1983 (12) TMI 296 - AT - Central Excise

Issues Involved:
1. Classification of white offset printing paper under Central Excise Tariff Item No. 17(2) or 17(3).
2. Entitlement to refund of differential duty.
3. Validity of the Assistant Collector's reclassification decision.
4. Applicability of trade notice regarding tolerance in grammage.
5. Impact of customer recovery on refund claim.

Detailed Analysis:

1. Classification of White Offset Printing Paper:
The primary issue revolves around whether the white offset printing paper should be classified under Tariff Item No. 17(2) or 17(3). The Sirpur Paper Mills argued that their product should be classified under Item 17(3) as it had been in the past, while the Assistant Collector classified it under Item 17(2) based on its grammage. The Tribunal examined various authoritative texts which described both cartridge paper and offset printing paper. It noted that although there are similarities between the two types of paper, there are also significant differences. The Tribunal concluded that the classification based solely on grammage was unscientific and lacked legal support. Therefore, the Tribunal held that the correct classification should be under Item 17(3) as originally claimed by the assessee.

2. Entitlement to Refund of Differential Duty:
The appellant claimed a refund of Rs. 13,588.96, arguing that the paper was incorrectly classified under a higher duty category. The Tribunal observed that the refund claim was initially prompted by the Assistant Collector's instructions. However, the Tribunal found that the refund could not arise under Rule 11 as there was no error, inadvertence, or misconstruction in the duty payment. Instead, the duty was paid following the reclassification by the Assistant Collector. The Tribunal ultimately allowed the appeal, directing a refund of Rs. 11,088.00 based on gate-pass No. 249, dated 14-4-1973.

3. Validity of the Assistant Collector's Reclassification Decision:
The Assistant Collector reclassified the paper from Item 17(3) to Item 17(2) without notifying the manufacturer, which the appellant argued was arbitrary. The Tribunal found that the Assistant Collector's decision was based solely on the grammage of the paper and did not consider other characteristics. The Tribunal emphasized that the assessment should not be based solely on grammage and that the Assistant Collector's reclassification was incorrect. The Tribunal held that the correct assessment was under Item 17(3).

4. Applicability of Trade Notice Regarding Tolerance in Grammage:
The appellant demanded a tolerance of 6% over the grammage based on a trade notice issued by the Collector of Central Excise, Bangalore. The Assistant Collector rejected this demand, stating that his collectorate had not issued any such notice. The Tribunal clarified that such tolerances are applicable only when there is a dispute about the declared grammage, not to alter the assessment. Therefore, the Tribunal found the demand for tolerance unacceptable.

5. Impact of Customer Recovery on Refund Claim:
The department argued that since the duty had been recovered from the customers, the refund would result in undeserved enrichment. The Tribunal acknowledged this argument but noted that the factory was compelled to pay the higher duty due to the Assistant Collector's decision. Consequently, the Tribunal held that the department could not deny the refund based on the recovery from customers, as the higher duty payment was a result of the department's own action.

Conclusion:
The Tribunal allowed the appeal, directing a refund of Rs. 11,088.00 to the assessee. The Tribunal held that the white offset printing paper should be classified under Tariff Item No. 17(3) and found the Assistant Collector's reclassification decision to be incorrect. The Tribunal also clarified the limited applicability of tolerance in grammage and rejected the department's argument against the refund based on customer recovery.

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