2010 (2) TMI 611 - AT - Central Excise

Classification - nature of the goods declared as Alkyd Resins of CSH 3907.50 - assessee filed classification list revising the classification of the Alkyd Resins under CSH 3208.40 - show cause notice was issued to the assessee seeking to recover differential duty due on clearances of Alkyd Resins invoking larger period under Section 11A of the Central Excise Act, 1944 (the Act) alleging mis-declaration as regards the description Alkyd Resins - alleging mis-declaration as regards the description Alkyd Resins - product is bought and sold as insulating varnishes Held that - appellants intention is clear from their claim to the benefit of Notification 133/86 which prescribes rate of duty of 15% ad valorem (as against the tariff rate of 25%) which is available to only phenol formaldehyde falling under sub heading 3909.57 and not to chemically modified variety classifiable under CETA 3909.59 which we have held to be the appropriate classification - therein had not suppressed any material fact regarding the description of the goods, while in the present case, the appellants are guilty of concealment deliberate non-disclosure of the description of goods as chemically modified phenol formaldehyde - penalty is warranted in the facts and circum stances of the case. In the light of the above, we uphold the impugned order and reject the appeal - appellant could hardly contend that it discharged the onus of making correct declaration if it had with held the description which was commonly used in respect of the goods not only by itself but also by those from whom it bought or to whom it sold the products - penalty imposed in the impugned order is liable to be set aside - appeal is allowed in part.

Issues Involved:
1. Mis-declaration and classification of Alkyd Resins.
2. Invocation of extended period under Section 11A of the Central Excise Act, 1944.
3. Imposition of penalty under Rules 9(2), 173Q, and 226 of the Central Excise Rules, 1944.
4. Applicability of Chapter Note 3 of Chapter 32.
5. Retrospective demand of differential duty under Section 110 of the Finance Act, 2000.

Detailed Analysis:

1. Mis-declaration and Classification of Alkyd Resins:
The assessee, BHL, was engaged in manufacturing insulating varnishes and resins, and had classified Alkyd Resins under CSH 3907.50. Upon investigation, it was revealed that the product contained significant quantities of other resins such as phenolic and melamine resins. The Tribunal found that the product could not be correctly classified under CSH 3907.50 as it was a mixture of resins, marketed and used as insulating varnishes. The correct classification was determined to be under CSH 3208.40, which the assessee had adopted from 1-3-1993. The Tribunal concluded that the product was insulating varnish, not merely Alkyd Resin, and thus fell under CSH 3208.40.

2. Invocation of Extended Period under Section 11A:
The Tribunal upheld the invocation of the extended period under Section 11A, citing that the assessee knowingly misclassified the goods to avail exemption benefits. The Tribunal noted that the assessee revised the classification to CSH 3208.40 only after the department initiated an investigation, indicating awareness of the correct classification. The Tribunal found that the assessee suppressed the actual description of the goods, justifying the invocation of the extended period for demanding differential duty.

3. Imposition of Penalty:
The original order imposed a penalty of Rs. 10 lakhs under Rules 9(2), 173Q, and 226 of the CER. However, the Tribunal, referencing Section 110 of the Finance Act, 2000, concluded that penalties should not be imposed in cases where demands are raised contrary to approved classifications. Therefore, the penalty imposed in the impugned order was set aside.

4. Applicability of Chapter Note 3 of Chapter 32:
The Tribunal examined Chapter Note 3 of Chapter 32, which includes solutions of products specified in Chapter Headings 3901 to 3913 in organic solvents when the solvent weight exceeds 50% of the weight of the solution. The Tribunal clarified that the note does not exclude products with solvent weight less than 50% from Chapter 32. The impugned product, being a solution with significant quantities of other resins, was correctly classified under CSH 3208.40, which includes insulating varnishes.

5. Retrospective Demand of Differential Duty:
The Tribunal acknowledged that the differential duty could be demanded retrospectively under Section 110 of the Finance Act, 2000, which had retrospective effect from 17-11-1980. The Tribunal found that the assessee's claim that differential duty could not be demanded retrospectively was not supported by the provisions of the Finance Act, 2000. The Tribunal thus sustained the demand for differential duty.

Conclusion:
The Tribunal upheld the demand for differential duty based on the correct classification of the impugned product under CSH 3208.40, invoking the extended period under Section 11A due to mis-declaration and suppression of facts by the assessee. The penalty imposed was set aside, and the appeal was allowed in part.

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