2003 (9) TMI 513 - AT - Central Excise

Classification - Demand - Limitation - Extended period - Demand - Requantification of - Confiscation and penalty - Mens rea

Issues Involved:
1. Classification of Micro Porous Ceramic/Polymer Vent Plug
2. Applicability of Notification No. 167/86-C.E.
3. Interpretation of Section Note 2(b) to Section XVI
4. Limitation period for demand of duty
5. Imposition of penalty and confiscation of goods

Issue-wise Detailed Analysis:

1. Classification of Micro Porous Ceramic/Polymer Vent Plug:
The primary dispute revolves around the correct classification of the ceramic plugs. The Commissioner (Appeals) classified the ceramic plugs under Heading 6901.90, considering them ceramic products and exempt from duty as they were manufactured without the aid of power. However, the Revenue contended that these plugs are integral parts of storage batteries and should be classified under Heading 85.07. The Tribunal found that ceramic plugs are used as replacements for conventional battery caps, performing additional functions like minimizing fluid loss and reducing maintenance. Hence, they should be classified as parts of storage batteries under Heading 85.07.

2. Applicability of Notification No. 167/86-C.E.:
The respondents argued that the ceramic plugs are exempt from duty under Notification No. 167/86-C.E. because they are manufactured without the aid of power. However, this argument was not upheld as the Tribunal concluded that the ceramic plugs are parts of storage batteries, and thus, the exemption does not apply.

3. Interpretation of Section Note 2(b) to Section XVI:
The Tribunal interpreted Section Note 2(b) to Section XVI, which states that parts suitable for use solely or principally with a particular kind of machine are to be classified with the machines of that kind. Since the ceramic plugs are used exclusively in storage batteries, they are to be classified under Heading 85.07 as parts of storage batteries.

4. Limitation period for demand of duty:
The respondents argued that the demand for the period 1992-93 to 1996-97 is barred by limitation since the show cause notice was issued on 4-9-97. They claimed to have had a bona fide belief based on previous judgments and circulars that the ceramic plugs should be classified based on their constituent material. The Tribunal took note of a letter written by the respondents to the Commissioner in 1996 seeking clarification on excisability and classification. The Tribunal held that the Department's failure to respond to this letter meant that the extended period of limitation could not be invoked. Therefore, the demand beyond six months from the date of issuance of the show cause notice was barred by limitation.

5. Imposition of penalty and confiscation of goods:
The original adjudicating authority had imposed a penalty equal to the duty demanded and confiscated the seized goods with an option to redeem them on payment of a fine. However, the Tribunal found no intention on the part of the respondents to evade duty, thus setting aside the penalty and the redemption fine. The duty on the seized goods was still required to be paid. The Tribunal ordered the authorities to re-quantify the demand for the period within six months from the date of issuance of the show cause notice, considering the total realization as cum-duty price and extending the benefit of duty deduction from the total realization.

Conclusion:
The ceramic plugs are to be classified under Heading 85.07 as parts of storage batteries. The demand beyond six months from the date of issuance of the show cause notice is barred by limitation. The penalty and redemption fine imposed on the respondents were set aside, and the authorities were directed to re-quantify the demand within the permissible period.

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