2007 (7) TMI 14 - AT - Central Excise

Classification Department contended that appellant good(cotton core yarn) are classifiable under CSH 5205.11 and liable to pay duty as per appellant classifiable under CSH 5205.19 attracting nil rate of duty Held that department contention was right

Summary

Issues: Classification of Cotton Core Yarn under Central Excise Tariff headings, applicability of duty, penalty imposition, entitlement to modvat credit, abatement under Section 4(4)(d)(ii) of the Central Excise Act.

Classification of Cotton Core Yarn under Central Excise Tariff headings:
The appeal challenged the classification of Cotton Core Yarn containing 85% or more cotton under Chapter Sub-Heading (CSH) 5205.11 by the Commissioner of Central Excise. The appellants argued that the yarn should be classified under CSH 5205.90 attracting nil rate of duty, contending that it did not fall under the definition of single yarn or multiple (folded) or cabled yarn. Expert opinions and HSN definitions were presented to support this argument. However, the Tribunal found that the yarn, composed of cotton rove and spandex yarn, fit the HSN definition of single yarn, as it contained a filament yarn enveloped in cotton rove. The Tribunal upheld the classification under CSH 5205.11 due to the composition and manufacturing process involving power, rejecting the appellants' claim for classification under CSH 5205.90.

Applicability of duty and penalty imposition:
The Commissioner had demanded duty of Rs. 9,90,124/- not paid by the assessee for the Cotton Core Yarn classified under CSH 5205.11. Additionally, a penalty of Rs. Two lakhs was imposed on the assessee under Rule 173Q of the Central Excise Rules, 1944. The Tribunal vacated the penalty, considering the issue as a classification dispute. The demand for duty was upheld based on the classification decision but allowed the assessee to establish modvat credit entitlement and abatement under Section 4(4)(d)(ii) of the Central Excise Act, remanding the matter to the original authority for verification.

Entitlement to modvat credit and abatement under Section 4(4)(d)(ii) of the Central Excise Act:
The appellants contended that they were not allowed the benefit of modvat credit and abatement under Section 4(4)(d)(ii) of the Central Excise Act while the duty was demanded. The Tribunal agreed with the appellants, acknowledging their entitlement to these benefits. It directed the assessee to provide documents supporting the modvat credit claim and remanded the matter to the original authority for verification. The appeal was disposed of with these directions.

Additional Appeals:
Two additional appeals were considered against orders affirming the classification of identical yarn under CSH 5205.11 and the consequential demand of duty. The appellants in these appeals also argued for classification under CSH 5205.90, presenting similar arguments and evidence as in the first appeal. The Tribunal upheld the orders of classification under CSH 5205.11 for these appeals as well, based on the findings in the initial appeal.

This detailed analysis covers the classification of Cotton Core Yarn, duty applicability, penalty imposition, modvat credit entitlement, and abatement under the Central Excise Act, providing a comprehensive overview of the legal judgment delivered by the Appellate Tribunal CESTAT, CHENNAI.