2009 (3) TMI 868 - Commissioner - Central Excise

Issues Involved:
1. Classification of Absorbent Cotton Wool and related products.
2. Applicability of Central Excise Duty.
3. Interpretation of "retail sale" and "retail package".
4. Validity of Penalty under Section 11AC of Central Excise Act, 1944.

Detailed Analysis:

1. Classification of Absorbent Cotton Wool and Related Products:
The appellants argued that their products should be classified under Chapter Sub-Headings 5601, 5203, or 58 based on their nomenclature and material composition. The department, however, classified the products under Chapter 30, specifically under various heads of Chapter Heading 3005, on the grounds that the goods were "put up in forms or packings for retail sale for medical, surgical, dental or veterinary purposes."

The adjudicating authority relied on Section notes, Chapter notes, and HSN explanations but failed to consider the specific entries under Chapter 56 and 52. The appellants contended that their products did not merit classification under Chapter 30 as they were not impregnated or coated with pharmaceutical substances and were not sold as retail packages.

The appellate authority concluded that the specific entries under Chapter 56 and 52 should prevail over the general entries under Chapter 30. The products "Absorbent Cotton Wool" and "Carded Cotton" were specifically classified under Chapter Sub-Headings 56012110 and 52030000, respectively, and the adjudicating authority's classification under Chapter 30 was set aside.

2. Applicability of Central Excise Duty:
The department issued a demand-cum-show-cause notice proposing the classification of the goods under Chapter Heading 3005 and demanding duty of Rs. 19,83,744.00 (BED), Ed. Cess of Rs. 39,675.00, and S.H. Ed. Cess of Rs. 19,837.00, totaling Rs. 20,43,256.00. The appellants contested this demand, arguing that their products were exempt from duty under Notification No. 30/2004.

The appellate authority directed the appellants to work out the duty liability, if any, in consultation with the concerned Range Officer and deposit the same with interest as provided in the statute, following the reclassification of the products under Chapter 56 and 52.

3. Interpretation of "Retail Sale" and "Retail Package":
The department classified the goods under Chapter 30 based on the premise that they were put up in forms or packings for retail sale. The appellants argued that their sales were not retail sales as defined under The Standards of Weight and Measures (Packaged Commodities) Rules, 1977, and that their packages were not retail packages.

The appellate authority agreed with the appellants, stating that the goods were sold directly to hospitals and defense establishments, which are institutional consumers, not retail sales agencies. The packages were marked "Hospital Supply. Not for Sale," indicating that they were not retail packages. Consequently, the goods did not fall under the purview of Chapter 30.

4. Validity of Penalty under Section 11AC of Central Excise Act, 1944:
The adjudicating authority imposed a penalty of Rs. 16,81,711/- under Section 11AC of the Central Excise Act, 1944, citing misclassification and intent to evade duty. The appellants argued that there was no suppression of facts or intent to evade duty, as the classification dispute was based on a bona fide belief.

The appellate authority found that the department was aware of the appellants' activities and that the case involved a genuine classification dispute. The ingredients to prove intent to evade payment of duty were not present. Thus, the penalty under Section 11AC was set aside.

Conclusion:
The appellate authority set aside the adjudicating authority's order classifying the goods under Chapter 30 and imposed duty and penalties. The products were reclassified under Chapter Sub-Headings 56012110 and 52030000, and the appellants were directed to determine any duty liability in consultation with the Range Officer. The penalty under Section 11AC was also set aside due to the absence of intent to evade duty.

← Previous Next →