32 as parts of Power Tiller. This is a clear suppression of facts with an intention to evade duty as the rate of duty when they were paying the duty for parts of Power Tillers was much less than the rate of duty for parts of IC engines. The argument that since the customer was taking modvat credit on the duty paid on the goods will neutralize the revenue impact and hence there cannot be suppression of facts, does not appear to be a correct proposition. There may be different rates of duties under the two disputed sub-headings and if a person pays lesser duty by wrongly classifying the product under sub-heading carrying lesser rate of duty, although the duty payable on the correct classification is much higher, it is evasion of duty with invention to evade payment of duty. Therefore, the extended period is correctly applicable.
15. The third issue raised by the appellants is applicability of provisions of Section 11AC and 11AB for imposition of penalty and demanding interest. We first that the issue is no longer res Integra. It has been decided in the case of Elgi Equipments v. CCE, Coimbatore, 2001 (74) ECC 284 (SC) : 2001 (128) ELT 52 (SC) that the provisions of these two sections would be applicable from 28.9.1996. Therefore, imposition of penalty equal to duty evaded and for demanding interest for the period prior to 28.9.1996 is not sustainable in law. We are, therefore, of the view that the Commissioner should re-determine the penalty imposed under Section 11AC. The interest under Section 11AB should also be charged from 28.9.1996 onwards. The case is remanded back to the Commissioner for re-determining the penalty under Section 11AC and rest of the order is upheld subject to interest being charged from 28.9.1996 on the amount of duty evaded.