1999 (9) TMI 853 - AT - Central Excise

Classification of goods - Exemption - Washing machine parts - Classification - Demand - Limitation - Penalty - Confiscation - Plant and machinery

Summary

Issues Involved:
1. Classification and assessment of sub-assemblies of washing machines.
2. Applicability of Interpretative Rule 2(a).
3. Validity of duty demand for the period from 5-5-1992 to 31-8-1995.
4. Imposition of penalties on the appellant and individual employees.
5. Confiscation and redemption of land, building, plant, and machinery.

Detailed Analysis:

1. Classification and Assessment of Sub-Assemblies of Washing Machines:
The primary issue revolves around whether the sub-assemblies cleared by the appellants constitute complete washing machines or merely parts thereof. The appellants argued that the items cleared from their factory were sub-assemblies and not complete washing machines. They emphasized that these sub-assemblies were further processed at other units before becoming complete washing machines.

2. Applicability of Interpretative Rule 2(a):
The Revenue contended that the sub-assemblies cleared by the appellants had acquired the essential characteristics of washing machines and should be classified as such under Interpretative Rule 2(a). The Tribunal noted that the items cleared were not a plethora of parts but major sub-assemblies, which when assembled, resulted in a fully functional washing machine. Thus, the application of Interpretative Rule 2(a) was justified.

3. Validity of Duty Demand for the Period from 5-5-1992 to 31-8-1995:
For the period up to 14-3-1995, the Tribunal found that even if the sub-assemblies were deemed complete washing machines under Rule 2(a), the exemption available to parts could not be denied. This was based on the fact that both washing machines and parts were covered under a single tariff sub-heading, and parts enjoyed partial duty exemption under relevant notifications. Therefore, no differential duty demand arose for this period.

For the period from 15-3-1995 onwards, the Tribunal held that the demand for differential duty was valid on merits as parts of washing machines were removed from the sub-heading for complete washing machines, and no exemption notifications were in existence. However, the Tribunal considered the appellants' argument on limitation and found substantial merit. The transactions were revenue-neutral, and there was no intent to evade duty. Consequently, the extended period under Section 11A(1) could not be invoked, and the duty demand was limited to the period within six months from the date of the show cause notice.

4. Imposition of Penalties on the Appellant and Individual Employees:
The Tribunal found no justification for imposing penalties on the appellant company or the individual employees. The clearances were made as per approved classification lists and statutory documents, and there was no intention to evade duty. Therefore, the penalties imposed in the order were set aside.

5. Confiscation and Redemption of Land, Building, Plant, and Machinery:
The Tribunal held that the provision regarding confiscation should not be invoked in cases where there is no mens rea. Since there was no intention to evade duty, the confiscation ordered in the impugned order and the redemption fine were also set aside.

Conclusion:
The appeal succeeded partially. The duty demand for the period up to 14-3-1995 was set aside, while the demand for the period from 15-3-1995 was limited to six months from the date of the show cause notice. Penalties and confiscation were also set aside. The amount of duty payable was to be quantified by the assessing officer, and any excess pre-deposit was to be returned to the appellants as per law.