Custom, Excise & Service Tax Tribunal
Eminence Equipments Pvt. Ltd vs Commissioner Of Central Excise, Pune-I on 26 May, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. E/85474 & 85475/14-Mum (Arising out of Order-in-Original No. PUN-EXCUS-001-COM-031-13-14 dated 13.11.2013 passed by Commissioner of Central Excise, Pune-I) For approval and signature: Honble Mr. P.K. Jain, Member (Technical) and Honble Mr. Ramesh Nair, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Eminence Equipments Pvt. Ltd. Appellant Makarand S. Savagaonkar Vs. Commissioner of Central Excise, Pune-I Respondent Appearance:
Shri V. Sridharan, Sr. Advocate, with Shri Nirav Karia, C.A., for appellant Shri Hitesh Shah, Commissioner (AR), for respondent CORAM:
Honble Mr. P.K. Jain, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) Date of Hearing: 11 & 12.2.2015 Date of Decision: 26.5.2015 ORDER NO Per: P.K. Jain Brief facts of the case are that the appellants are engaged in the manufacture of machines described by them as Grain Feeder, En-mass Grain Feeder, Grain Discharger, Bins for grain storage, Loaders & Hoppers. These machines are used for transporting of grains from one point to the other point in the factory or storage or for feeding into other machines. The appellants had not taken Central Excise registration and were clearing the said machines without payment of duty treating the same as classifiable under Heading 8437/8436. On the basis of information collected that the Grain Feeder, En-mass grain feeder and grain dischargers are in reality the conveyors and elevators which are classifiable under Heading 8428 and liable to excise duty, investigations were taken up and during the investigation, searches were conducted as also statements of various persons which include officials of appellant, certain technical consultants, buyers etc. On completion of the investigation, a show cause notice dated 24.12.2012 was issued to the appellants proposing to classify grain feeders, en-mass grain feeders, grain discharger, screw feeder, sieving belt, grain mover etc. manufactured by them under Heading 8428 and bins, hoppers, Grain feed controller under Heading 8479. The notice further proposed recovery of duty of an amount of Rs.10,66,36,263/- as detailed in annexure to the show cause notice covering the period from April 2008 to October 2012. Recovery of interest as also penalty under Section 11AC/Rule 25 of the Central Excise Rules was also proposed. Penalty under Rule 26 was also proposed on appellant No.2. The appellants contested the claim of the Revenue. The Commissioner vide impugned order dated 13.11.2013 adjudicated the case wherein he upheld the proposed classification, extended period of limitation etc. The appellants plea to extend the benefit of cenvat credit was turned down. However, the appellants plea to extend the benefit of cum-duty was allowed. Vide the impugned order, a duty amount of Rs.9,59,81,498/- was confirmed and equal amount of penalty under Section 11AC was imposed. Recovery of interest was also confirmed. A penalty of Rs.1,00,00,000/- was imposed on Shri Makarand S. Savagaonkar, managing director of the appellant company and the second appellant in this case. Aggrieved by the said order, the appellants are before us.
2. This Tribunal vide order dated 10.3.2014 decided that keeping in view the nature of the dispute, the stay petitions as well as the main appeals will both be decided by the common hearing and the Revenue was directed to maintain status quo and was restrained from initiating any recovery proceedings.
3. The case was heard at length on 11th & 12th February 2015. The crux of the dispute is that according to the Revenue, Heading 8437 (as claimed by appellants) covers the machineries which are required for processing of seed, grains etc. or for working of cereals etc. or for milling and the machines in question are not for such purposes but are for handling/transporting of such items and such machineries are covered under Heading 8428 of the First Schedule to the Customs Tariff Act, 1975.
4. The learned senior counsel for the appellants submitted that the functions of the machines are as under:-
Grain feeders are designed to ensure a regular and even flow of grain to the milling machines.
En-mass grain feeder is used for conveying grains from unloading point/godown to grain dirty bins.
Grain discharger handles a variety of free flowing material like rice, wheat, corn, sunflower seed, malt and even saw dust.
Bins and hoppers are the integral part of mill. For processing grain, at every state, bins and hoppers are required to store the required buffer stock of grain during milling process.
Pneumatic manual diverters are required in the continuous streamline flow of grain in mill.
Pneumatic & manual grain feed controllers are essential part of the mill. They help to control the continuous streamline flow of grain during the milling process.
Grain bag stacker are designed and developed to stack grain bags.
Grain Silo has been designed, developed and installed systems for loading and unloading of grain in the Silos.
Sieving belt or grain mover consist of series of rolls operating an endless belt running under a feeding hopper. Grain movers are running under bins/feeding hoppers.
4.1 It would be important to note that 95% of the demand pertains to the first three items and the remaining demand for the remaining six items.
4.2 The learned senior counsel submitted that the above mentioned machines are specifically designed for handling of grains and due to their superior designs, the grains are not broken during the processing of handling and due to this reason, the appellants machines have got the name and goodwill and commands premium in the market. Learned senior counsels submission was that the machines manufactured by the appellants are exclusively designed for use in milling industry only. In other words, the machines manufactured by the appellants are not built to handle any product other than grains. These machines form integral part of milling machinery, without such machines milling operations cannot function. Learned senior counsel submitted that Heading 8428 broadly covers machines which are usually fit to use in mines and quarry, construction sector, power and energy sector, oil sector etc. where the weightage and tonnage of material are very high. In their case, the weight is not that high. It is the volume which is material. In view of this position, their machines would not fall under Heading 8428. It was further submitted that Heading 8437 has three parts. The first part covers machines for cleaning, sorting or grading seed or dried leguminous vegetables. The second part covers machinery used in milling industry and the third part covers machinery used for the working of cereals or dried vegetables other than farm-type machinery. The learned senior counsel submitted that the machinery manufactured by them would be covered by the second part. The learned senior counsel submitted that their machines are used in the rice mill machinery, flour mill machinery, seed plant machinery, animal feed plant etc. and, therefore, would fall under the second component. The learned senior counsel also submitted that Technical Handbook for the Paddy Rice Post Harvest Industry in Developing Countries written by James E. Wimberley by the International Rice Research Institute situated at Manila, Philippines, clearly states bucket elevator, screw conveyors, belt conveyors, other paddy conveyors and grain valves and spouting are used in paddy post harvest system. It was submitted that from the perspective of any mill owner, all the machines are required by him in his milling unit and, therefore, these machines have to be considered as machines in milling industry. The learned senior counsel relied upon the following judgments:-
(i) Thermax vs. CCE reported in 1996 (81) ELT 417 (T);
(ii) Moped Assembly vs. CCE reported in 2001 (129) ELT 195 (T);
(iii) CCE vs. Bhawani Roller Flour Mill reported in 2003 (156) ELT 133;
(iv) Dunlop India Ltd. & MRF Ltd. vs. UOI reported in 1983 (13) ELT 1566 (SC);
(v) Maa Durga Flour Mill P. Ltd. vs. CC reported in 2008 (227) ELT 0301.
(vi) SKF Boilers & Driers P. Ltd. vs. CCE reported in 2011 (264) ELT 425 (T).
The learned senior counsel further relied upon the Board Circular No. 924/14/2010-CX dated 19.5.2010 regarding classification of rice parboiling machinery.
4.3 The learned senior counsel further submitted that the machines manufactured by the appellants form integral part in milling industry. In other words, without the use of the machines manufactured by the appellants, milling operations cannot function. Therefore, the machines manufactured by the appellants are squarely covered under Heading 8437. It was submitted that all the machines manufactured by them are for transporting the grains from place to another and lifting from one level to another, though the similar function is performed by chain conveyor and bucket elevator classifiable under Heading 8428 but the similar functions performed by their machines will not take away these from the heading 8437.
4.4 It was also submitted that the Explanatory Notes to HSN are not applicable in the present case, as the Explanatory Notes to HSN have no legal force and cannot prevail over Section Notes, Chapter Notes and Rules of Interpretation which are part of the Central Excise Act, 1944 itself.
4.5 Another point submitted was that they had also exported similar machines and even at the time of exportation, they had classified these machines under 8437 and at that time the department had not taken any objection.
4.6 It was submitted that the statements relied upon in the impugned order are totally misconstrued and the department has not taken the overall view of such statements.
4.7 It was also submitted that only a very insignificant part of the machinery manufactured by the appellants was supplied to distilleries, breweries and animal feed plants and at the most, the department can restrict the demand to the machines supplied to the said industry and in that event, the excise demand will get reduced to Rs.38,94,503/-.
4.8 The learned senior counsel also submitted that the demand beyond the period of normal limitation is not sustainable as there is no suppression of facts on their part. It was submitted that they have been filing the declaration as required under Notification 36/2001-CE(NT) dated 26.6.2001. Thus, the department was made aware that they are clearing the said goods at nil rate of duty and the department cannot now allege suppression of facts. He quoted certain case laws in support of their contention.
4.9 It was further submitted that the appellants were under a bona fide belief that they are not liable to excise duty on the goods manufactured by them and relied upon the judgment of the Honble Supreme Court in the case of Continental Foundation vs. CCE reported in 2007 (216) ELT 177 (SC). It was also submitted that the issue involved is purely interpretational in nature and, therefore, extended period of limitation cannot be invoked as held by the Honble Supreme Court in the case of Padmini Products vs. CCE reported in 1989 (43) ELT 195 (SC). It was also submitted that even if the demand is to be sustained, then they would be entitled to avail the cenvat credit on the inputs and input services used. It was submitted that if the benefit of cenvat credit is entitled, then the demand for the period January 2008 to September 2011 will get reduced to Rs.2,56,61,408/- and Rs.60,68,540/- for the period October 2011 to October 2012. It was also submitted that penalty is not imposable on the appellants as the issue involves interpretation of law.
5. The learned Commissioner (AR), on the other hand, submitted that a perusal of the HSN Explanatory Notes for Heading 8437 would indicate that what is proposed to be covered under the said heading are the machines which are required for processing of grains which may include cleaning, sorting or grading seed, grain or dried leguminous vegetables. Further, the HSN Explanatory Notes clarify certain machines which are used prior to milling like machines for mixing grains in pre-determined quantities or grain scouring machines are included in the said heading. However, it has been clarified in the said Explanatory Notes that this Heading does not cover:-
(a) Plant operating by temperature change (heading 84.19). For example, heading 84.19 covers such drying or cooling columns, but grain dampening machines with thermal equipment remain in this heading.
(b) Centrifugal dryers (heading 84.21).
(c) Conveyors and elevators (e.g., of the bucket, belt or pneumatic suction types) (heading 84.28). The learned Commissioner (AR) submitted that the said Explanatory Notes very clearly state that the conveyors and elevators (e.g., of the bucket, belt or pneumatic suction types) are not covered by the said heading and are covered by heading 8428. The learned Commissioner (AR) submitted that when there is such a specific exclusion given in the HSN Explanatory Notes, there cannot be any doubt whatsoever that the machines cleared by the appellants are classifiable under Heading 8428. It was submitted that Heading 8428 does not confine to mines or quarries or construction industries etc. The said heading covers all handling machineries whether relating to construction, mines or within a factory for handling of grains etc. It was also submitted that processing of grains and handling of grains are two different things. Handling of grains only implies that the grains are being transported or being moved from one place to other place within the factory premises and this cannot be considered as the integral part of the milling process. In a very small milling mill, these can be manually handled. Keeping in view the volume and weight of the grains being handled, such machines may be necessary and therefore such machines may be installed in a milling industry, but that itself will not make the machinery as machinery for milling industry. It was further submitted that Central Excise Tariff is fully aligned with the HSN classification system as far Heading 8428 and 8437 are concerned and therefore the Explanatory Notes to HSN cannot be ignored and has to be kept in mind and keeping in view the exclusion clause under 8437 and scope of 8428, under no circumstances the machineries manufactured by the appellants can be classified under 8437.
5.1 It was further submitted that the appellants themselves were aware of this fact and in a very pre-planned way from the beginning they changed the name instead of calling their products as screw conveyor, chain conveyor or bucket elevator. They started calling by different names by grain feeder, grain discharger etc. Even though the model number given by them itself indicates in brief that the said machine is a screw conveyor or chain conveyor or bucket elevator. In various models the word used SC indicates screw conveyor, the word used CC indicates chain conveyor and the word used BE indicates bucket elevator. There was no reason for the appellants to use other terminology. They could have called their items as screw conveyor for grain or bucket elevators for grain but they did not do so in order to avoid excise duty. It was also submitted that one of their customers (M/s. Elina Solutions Pvt. Ltd., Pune) has clearly stated in his statement dated 7.5.2012 that in the beginning when they started the business with the appellants, they were told if they use such terminology, excise duty will become chargeable and therefore this terminology should not be used in the transactions. This itself will indicate the wilful intention on their part. It was also submitted that the appellants have very cleverly filed the declaration with the department. In the declaration form, instead of indicating that these are bucket elevators or chain conveyors, they indicated different description and also stated that these are classifiable under heading 8437. It was further submitted that the purpose of the said declaration is not to examine the classification of the goods but just to keep track by the jurisdictional officers that certain units within their jurisdictions are not paying duty as they are manufacturing exempt goods or are small scale industries. It was submitted that in any case the wordings and the drafting of the declarations very clearly indicate the wilful intention of the appellants. If that was not so, in normal course, declarations would indicate the exact models and commercially understood nomenclature of the goods manufactured and there was no reason to indicate that the duty is nil because these are falling under Heading 8437. Appellants also did not take any registration or filed any returns. Thus the department was kept in dark.
5.2 The learned Commissioner (AR) further submitted that at the time of export, the examination is limited to certify that the goods being stocked in the container or package are as per the invoice and nothing beyond that and in fact the function being done by the Central Excise officer is on customs behalf so that the appellants goods are not examined at the port of export. It has nothing to do with checking of classification or dutiability of the goods.
5.3 It was also submitted that since the appellants have not come out with the clean hand, cenvat credit on the inputs cannot be claimed by them at this stage and it will not be possible to correlate the inputs and the outputs.
5.4 As far as penalty and extended period are concerned, it was submitted that this is a case of clear-cut suppression of facts with wilful intention to evade payment of duty and, therefore, both are imposable. The learned AR submitted the following case laws in support of his contention:-
(i) Samsung India Electronics Ltd. vs. CC, New Delhi reported in 2014 (307) ELT 160 (Tri.-Del.);
(ii) Godrej Consumer Products Ltd. vs. CCE, Indore reported in 2014 (308) ELT 61 (Tri.-Mum.);
(iii) DCL Polyester Ltd. vs. CCE, Nagpur reported in 2005 (181) ELT 190 (SC);
(iv) CC, Kandla vs. Essar Oil Ltd. reported in 2004 (172) ELT 433 (SC);
(v) R.G. Nagori & Sons vs. CCE reported in 1989 (39) ELT 303 (T).
(vi) Samsung India Electronics Ltd. vs. CC, New Delhi reported in 2014 (307) ELT 160 (Tri.-Delhi).
5.5 As regards the appellants contention that similar goods were being imported or manufactured by others are being cleared at nil rate of duty, it was submitted that once the Tribunal comes to a conclusion that the goods are classifiable under Heading 8428, the Tribunal cannot order classification under any other heading just because some other manufacturer is also clearing the same goods under Heading 8437. Learned Commissioner (AR) submitted that as on today, the concept is of self-assessment and self-payment of duty and under these circumstances, the department cannot be held responsible for mis-classification by some other manufacturer. In any case it is possible that these manufacturers may be within the SSI limit and may be clearing because of that at nil rate of duty. It was also submitted that the Honble Supreme Court in the case of Faridabad CT Scan Centre vs. D.G. Health Services reported in 1997 (95) ELT 161 (SC), has clearly held that once the court comes to a conclusion on any aspect, the court cannot extend the benefit to an assessee on the grounds that such benefit had been wrongly extended to others. The correct procedure would be to correct the incorrect and not to proliferate the incorrect. Learned Commissioner (AR) further submitted following case laws:-
(i) Mercantile Company vs. CCE, Calcutta reported in 2007 (217) ELT 330 (SC) Para 9, 13, 14, 15, 30, 31 & 32.
(ii) Kores India Ltd. vs. CCE, Chennai reported in 2004 (174) ELT 7 (SC) Para 16.
(iii) Tamil Nadu Petroproducts Ltd. vs. CCE, Chennai reported in 2004 (176) ELT (Tri.-Chennai) Para 18, 23, 28 & 29.
6. We have considered the rival submissions and given considerable thought over the dispute. At the outset, we observe that none of the machines being manufactured by the appellants are for processing of grains. All the machines are meant for handling of grains i.e. transporting the grains within the factory premises or lifting the grains within the factory premises or for storing or feeding into certain machines. It is also not under dispute that the main three machines i.e. grain feeder, en-mass grain feeder and grain discharger are working using chain conveyor system or screw conveyor system or bucket elevator system. Heading 8428 and the related Explanatory Notes to HSN have to say the following:-
84.28 Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics).
8428.10 Lifts and skip hoists 8428.20 Pneumatic elevators and conveyors
- Other continuous-action elevators and conveyors, for goods or materials:
8428.31 Specially designed for underground use 8428.32 - - Other, bucket type 8428.33 - - other, belt type 8428.39 - - Other 8428.40 Escalators and moving walkways 8428.60 Teleferics, chair-lifts, ski-draglines, traction mechanisms for funiculars 8428.90 Other machinery With the exception of the lifting and handling machinery of heading 84.25 to 84.27, this heading covers a wide range of machinery for the mechanical handling of materials, goods, etc. (lifting, conveying, loading, unloading, etc.). They remain here even if specialized for a particular industry, for a particular industry, for agriculture, metallurgy, etc. This heading is not limited to lifting or handling equipment for solid materials but also includes such machinery for liquids or gases. But the heading excludes liquid elevators of the type falling in heading 84.13, and floating docks, coffer-dams and similar marine lifting and re-floating appliances operating solely by hydrostatic buoyancy (heading 89.05 or 89.07).
..
. . From the above description, it is very clear that the said heading does not get limited to any particular type of goods but is applicable to all types of goods or materials etc. and in fact while discussing the scope of various items at number of places, Explanatory Notes to HSN in Heading 8428 clearly mention that the machines may be handling grains, etc. Further, if we examine the Heading 8437, the said heading reads as under:-
8437 Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables; machinery used in the milling industry or for the working of cereals or dried leguminous vegetables, other than farm-type machinery 8437 10 00 - Machines for cleaning, sorting or grading seed, Nil grain or dried leguminous vegetables 8437 80 - Other machinery:
8437 80 10 --- Flour mill machinery Nil 8437 80 20 --- Rice mill machinery Nil 8437 80 90 --- Other Nil 8437 90 - Parts : 8437 90 10 --- Of flour mill machinery kg. Nil 8437 90 20 --- Of rice mill machinery kg. Nil 8437 90 90 --- Other kg. Nil
6.1 The appellants main contention is that the said Heading 8437 covers three types of machineries. First one, machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables. The second type of machineries are used in the milling industry and the third type are for working of cereals or dried leguminous vegetables other than farm-type machinery. Undoubtedly, these machines cannot be covered under the first and third category. As far as the second category is concerned, the Explanatory Notes explain the scope of the term machinery used in the milling industry as under:-
(II) MACHNERY USED IN THE MILLING INDUSTRY In addition to machinery for cleaning, sorting or grading grain prior to milling (see Part (I) above), the following are included as machinery used in the milling industry:
(A) Certain machines for mixing or preparing grain prior to milling, e.g.:
(1) Machines for mixing grain in pre-determined quantities.
(2) Grain scouring machines consisting of spiked drums turning against rubber cylinders and thus eliminating the softer grains.
However, the heading does not cover:
(a) Plant operating by temperature change (heading 84.19). For example, heading 84.19 covers such drying or cooling columns, but grain dampening machines with thermal equipment remain in this heading.
(b) Centrifugal dryers (heading 84.21).
(c) Conveyors and elevators (e.g., of the bucket, belt or pneumatic suction types) (heading 84.28).
(B) Grinding or crushing machinery, e.g.:
(1) Grinding mills.
(2) Breaking rolls or mills composed of several sets of grooved rollers, sometimes internally cooled, which crush the grain into middlings, semolina and flour.
(3) Reducing rolls or mills with smoother rollers, specially designed to convert middlings, semolina, etc., into flour.
(4) Disintegrators or impact grinders used to grind down into flour, the meal, etc., which adheres to the mill or converter rollers in the preceding processes.
(5) Feeders, machines designed to ensure a regular and even flow of grain to the crushing rollers.
The heading does not include small farm type grinding mills (heading 84.36).
(C) Machinery for the sorting or separation of Hour from sharps or middlings.
This group includes machines for separating the flour, meal, middlings, sharps, etc., produced by milling.
This separation is effected by a series of operations carried out on the following types of machines which are often used in series :
(1) Sifting machines (" bolters") for separating flour from groats and meal. Centrifugal sifters (or "reels) consist of drums fitted internally with beater bars and covered externally with gauze of various mesh sizes. Oscillating sifters or plansifters consist of nests of free-swinging superimposed sieves and collecting trays.
(2) Sieving machines or "purifiers". These grade the middlings, etc., and also blow off the bran by means of vibrating sieves through which a current of air is drawn.
(3) Bran cleaners.
(4) Blending machines for flour, bran, etc.; also machines for adding vitamins to flour.
However, the heading does not cover :
(a) Flour-drying machines (heading 84.19).
(b) Air filters and " cyclones " used to extract the dust from the exhaust air issuing from sorting or bolting machines (heading 84.21).
(c) " Extraction recorders " for recording the flour extraction rate, and other flour testing apparatus of Chapter 90.
An examination of the scope of machinery used in the milling industry would indicate that these are the machines which are used for mixing or preparing grain, grinding or crushing the grains or for sorting or separation of flour from sharps or middlings. It will thus be seen that the scope is limited to the machines which are in some way or the other working on the grains. It is undisputed fact that the machines manufactured by the appellants are not for working on the grains and do not in any way clean, sorts, grinds, crushes etc. The machines are only for transporting from one place to the other or for lifting the grains. In fact the said Explanatory Notes in the first category very clearly say that conveyors and elevators would get classified under heading 84.28. In our considered view, keeping in view the HSN Explanatory Notes as also the fact that the machines manufactured by the appellants in no way process the grains or even do not do any auxiliary function before processing of grains but are limited to conveying or lifting or storing grains. (The nomenclature feeder used by the appellants is a misleading one). There can be no doubt that the machines would be correctly classifiable under Heading 8428 and not under 8437. Handling machines designed for any goods are covered under Heading 8428 irrespective of the fact that such machines are used in a factory or in mines or in construction and the item being handled is cement or minerals or grains. In view of the above position, we have no hesitation in holding that the machines being manufactured would be correctly classifiable under Heading 8428 and not 8437 as claimed by the appellants and the goods would, therefore, be chargeable to excise duty.
6.2 We also note that the appellants have relied upon number of judgments in support of their plea for classification and other aspects of the case. They have emphasized on the cases of Thermax Ltd. (supra) and SKF Boilers & Driers Ltd. (supra)As far as classification of the goods is concerned, in none of the judgments quoted, the issue was relating to heading 8428 vs. 8437 or the goods covered in the present case. The goods covered in those cases were different and also the disputes were relating to heading other than 8428. In the present case, heading 8437 specifically excludes the goods in question and 8428 specifically includes the goods. In view of the said position, the said judgments are not applicable in the facts and circumstances of the present case and we do not consider it necessary to discuss each of these case laws.
7. The appellants have also submitted that only 5% of such machines have been used in the breweries, animal feed and industries other than milling industry and, therefore, the demand may be confined to that. Since we have reached the conclusion that the machines being manufactured are classifiable under Heading 8428 irrespective of the fact that these are being used in a rice mill industry or a dal mill industry or a flour mill industry or brewery or animal feed industry and hence in our view, the demand cannot be limited to the machines supplied to a particular end-user as the classification and dutiability is not dependent upon the end-use.
8. In addition to these three main machines, there are few other machines viz. bins, hoppers and Grain Feed Controller which the Revenue has proposed under Heading 8479 and the appellants claim the same would be classifiable under Heading 8437. Again, these goods are not meant for processing of the grains etc. but are machines for storage of grains or their parts. We agree with the Revenue that such machines would fall under the residuary heading of 8479 as these cannot be considered as machinery for milling industry. 8479 covers Machines and mechanical appliances having individual functions, not specified or included elsewhere in Chapter 84.
9. Next issue is that the appellants have contended that the extended period of limitation is not invokable. We note in this particular case various customers of the appellants have also stated in their respective statements that in their initial enquiries they asked for supply of elevators and conveyors and it is on the request of the appellants that these were changed to grain discharger or grain feeders. We also note that Shri Narpinder Kumar Gupta, Managing Director of M/s. Dr. Ing. N.K. Gupta Technical Consultants Pvt. Ltd., New Delhi, who acts as a consulting firm to the appellants and helps them in procuring orders, has admitted that the appellants are manufacturing elevators and conveyors. We also note that one of their business associate, Shri Shripad M. Salunke, Director of M/s. Elina Solutions Pvt. Ltd., Pune has stated in the statement dated 7.5.2012 that the appellants have informed them that if they use the description bucket elevator or conveyor, they would be required to pay the excise duty and, therefore, the goods should be purchased under the description given by them. This clearly indicates the appellants were aware that if they describe the goods as elevators or conveyors, the same are chargeable to excise duty under Heading 8428. It is for this reason that they described their machines as Grain Feeder, En-mass Feeder, Grain discharger etc. and insisted for such description in the purchase orders from other customers. We have also gone through the declaration made by them. The said declaration is required to be furnished by the manufacturing units who are not paying duty either due to the fact that their turnover is within the small scale exemption limit or they are manufacturing the goods which are exempt from payment of duty. Purpose of this declaration is not to examine the classification or dutiability but to make the jurisdictional authorities about existence of their unit. Even in this declaration, a careful perusal would indicate that serial No.4 requires them to declare full description of the goods heading-wise manufactured by the factory. Under the circumstances, they should have separately listed out each item being manufactured by them and the description of the said goods including the fact that the said goods are commercially understood as conveyors and elevators. Meaning of BC, CC, SC should have been elaborated in the declaration and catalogue should have been submitted. Instead of indicating that these are conveyer and elevator, the appellants very cleverly described the goods as Grain handling equipments for rice, flour, dal mills/storage silo system accessories/storage bins for rice/grain feed controller. Job work. They did not indicate the classification of the goods manufactured, in serial No.4. In serial No.5, value/quantity of goods cleared during the preceding financial year, they gave the value of clearance and thereafter indicated the duty as nil as covered under Chapter 84 37. By the said declaration, nobody can make out that the exact nature and description of the goods manufactured by them particularly that these are conveyors and elevators. In any case, the very fact that they were aware that if they describe the goods as conveyor and elevator, the same would be chargeable to excise duty, would nullify any declaration or intimation given by them until and unless they raise and very specifically ask the question relating to Heading 8428 versus 8437 with Revenue. We also note that the appellants have not taken registration or filed any returns. From the show cause notice, it is clear that the department started investigation only due to a receipt of information. Keeping in view these facts, we are of the considered view that this is a case of fraud and there was suppression of facts and extended period of limitation under proviso to Section 11A is invokable and, therefore, the demand raised for the five years is correct and the same is upheld.
9.1 We also note that the Honble Supreme Court in somewhat similar situation in the case of Mercantile Company vs. CCE, Calcutta reported in 2007 (217) ELT 330 (SC), has observed as under:-
9. On the question of limitation, it was held that the letter dated 8th March, 1994 relied upon by the appellant did not disclose the entire facts and did not reflect the situation in its proper perspective. The Department was not informed about the actual activity undertaken by the appellant. It was not disclosed as to whether a new name has been given and the applicability and functions of the products were not clearly stated. That new and distinctive product came into existence which was sold and known in the commercial world under a separate name having different and distinct qualities. Commissioner of Central Excise, Calcutta 1, confirmed the demand of duty Rs. 42,62,862/- proposed in the show cause notice and also levied a penalty of Rs. 10 lakhs on the appellant under Section 11AC and the interest under Section 11AB. A redemption fine of Rs. 20,000/- was also imposed.
13. On the point of limitation, it was submitted by him that the demand has been confirmed from 1st March, 1994 to 5th September, 1997 whereas the show cause notice was issued on 18th February, 1998, well beyond the period of limitation. It was admitted by him that no classification list was filed by the appellant. He has drawn our attention to a letter dated 8th March, 1994 written by the appellant to the Assistant Collector of Central Excise, Calcutta disclosing the activity undertaken by the appellant and requesting the Revenue to let the appellant know about the Central Excise formalities required to be observed. That the writing of the letter well in advance shows the bona fides of the appellant and that there was no suppression, misstatement, etc., on the part of the appellant with an intent to evade payment of duty and the authorities below erred in holding to the contrary.
14. As against this, learned Counsel for the Revenue, Shri M.M. Paikadey, supported the Commissioner s findings recorded in the order-in-original. It was submitted by him that the process undertaken by the appellant was not as simple as has been projected by him. That the items in question have been given specific names and the same were used for specific purpose for which the raw material cannot be used. The impugned goods were specially packed in the cardboard packages and are known differently in the commercial as well as common circles. That the appellants products are cleansing products and deserved to be classified under Chapter 34 and the adjudicating authority has rightly classified them under heading 3402.90.
15. As regards limitation, it was submitted on behalf of the Revenue that the letter dated 8th March, 1994 written by the appellant did not state the entire facts. The same was vague and lacking in particulars. In the letter, it was not disclosed by the appellant that the products were being marketed as cleanser and gave the impression as if they are only re-packing the raw material into smaller packs. It was not disclosed that a new name has been given to the products. That the appellant did not disclose the applicability and functions of the products. The correspondence between T. Paul & Sons and M/s. Philips India Ltd. clearly indicates that there was a doubt as to whether the products would invite the Central Excise duty. To overcome this, they obtained the opinion of an Advocate and the Advocate advised them that instead of solvent, the word thinner should be printed on the carton to avoid the Central Excise Rules.
30. On the question of limitation, the submission made by the counsel for the appellant that the letter dated 8th March, 1994 disclosed the entire facts to the authorities regarding the items manufactured by the appellant cannot be accepted. The letter dated 8th March, 1994 did not disclose the entire facts. The letter did not disclose the situation in its proper perspective. The authorities were not informed about the actual activity undertaken by the appellant. The authorities were also not informed that a new name has been given to the products. The applicability and functions of the new products was also not clearly stated. The new and distinct product which had come into existence was sold and known in the commercial world under a separate name having different and distinct qualities. The appellant had not produced sample of the subject goods along with the letter. For the aforestated reasons, it cannot be held that the authorities had full knowledge about the activities undertaken by the appellant.
31. It appears that duty liability under the Central Excise Act & Rules was well known to the appellant as is evident from the correspondences made by Shri Arun Kanti Paul (who is the common partner of M/s. T. Paul & Sons and the appellant) on 23rd August, 1995 with M/s. Philips India Ltd. Shri Arun Kanti Paul, in his letter has stated that they could avoid Central Excise liability by printing thinner instead of solvent, on the packs of bottles. M/s. Philips India Ltd., by its letter No. HD/CE/ACCY dated 6th September, 1995, endorsed the same and permitted M/s. Paul &. Sons to print thinner instead of solvent on the outer pack. The direction of M/s. Philips India Ltd. was actually executed by the appellant by printing thinner instead of solvent on the cartons. Shri Arun Kanti Paul during examination, when asked to throw some light on the correspondence with M/s. Philips India Ltd. stated that he had some doubt about the excise liability of these products and accordingly he obtained legal opinion regarding the same and persuaded M/s. Philips India Ltd. to allow them to print thinner against solvent on the cartons. It clearly shows that the appellant although was conscious of the fact that the products manufactured by them could attract the Excise Duty, made a deliberate attempt to evade the same by printing thinner instead of solvent on the cartons. 9.2 The appellants have submitted that they have exported certain consignments of the goods in question and even in the export consignments they have declared the same classification and rate of duty and no objection was raised by the Revenue. Hence the department itself has accepted the classification. We do not see any force in this argument. The goods exported from India are not charged to excise duty. If the goods are exempted, no duty is chargeable. Even if the goods are chargeable to duty, either goods are exported under bond where no duty is levied or duty paid at the time of export is refunded in the form of rebate, thus overall no duty is collected by Revenue for export goods. Thus, in connection with export, the leviability of the duty is of no consequence. Moreover, the Central Excise officer at the time of export does the function of Customs officer and the examination is only to check that the goods being stuffed in the container or packages are as per the packing list, invoice etc. The officers are not expected to examine the issues raised in the present show cause notice. The appellants contention is therefore rejected.
9.3 Another contention raised by the appellant is that in case of their competitors, the goods are being cleared without payment of duty and Revenue has not raised any objection in their case. In support of their contention, the learned counsel also submitted the Honble Bombay High Court judgment in the case of Galaxy Plastics (Bombay) Pvt. Ltd. vs. UOI in Writ Petition No.298 of 2006. We have gone through various documents and leaflets submitted by the appellant. From the documents submitted by the appellant, it cannot be concluded that the goods are exactly similar and the classification and duty leviable/levied. It is to be noted that many a times, even when the goods are dutiable, a particular assessee may be getting the benefit of SSI exemption or some other notification and the goods may be cleared duty free due to such reason. Further, at present, the system of assessment is self-assessment where it is for the appellants to assess the duty themselves. Only in respect of the duty paying units, some arithmetical scrutiny is done by the Revenue. In respect of non-duty paying units, no action is taken until and unless any information is received about the evasion of duty. In the overall factual matrix of the case, we are not in a position to say that the competitors are being allowed clearance duty free by the Revenue.
9.4 The learned Commissioner (AR), on the other hand, has submitted the Honble Supreme Courts decision in the case of Faridabad CT Scan Centre vs. DG Health Services reported in 1997 (95) ELT 161 (SC). In the said judgment, the Honble Supreme Court in para 3 has observed as under:-
3.We fail to see how Article 14 can be attracted in case where wrong? orders are issued in favour of others. Wrong orders cannot be perpetuated with the help of Article 14 on the basis that such wrong orders were earlier passed in favour of some other persons and, therefore, there will be discrimination against others if correct orders are passed against them. In fact, in the case of Union of India (Railway Board) & Ors. v. J.V. Subhaiah and Ors. [1996 (2) SCC 258], the same learned Judge in his judgment has observed in para 21 that the principle of equality enshrined under Article 14 does not apply when the order relied upon is unsustainable in law and is illegal. Such an order cannot form the basis for holding that other employees are discriminated against under Article 14. The benefit of the exemption notification, in the present case, cannot, therefore, be extended to the petitioner on the ground that such benefit has been wrongly extended to others. With respect, the decision in Mediwell Hospital (supra) does not lay down the correct law on this point. 9.5 As mentioned earlier, we have already come to a definite conclusion that the goods are classifiable under heading 8428 and 8479 and, therefore, the partys plea is rejected. We also note that the appellants were conscious of the fact that the goods are classifiable under 8428 and chargeable to excise duty and in order to avoid excise duty, they used different description of the goods and generally known commercial description was written in the abbreviated form viz. BC, CC, SC etc. The appellants were insisting from the buyers to indicate the description as per their requirement. Even one of their main customers has stated in the statement that initially when they started the business with the appellant, they were informed that if they dont use the said description, excise duty will become payable.
9.6 The appellants have also pleaded that they had a bona fide belief that their goods are not chargeable to duty. We fail to understand this plea. Evidences on record clearly indicate that they were aware that the goods are chargeable to duty and it is for this reason that they were insisting particular description. Statement recorded during the investigation indicates that they were fully aware about of their duty liability and it was a well planned tactic to have particular description of the goods in order to avoid duty.
9.7 We also note that in somewhat similar situation in the case of Tamilnadu Petroproducts Ltd. vs. CCE, Chennai reported in 2004 (176) ELT 116, the Tribunal has observed as under:-
28.As regards the invocation of the proviso to Section? 11(A) of the C.E. Act 1944, I find that suppression of facts from the department is very clear from the evidence available on record as the appellants, to suit the requirement of their customers, and to derive the consequential benefit by them, cleared the goods under a different name, without bringing it to the notice of the department. The appellants have suppressed the fact is supported by evidence on record in the form a letter signed by Shri S. Karthikeyan of the appellants to Shri Ramamurthy/Mr Venkatesh of their Excise department. Copy of the letter is filed in page 115 of the paper book which reads as under :-
EXCISE CLASSIFICATION OF TRANSFORMER (TO) GRADE II Madras Petroleum have placed order for 100 MT of Transformer oil Grade II. Copy of the same is enclosed for ready reference.
They want to know whether we can invoice the product as Transformer Oil Base Stock (TOBS) under Tariff heading 27.10 attracting 10% Excise duty.
Presently Transformer oil Grade II comes under Tariff heading 3817, attracting 20% Excise duty. If Reclassification of the product as Transformer Oil base Stock under Tariff heading 2710 with 10% Excise Duty is not possible, they wanted to know whether we can supply TO Grade II in the name of Spindle Oil (VG 22).
You may please note that our Spindle Oil has already been registered under Tariff 2710 with Excise duty @ 10%. Technically there is not much difference between our Transformer oil Grade II and Spindle Oil (VG 22). Kindly let us know the excise implication involved in this case. Please treat the matter VERY URGENT. Sd/-
(S. Karthikeyan) DM (Mktg. Devt.) Further, the message sent by Shri S. Ramamurthy, DM (Excise) TPL Site to Shri S. Karthikeyan, DM (Mktg, Devt) TPL HQ a copy of which is filed on page 116 of the paper book is reproduced below :-
URGENT Dt. 16-11-95 FAX = MESSAGE S. RAMAMOORTHI, DM?FROM: (EXCISE) TPL-SITE.
MR. S. KARTHIKEYAN,?TO: DM (MKTG.DEVT.) TPL-H.O. PLEASE REF. YOUR FAX MSG. DT. 15-11-95. IN THIS REGARD WE HAVE ALREADY EXPLAINED OUR DIFFICULTY IN REGISTERING TOBS UNDER TARIFF 2710. THIS IS MAINLY DUE TO THE REASON THAT OUR MFG. PROCESS OF TOBS IS ENTIRELY DIFFERING FROM THE OTHER TOBS AVAILABLE IN THE MARKET.
HOWEVER, WE CAN GO AHEAD WITH THE PROPOSAL AS YOU HAVE SUGGESTED VIDE PARA 4, AS THERE IS NO MUCH DIFFERENCE BETWEEN TRANFORMER OIL & SPINDLE OIL. ALSO, WE ARE ALREADY HOLDING THE REGN.CERT. FOR MFG. SPINDLE OIL. AND ALSO, PLEASE ARRANGE TO GET A REVISED P.O. MENTIONING THE PRODUCT NAME AS SPINDLE OIL FROM THE BUYER.
REGARDS.
Sd/-
(S. RAMAMOORTHI) Thus the Records clearly show that M/s. TPL have been clearing the goods under 38.17 and they were prompted by the need of the customers to change the nomenclature of the item as Spindle Oil and they did so clearly with a view to evade payment of duty. They have intentionally changed the nomenclature of the goods and the tariff heading thereto, is established by the above correspondence exchanged between the Senior Officers of the appellants Company. Therefore, mens rea on their part is established by evidence on record. In the background of the evidence as discussed above, the charge against the appellants that they have suppressed the fact from the department is brought home by evidence on record. Therefore, the proviso to Section 11A has been correctly invoked. So far as penalty under Section 11AC is concerned, I find that the Commissioner has taken into consideration the date of introduction of the provisions of Section 11AC and has proportionately imposed the mandatory penalty and it cannot be considered to be excessive warranting any reduction and I confirm the same in entirety. I also uphold the order of the lower authority in regard to demand of interest.
39. Ld. counsel now refers to the departments allegation? that the appellants had suppressed material facts rendering themselves liable to penalty under Section 11AC of the Central Excise Act. He submits that, as far back as on 8-2-1996, the appellants had filed a fresh classification list in respect of the subject products. Had the department had any doubt in the matter, they would have called for necessary clarification from the appellants and would have made further enquiries, if necessary, to verify the correctness of the classification claimed by them. The department did not take any such steps under Rule 173B of the Central Excise Rules 1944. They cannot allege that any material fact was suppressed atleast from the date on which the classification list was filed. Section 11AC was enacted only on 28-9-1996. In the circumstances, any action under this provision of law was not warranted in the present case, submits the counsel. These submissions are also opposed. Ld. Jt. CDR submits that the classification list dated 8-2-96 was purportedly a revised classification from which it would not appear to the department that it had been filed in respect of any new product. It is also submitted that the declaration in the classification list was vague as it contained no specific details of the products or of the process of manufacture thereof. I have considered and appreciated these submissions. Having agreed, on the merits of the case, with the findings recorded by learned Member (Technical), I have got to endorse his decision in regard to penalty as well. 9.8 The Honble Supreme Court in the case of DCL Polyester Ltd. (supra), in para 25 and 26, has observed as under:-
25. Now coming to the question of limitation, it is urged on behalf of the assessee that show cause notice dated 1-9-1994 invoking the extended period of limitation under the proviso to Section 11A(1) was erroneous as the assessee had filed their classification list and price-list on 20-11-1991 [including the purchase orders of the buyers]; that no inspection, audit or investigation was carried out before approving the classification list and the price-list and, therefore, the department was not entitled to invoke the extended period of limitation.
26. We do not find any merit in these arguments.? Firstly, no such arguments were advanced before the Tribunal. The only argument advanced before the Tribunal was on excisability and nil rate of duty vide notification dated 1-3-1992. Secondly, in the reply to the show cause notice, the assessee submitted that wastes had emerged at various stages. However, in the classification list, they have not spelt out the various stages at which the so called wastes had emerged. In the present case, the department had alleged misdeclaration of polyester chips as wastes. According to the assessee, chips, which spilled over during bagging were unusable and, therefore, waste. However, no such details have been mentioned in the classification list particularly when it urged that wastes had emerged at different stages of production. In the circumstances, we are not inclined to interfere with the impugned judgment of the Tribunal. 9.9 Further, in the case of Essar Oil Ltd. (supra), the Honble Supreme Court in para 29 to 36 has elaborately discussed the concept of fraud. The Honble Supreme Court has observed that fraud is an intention to deceive. In the present case there can be no doubt that the appellants were aware about the dutiability of the said goods and, therefore, they have intentionally not used the generally understood commercial terminology of the said goods and instead used the words green feeder, en-masse feeder etc. to avoid payment of excise duty. In our view, the conduct of the appellants would support the invocation of the extended period of limitation as also imposition of penalty.
10. As far as penalty is concerned, again there can be no doubt as even after knowing that their goods are chargeable to excise duty, the appellants instead of paying the excise duty, chose to describe their goods with different nomenclature. We, therefore, uphold the imposition of penalty under Section 11AC.
11. Coming to the appellants request of permitting cenvat credit, we are not in agreement with the reasoning given by the Commissioner in the impugned order. It is true that the cenvat credit can be taken as per Rule 3 of the Cenvat Credit Rules. However, the peculiar facts in the present case are that the appellants did not pay the duty treating their goods as non-dutiable and hence they were not eligible for availment of cenvat credit. Now since the goods are held to be dutiable, they are eligible for taking the cenvat credit. The appellants, therefore, must be given a chance to provide the copies of various documents like invoices etc. and other records as required to prove that the said inputs or input services were used in the manufacture of the goods and if the appellants are able to satisfy from the documentary evidence then the cenvat credit should be extended to the appellants and the net duty should thereafter be worked out. Penalty will also change accordingly. We, therefore, remand the matter to the Commissioner for the limited purpose of examining the documents to be submitted by the appellants (within a period of three months from the date of receipt of this order) and the Commissioner would thereafter examine the said documents and in case he needs any other documents as per law, he may inform the appellants about the same and the appellants will submit those documents and, after examination of the said documents, take a view about the quantum of cenvat credit available to the appellants.
12. Now coming to the penalty imposed on Shri Makarand S. Savagaonkar, Managing Director of the appellant-company, under Rule 26 of the Central Excise Rules, from the facts brought on records, it is clear that he was aware that the goods manufactured by them are elevator and conveyor as popularly understood in commercial parlance and with that description the goods would be chargeable to excise duty, but he instead of paying the excise duty changed the description of the goods and not only that while interacting with his customers, insisted that the description in the purchase order etc. should be as per his requirement. We have no hesitation in holding that the penalty should be imposed on the said appellant. However, keeping in view the fact that the duty liability after extending the benefit of cenvat credit would be substantially reduced as also the fact that the appellant is an individual, we reduce the penalty imposed on him from Rs.1,00,00,000/- to Rs.10,00,000/- (Rupees ten lakhs only).
13. Both sides have quoted number of judgments in support of their contentions. We have gone through these judgments and we do not consider it necessary to discuss these cases.
14. The appeals are disposed of in above terms.
(Pronounced in Court on 26.5.2015) (Ramesh Nair) Member (Judicial) (P.K. Jain) Member (Technical) tvu 1 37