2001 (9) TMI 554 - AT - Central Excise

Summary

Issues Involved:
1. Classification of diagnostic kits under the Central Excise Tariff Act.
2. Demand of duty and imposition of penalty.
3. Allegation of suppression of facts and invocation of the extended period of limitation.
4. Violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Classification of Diagnostic Kits:
M/s. ACE Diagnostic & Biotech Ltd. (ADBL) challenged the classification of their diagnostic kits under Chapter Heading 38.22 by the Commissioner. The appellants marketed three types of diagnostic reagent kits, but the dispute centered on immunodiagnostic kits, which they claimed should be classified under Chapter sub-heading 3002.00, attracting a Nil rate of duty. The Department classified these kits under Chapter sub-heading 3822.00, which had an 18% ad valorem duty. The Commissioner rejected the appellants' plea, relying on Chapter Note 5 in Chapter 38, which deemed repacking and relabelling as manufacturing. The appellants argued that their activities did not constitute manufacturing under Section 2(f) of the Central Excise Act and that their products should fall under Chapter Heading 30.02, supported by HSN Explanatory Notes and previous Tribunal decisions.

2. Demand of Duty and Imposition of Penalty:
The Commissioner confirmed a demand of Rs. 12,47,821/- for the period 1997-98, imposed a penalty of an equal amount, and confiscated seized goods with an option for redemption on payment of a fine. The appellants contested this, arguing that their classification under Chapter Heading 30.02 was correct and that they were under a bona fide belief supported by the Tribunal's decision in Inter Care Ltd. They contended that there was no intention to evade duty, and thus, no penalty under Section 11AC was warranted.

3. Allegation of Suppression of Facts and Invocation of Extended Period of Limitation:
The show cause notice alleged that the appellants suppressed facts with the intent to evade duty, justifying the invocation of the extended period of limitation. The appellants argued that they had no fraudulent intent and were under a bona fide belief regarding the classification of their products. They claimed that a major part of the duty demand was time-barred as it fell outside the standard six-month period.

4. Violation of Principles of Natural Justice:
The appellants argued that the impugned order was passed in violation of natural justice principles. They were not provided with copies of relied-upon documents despite their request. The Commissioner did not consider their substantive submissions, product literature, scientific extracts, or the Tribunal's decision in Inter Care Ltd. The Commissioner also failed to acknowledge that the burden of proof for classification rested with the Department, not the assessee.

Conclusion:
The Tribunal found merit in the appellants' submissions regarding the violation of natural justice principles. It noted that the Commissioner ignored many of the appellants' substantive submissions and did not provide requested documents. The Tribunal set aside the Commissioner's order and remanded the case for fresh adjudication. The adjudicating authority was directed to provide the appellants with the necessary documents, examine all submitted materials, consider relevant case law, and offer a reasonable opportunity for a hearing before deciding the classification and other issues afresh.