Customs, Excise and Gold Tribunal - Delhi
Top-O-Plast vs Collector Of C. Ex. on 30 January, 1990
Equivalent citations: 1990(30)ECR109(TRI.-DELHI), 1990(48)ELT128(TRI-DEL)
ORDER D.M. Vasavada, Member (J)
1. We have heard both these appeals together as the issues involved are common and they are related matters insofar as one is regarding classification and the other is regarding demand of Central Excise Duty based upon that classification. So we dispose them of by this common order.
2. As stated in the Appeal Memorandums the facts may be summarised as under :-
3. The appellant is a manufacturer of injection moulded articles produced out of plastic materials namely, cloth washing brushes, pharmaceutical packing boxes, watch plastic boxes and other industrial components as well as battery tops etc. Battery tops are used as component part in the manufacture of dry battery cell. In this appeal the dispute is regarding classification of this product only. The appellant's firm was registered as a Small Scale Unit and commenced production of this product in and around 1980-81. At that time it was covered under Tariff Item 15A(2) but were exempted from whole of the duty of excise by virtue of Notification No. 68/71, dated 29-5-1971. The said tariff item came to be reconstructed in the year 1982 whereby specified varieties of articles of plastic were classified under Tariff Item 15A(2) and the remaining articles were covered under T.I. 68 and accordingly the appellant's product was classifiable under T.I. 68. By virtue of Notification No. 182/82, dated 11-5-1982 this product was exempted from the whole of duty of excise. Even during the period between 1-4-1982 to 11-5-1982 also it was so exempted by virtue of Notification No. 105/80 as under this Notification such exemption was available to Small Scale manufacturers upto the value of clearance of Rs. 30 lakhs. As no duty was leviable, the manufacturer was also exempted from licensing provision; in view of Notification No. 111/78, dated 9-5-1978. The appellant was also under bona fide belief that it was not required to file declaration and did not file for the period 1979-80 to 1981-82. But having come to know of such requirement filed such declaration on 8 April 1982 for the Financial Year 1982-83 whereupon Superintendent of Central Excise informed acceptance and also granted exemption from licensing control. In the Financial Year 1982-83 the appellants cleared goods of value of Rs. 6,60,505.00 without payment of duty. There was no change in the Tariff entry or in rate of duty in the Finance Act, 1983-84. So the appellant continued to manufacture and cleared product valued at Rs. 11,61,000 without payment of duty. Again on 10-6-1984 the appellant filed declaration for the Financial Year 1984-85 which was served on excise authorities on 15 June 1984 and therein classified the product under TI 68 and claimed exemption under Notification No. 182/82. No objection was raised by the Department and so classification of the product in question came to be finalised under T.I. 68 and eligible for exemption under Notification No. 182/82. Then on 19-7-1984 the factory of appellant was visited by officers of the Preventive Wing and in pursuance thereof the Department forced the appellant to take out licence for manufacture contending that the product was classifiable under T.I. 42 and dutiable. Thereupon the appellants addressed a letter dated 31-7-1984, applying for licence, under protest. Thereafter on 3-8-1984, again under protest, the appellant applied in a prescribed form for licence which was granted on 7-8-1984. Thereafter again under protest, the appellant filed classification list for the product in question classifying it under T.I. 42 which was approved by the Assistant Collector on 17-8-1984. The appellant filed appeal against the order of approval of classification which was decided on 19-8-1985 and it was rejected. So the appellant filed appeal E/1514/85-C praying for classification of product under T.I. 68. On 31-8-1984 the appellant received show cause notice calling upon the appellant to show cause as to why duty of excise on product in question should not be demanded under TI 42 for the period 1983-84 and why penalty should not be imposed. The same was adjudicated by the Additional Collector and by that order the duty was demanded on the product of value of Rs. 4,11,000/- and penalty of Rs. 1,00,000/- was imposed. This Order has given rise to Appeal No. A/320/86-C.
4. We have heard Shri D.A. Dave, learned advocate for the appellant and Shri A.S. Sunder Rajan, learned JDR for the respondent.
5. The Learned Advocate submitted that the Department had accepted classification of product in question under T.I. 68 and on that basis had granted exemption to the appellant from licensing procedure as per letter dated May 1982 (Page 53 of Paper Book of Appeal No. 320/86-C). Thereafter there was no change in Tariff entry nor any change in process of manufacture by the appellant and so there were no circumstances which warranted any change in the classification by the Department. So the Department could not have changed the classification from T.I. 68 to T.I. 42. He further contended that if the Department felt that the classification was required to be revised then also it was incumbent upon the Department to issue show cause notice and then to adjudicate the matter. On factual side he submitted that in fact the product in question is not pilfer proof caps for packaging as defined in T.I. 42. He also relied upon Tariff Advice dated 3-1-1976 issued by Central Board of Excise and Customs. He also referred to Indian Standard Specification for pilfer proof cap and two certificates issued by two manufacturers (at Annexures O, P & Q of Paper Book of Appeal No. 1514/85-C). He also cited Captocaps Pvt. Ltd. v. Union of India and another reported in 1986 (24) E.L.T. 19 (Guj.) wherein it is held - 'Snapcaps' commercially known as 'Captocaps' used as closures or works for bottles and other containers not pilfer proof caps - Hence, not liable to duty under Item 42 of Central Excise Tariff. For appeal No. 320/86-C, the learned advocate submitted that as the appellant had already declared to the Department that they were manufacturing this product and as on basis of that the Department had by the letter dated May 1982 accepted the declaration and had granted exemption from licensing control it cannot be said that the Appellant had suppressed the correct nature of the product. So, according to the learned advocate it cannot be alleged that the appellant had violated provisions of any of the rules especially Rule 173Q. So, no penalty could have been imposed.
6. Shri A.S. Sunder Rajan, learned JDR for the respondent submitted that the very nature of the product would suggest that it is pilfer proof cap. He relied upon the opinion expressed by Shri Manmohan Sharma, General Manager Materials and Technical of M/s. Lakhanpal National Ltd., Baroda, copy of which was annexed to the Show Cause Notice and which is produced at page 73 of Appeal No. 320/86-C. He further submitted that the product in question in the case before Gujarat High Court was different so the citation is not relevant. He relied upon detailed discussion made by the Additional Collector in the Adjudication Order in Appeal No. 320/86-C.
7. We have carefully perused the record and considered rival arguments. It is true that the preventive staff visited the factory of the appellant on 19-7-1984 and subsequently thereof the appellant addressed a letter dated 31 July 1984 to the Department copy of which is produced at page 59 (hereinafter generally reference is to pages of Paper Book in Appeal No. 320/86). By this letter the appellant had stated that the product in question could not be classified under T.I. 42 but under protest they intend to apply for manufacturing licence and asked for supply of necessary application form. At page 60 is copy of the application (form A.L. 4) for manufacturing licence under Central Excise Rules, 1944 and therein also while classifying the product under T.I. 42 the appellant has staled "Classification is subjudice". At page 63 is the classification list submitted by the appellant classifying the product under T.I. 42 wherein also it is stated as under :-reproduced at page 13 Para 6 of Appeal memo) "The above classification of Red Top Plate is not acceptable by us. Our contention of Top Plate fall under T.I. 68 and are exempted vide 182/82. This licence is taken under protest."
As per endorsement it was approved by the Additional Collector on 17-8-1984 (Classification list is dated 10-8-1984). At page 62 is forwarding letter whereby the approved list was returned to the Appellant. It is not in dispute that no Show Cause Notice was issued to the appellant before finalising the classification list. Now when it was filed under protest and when the appellant insisted that there were no circumstances which warranted revision of classification and they were filing it under protest and as per instructions of the Department then it was incumbent upon the Department to issue Show Cause Notice and adjudicate matter in a proper manner. Classification, while the same is being disputed by the manufacturer becomes a quasi-judicial decision and it cannot be taken without asking the party to show cause and affording an opportunity of representing in person or otherwise. So classification approved by the Assistant Collector was not in proper manner and required to be set aside. On that ground the Collector (Appeals) should have allowed the appeal but instead he confirmed the classification which was not proper. We could have remanded the matter on this ground but we are satisfied that enough material is on record to take decision on merits. So, we are not remanding the matter to the adjudicating authority.
8. The appellant has produced copy of the Trade Notice No. 1/76 which describes closure caps as under :-
"Plastic closure caps are manufactured from low density polyethylene and these are used as closures on containers and bottles. They are fitted on the bottle of the container by applying pressure on the top and they are opened at the time of use by removing or breaking the circular strip, a sealing ring which is in the middle of the closure. The cap consists of three parts, the upper part being the cap itself and the bottom part a ring which will sit around the neck of the bottle or container and in between them a circular strip which acts as a warrantee belt. When the circular strip in the middle is pulled off it divides the cap into two parts and the upper part becomes removable and allows the bottle to be opened. It is noted that normally the construction and design of the cap is intended to make the cap serve as a pilfer proof or tamper proof. Such plastic caps are classifiable under Item No. 42 of C.E.T."
As per Indian Standard Specification for Pilfer Proof closures (Annexure O Appeal No. 1514/85-C), such seal of closure is specified as under :-
"Pilfer proof closures are intended to provide to the contents in a container protection against substitution adulteration or pilfering. Once the pilfer proof cap is fixed on the package, it is ordinarily not possible to tamper with the contents of the package without destroying the special device if the closure which is intended to provide such protection.
The roll seal aluminium closure is one of the most extensively used pilfer proof closure fitted on the glass bottles, containing products, such as liquor, phar-maceuticals, chemicals, syrups and squashes. These closures have a security ring which breaks away from the cap as soon as it is unscrewed."
So from the description in the trade notice and the Indian Standard Specification it is clear that cap which is covered under T.I. 42 must be of such a nature that it should completely seal the container. It cannot be opened without breaking the cap meaning thereby that it is specifically devised to make the container tamper-proof. The appellant has also relied upon two certificates issued by Sarabhai Research Centre and Alembic Chemical Works Co. Ltd. (Annexure P & Q in Paper Book). These are manufacturers who are using such caps and in their opinion the product of the appellant does not qualify to be pilfer proof cap. So from this it could be seen that the persons who are dealing with these products are of the opinion that the product does not answer to the description given in T.I. 42. The appellant has also relied upon the decision in Captocaps Pvt. Ltd. (Guj.) wherein it has been laid down as under:-
"It is an accepted proposition that pilfer proof caps are those where under no circumstances the caps can be removed without leaving traces of the fact of the removal of the caps and should be considered in the sense in which it would be understood by the manufacturer of pharmaceutical or other products who would buy .such caps."
With consent sample has been kept in record and on perusal it could be seen that the product in question is of such a type that it could be removed from the battery cell without much difficulty and without leaving any trace. Moreover it is fitted on the cell after it being sealed in all respects. The Collector has relied upon the opinion expressed by Shri M. Sharma, General Manager of M/s. Lakhanpal National Ltd. Baroda wherein he has stated as under:-
"The components are used primarily for the following functions :
(a) To protect the leakage of electrolyte from within the cell.
(b) To protect positive terminal from corrosion.
(c) To avoid short circuit of the cell during transportation and display on shelf."
It could be seen from this that the cap in question is used to protect the container and not to make it pilfer proof.
9. Considering all the above evidence we have no hesitation in saying that the product in question is not classifiable under T.I. 42 but should have continued to be classified under T.I. 68. As far as Appeal No. 320/86-C is concerned, the appellant had declared manufacture of the product in question to the Department and on the basis of that the Department had granted exemption from licensing control as per letter dated May 1982 (page 53). It can also be seen from this letter that the product was classified under T.I. 68 and as investment in the plant and machinery installed in the factory was not more than Rs. 20 lakhs, the appellant was granted exemption from licensing control. Now it is obvious that before granting such exemption the Department should have verified the product in question, investment in plant and machinery etc. Because it is the obligation cast on the Department to make necessary enquiry before granting such exemption from licensing control. When such legal duty has been cast upon any Govt. authority then it should be presumed that such authority had discharged the obligation and had issued certificate after necessary enquiry. Shri A.S. Sunder Rajan has submitted that the appellant had misdeclared the product in as far as they were manufacturing pilfer proof caps and they did not declare so. But then the appellant had declared at the relevant time any they still maintain that they never manufactured pilfer proof cap which would answer the description provided in T.I. 42. So they cannot be faulted on that ground simply because it is the contention of the Department that product in question answers description in T.I. 42. The appellant cannot be expected to pre-judge the mind of the department or to presume that at some later date the Department would try to interpret the tariff item in a particular manner and that it would direct the appellant to classify the product under particular T.I. and so they should classify it in that manner before the Department raise any objection. This is a legal dispute and the appellant was within its rights to classify the product under T.I. 68. At that time it was open to the Department to inquire whether it was a fact and whether the product was correctly classifiable under T.I. 68 or T.I. 42. They had that opportunity at relevant time and they had accepted the classification suggested by the appellant, so the Department cannot turn around at a subsequent date and contend that whatever declared was not proper and thereby the manufacturer had suppressed the facts or mis-declared the product and thereby committed any fraud. We are surprised to note that after the appellant filed declaration on 10.6.84 classifying the product under T.I. 68 and stating that they were doing so for continuing to seek exemption from making payment of Central Excise Duty (page 54 to 58) and even though immediately thereafter the Department asked the appellant to submit classification list under T.I. 42 and after the Assistant Collector approved classification and after Show Cause Notice was issued, by the letter dated 8.4.85 (page 78) the Department granted exemption under Notification No. 182/82 accepting classification of the product under T.I. 68 for the year 1984-85 and also granted exemption from licensing control. It may be argued that this was with reference to other product but there is no such clarification in this letter. Any way apart from that also the record suggests that the appellant had not mis-declared the product nor the appellant committed any mischief or fraud or suppressed any facts.
10. In view of the above discussion there is no case for demanding any duty for the period 1983-84 as the product in question which was classifiable under T.I. 68 was at the relevant time exempted from payment of Central Excise duty under provisions of Notification No. 182/82, dated 11.5.1982 which was in force at relevant time. In these circumstances the appellant was not required to pay anything. So there was no question of imposing penalty which requires to be set aside. So we pass the following order :-
(i) Appeal No. E/1514/85-C is allowed and impugned order is set aside. The correct classification of the product in question would be under T.I. 68.
(ii) Appeal No. E/320/86-C is allowed and the impugned order is set aside with consequential relief to the appellant.