2006 (1) TMI 599 - AT - Central Excise

Summary

Issues:
1. Whether the mixture obtained for the manufacture of toys results in a new marketable product.
2. Whether the extended period of limitation can be invoked.
3. Reliability of reports from Deputy Chief Chemist and Chief Chemist.
4. Reliability of material not mentioned in the Show Cause Notice.

Issue 1:
The appeal concerns whether the mixture obtained for toy manufacturing results in a new marketable product. The appellant argued that the mixture, termed as 'plastisol,' was unstable with a short shelf life, making it commercially nonviable. Declarations filed by the appellant detailed the process of manufacturing toys and the nature of the finished product. The department issued Show Cause Notices proposing duty recovery, penalties, and interest, alleging non-payment for the period specified. The appellant contended that the mixture was not marketable due to lacking a necessary viscose depressant, rendering it unstable. The CESTAT remanded the matter for further examination. The subsequent order confirmed the product as excisable, leading to the present appeal.

Issue 2:
Regarding the extended period of limitation, the Commissioner invoked it based on the department's knowledge of the appellant's activities. However, the Tribunal found that there was no suppression on the appellant's part. As the Show Cause Notice covered a period mostly predating certain provisions, penalties and interest could not be upheld. The order invoking the extended period was deemed inapplicable, leading to the dismissal of penalties and interest demands.

Issue 3:
The reliability of reports from Deputy Chief Chemist and Chief Chemist was questioned. Discrepancies and contradictions in their findings were highlighted, such as differences in test results and the absence of essential examinations. The failure to determine the presence of a viscosity depressant, crucial for product stability, raised doubts about the reports' validity. The Commissioner's classification of the product under a different heading than proposed in the Show Cause Notice was also criticized.

Issue 4:
The plea regarding material not mentioned in the Show Cause Notice was upheld. The appellant argued that reliance on undisclosed reports and failure to address essential aspects in the examination reports rendered the order unsustainable. The lack of proper examination of the mixture's components and the absence of a viscosity depressant assessment undermined the findings on marketability and stability. The order was set aside, and the appeal was allowed, emphasizing the importance of natural justice principles and proper examination of crucial factors in determining excisability.