Customs, Excise and Gold Tribunal - Delhi
M/S. Hindalco Industries Ltd. vs Commissioner Of Central Excise, ... on 9 May, 2001
Equivalent citations: 2001(130)ELT453(TRI-DEL)
ORDER K. Sreedharan, J.
1. Issue raised in this appeal is classification of Vanadium Sludge. Appellant, engaged in the manufacture of aluminium, wants to classify it under Chapter Heading 26.20, while Department ordered classification under Chapter sub-heading 2841.90. When this appeal came up before a Bench of two Members, that Bench took note of confecting decisions rendered by coordinate Bench of two Members, that Bench took note of conflicting decisions rendered by coordinate Benches of this Tribunal in final order No. 1972/1996 passed by the South Regional Bench at Maras in appeal No. S/2475/93-C and the decision of the East Regional Bench in Indian aluminium Company Ltd vs. Commissioner of Central Excise, 1998, (24) RLT 763. The East Regional Bench, after noting the final order passed by the South Regional Bench differed from the law stated therein and classified the goods under Chapter Heading 28.21 (SIC) to this conclusion, the East Regional Bench in the reported decision on Rule 3(b) of the General Rules for the Interpretation of the Harmonized System. In view of the difference of opinion expressed by the two coordinate Bench, the matter has been referred to a larger Bench for decision.
2. As stated earlier, appellant before us, M/S. Hindalco Industries Ltd. are engaged in the manufacture of aluminium. Raw material for the production of aluminium is Bauxite. One such metal (Vanadium) which is obtained in the process is in the form of Sodium Orthovandate. The product is loosely called as Vanadium Sludge.It contains Sodium Orthovandate, mositures and small amount of Sodium Hydroxide as an impurity. The Sodium Orthovandate has chemical formula of Na3 VO4 12H2O. Customsers purchase this bye-product for extracting Vanadium Pent-Oxide. Appellant filed classification list seeking classification under Chapter sub-heading 2620.00 as residues containing metals or metallic compounds. From 1-3-1998 the bye-product, namely, Vanadium Sludge was classified under Heading 28.04 as inorganic bases and oxides, hydroxides and peroxides of metals. That classification list was approved by the Department and goods were cleared accordingly. While so, on 1-3.1991 as if the goods are classifiable under Heading 28.41. Collector of Central Excise, Allahabad as per order dated 17-12-1992, confirmed the demand holding that Vanadium Sludge is Sodium Orthovandate falling under Chapter sub-heading 2841.90. The said order of the adjudicating authority was set aside by final order No. 124/98 dated 15-12-98 passed by this Tribunal in appeal No. E./703/93-C. The adjudicating authority was directed to dispose of issues afresh after complying with the principles of natural justice. Thereupon, as per order-in-original MP(Demand)(43/992/2000 dated 31-5-2000, the Commissioner took the view that Vanadium Sludge is calssificable under Chapter sub-heading 2841.90 of the Central Excise Tariff Act. Consequently, the demand amounting to Rs.61,75,832.59 was confirmed. As sun of Rs. 62 lakhs has been imposed as penalty on the appellant. Appellant was also directed to pay interest under Section 11AB of the Central Excise Act, 1944.
3. Before us learned counsel representing the appellant questioned the correctness of imposition of penalty and the direction to pay interest under Section 11AB of the Act as well. Learned counsel also questioned the correctness of the action taken by the adjudicating authority in invoking the extended period as contemplated by proviso to Section 11(1) of the Act. According to learned counsel, there was no concealment of any fact from the Department. All clearances effected subsequent to 1st March 1988 were pursuant to the classification list filed before the departmental officers. Thus, there was no concealment of any fact, much less with intent to evade payment of duty. Consequently, the show cause notice dated 24-6-1991 for the period from March, 1988 to October, 1990 was clearly without jurisdiction. The second show cause notice dated 22-3-1991 can be claimed.
4. Appellant raised a contention that all clearances of Vanadium Sludge were effected pursuant to the approved classification list and the price list. Therefore, there could not have been any claim for differential duty. This contention was put forth on the basis of a decision rendered by the Apex Court. Adjudicating authority overruled this contention on the basis of the provision contained in the Finance Act, 2000.
5. At first, we consider it proper to deal with the classification of the goods cleared by the appellant. Appellant is engaged in the manufacture of aluminium. In the process of extracting aluminium from Bauxite, they recover Sodium Orthovandate as a bye-product. This product is sold to other manufacturers who produce Vanadium pentoxide from it. The price of Sodium Orthovandate depends on the percentage of Vanadium pentoxide contained in it.
6. A sample from the centrifuged material was drawn from the appellant's factory and analysed in the Central Revenue Control Laboratory, New Delhi. The said material was found to contain Sodium Orthovandate, moisture and small amount of Sodium Hydroxide. According to the analyst's report, Sodium Orthovandate has the chemical formula of Na3 VO4, 12H2O. If the appellants were not satisfied with the analyst's report, as per Rule 56(4) of the Central Excise Rules, 1944, they ought to have requested the departmental authorities to have the sample retested. Such a retest was not asked for. So, the report of the Chief Chemist attached to Central Revenue is not open to challenge at the hands of the appellant.
7. A similar sample of the goods was subjected to analysis by the Department of Chemistry attached to the University of Allahabad. The report sent by Shri Mahesh Chandra Chattopadhyaya to the Assistant Collector of Central Excise, Murzapur shows that 70% of the material is Sodium Orthovandate with chemical formula Za3 VO4 12H2O. That report goes on to state that Sodium Orthvandate is a bye-product obtained in the manufacture of alumina from Bauxite. This report states:
"In view of increasing use of vanadium in steel, pigments, production of A23O4 and in paper industry, sodium orthovandate is used in manufacturing of vanadium as the sodium orthovandate can be easily converted into V2O5."
8. From the above report of the Chief Chemist attached to he Central Revenue Control Laboratory and that of the Head of Department of Chemistry, University of Allahbad, it is crystal clear that the bye-product obtained by the appellant is Sodium Orthovandate, an Oxo metallic compound.
9. Appellant wants the goods, namely, Sodium Orthovandate to be classified under Chapter Heading 26.20. This claim is made on the basis that it is ash and residues containing metals or metallic compounds obtained from the manufacture of aluminium. Note 3 to Chapter 26 states that Heading 26.20 applies only to ash and residues of a kind used n industry either for the extraction of metals or as a basis for the manufacture of chemical compounds of metals. In view of this Note No.3 to Chapter 26, we are clear in our mind that the product in question cannot be classified under Chapter Heading 26.20, because it is a bye product recovered during the manufacture of Aluminium and not ash or residue contemplated in the note.
10. Chapter Heading 28.41 takes in salts of oxometallic or peroxometallic acids. As seen from the certificate issued by the Department of Chemistry, University of Allahabad, Sodium Orthovandate is an oxometallic compound. This substance is a salt of oxometillic acid. Note 5 of Chapter 28 provides that Heading Nos.28.26 to 28.42 apply only to metal or ammonium salts or peroxysalts. It goes on to state that double or complex salts are to be classified in Heading No.28.42 only where the context otherwise require. Since there is nothing to show that the context otherwise requires in relation to the goods in question, we feel that it can be classified only under Heading 28.41.
11. The East Regional Bench reached the conclusion that the goods are to be classified under Heading 28.41 invoking the provision contained in Rule 3(b) of the Interpretative Rules. The approach made by the Bench, we are afraid, is not correct. Explanatory Note(V) to Rule 1 of the General Rules for the Interpretation of the Harmonized System reads as follows:-
"In provision (III)(b), the expression "provided such headings or Notes do not otherwise require" is intended to make it quite clear that the terms of the headings and any relative Section or Chapter Notes are paramount, i.e., they are the first consideration in determining classification. For example, in Chapter 31, the Notes provide that certain headings relate only to particular goods. Consequently, those headings cannot be extended to include goods which otherwise might fall there by reason of the operation of Rule 2(b)."
Note 1 to Chapter 28 states that except where the context otherwise requires, the heading of this Chapter apply only to the five sub-clauses referred thereunder. In view of this specific provision in Note 1, the Bench was clearly in error in resorting to Rule 3(b) of the Interpretative Rules. Be that as it may, the Bench rightly concluded the issue os classification by classifying it under Chapter Heading 28.41.
12. Before the goods were cleared, appellant filed classification list. Nothing was kept concealed form the Department. If the Department was not satisfied with the said classification list, they ought to have taken prompt action. After having slept over the matter for more than three years, it is not open to the Department to invoke the provisions contained in provisions contained in proviso to Section 11A(1) of the Act. It means that the claim of differential duty made in the show cause notice dated 24-6-91 is clearly barred by limitation. In so far as the show cause notice dated 22-3-1991 is concerned, we hold that it can apply only to transactions which took place within six months immediately proceeding the said notice and not for any anterior period. So, the duty claimed as per the impugned order cannot be sustained. Adjudicating authority should requantify the duty payable by the appellant for the period falling within six months immediately prior to the date of show cause notice dated 22-3-1991. That duty and that alone can be claimed by the Department.
13. By the impugned order the adjudicating authority, after confirming the demand of Rs.61,75,832.59, imposed penalty of Rs. 62 lakhs on the appellant. Penalty of an amount greater than the duty appears to have been imposed in view of the provision contained in Section 11AC of the Act. Section 11AC was brought into the statue book with effect from 28-9-1996. Even if there was levy or non-levy of duty in case of the goods cleared by the department, it was in relation to the goods cleared up to February, 1991, under no circumstance, be imposed. So, we set aside the penalty imposed on the appellant by the impugned order.
14. In view of what has been stated above, we set aside the order impugned in this appeal in its entirety after upholding the classification of the goods cleared by the appellant as falling under Chapter sub-heading 2841.90. Duty leviable on the goods cleared within a period of six months immediately preceding 22-3-1991 has to be recompute by the adjudicating authority.The amount so recomputed in relation to the goods cleared within the said period of six months prior to 22-3-1991 alone can be claimed from the appellant. For recomputing this amount, the matter is remitted to the adjudicating authority. We make it clear that while passing such order, reasonable opportunity of being heard should be extended to the appellant. Appeal is disposed of in the above terms.