2010 (8) TMI 511 - AT - Central Excise

Classification - Show cause notice clearly discloses that the same was issued on the sole ground that the respondent had been manufacturing Erythromycin Powder - In response to the show cause notice the respondent contented that they purchased Erythromycin in bulk from market and diluted the same to the extent of 2% Erythromycin and that it was only a formulation of Erythromycin and not a chemical but it was animal feed supplement and therefore classifiable under chapter sub-heading 23.02 of the Central Excise Tariff Act - The said fact was never disputed by the department either before the Adjudicating Authority or before the Commissioner (Appeals) - Therefore the allegations in the show cause notice that the respondent were manufacturing Erythromycin Powder classiable under sub-heading 2941.50ibid proved to be totally incorrect.

Summary

Issues:
Classification of product under Central Excise Tariff Act, 1985 - Interpretation of show cause notice scope - Adjudicating Authority's decision - Commissioner (Appeals) decision - Confirming demand and imposing penalty.

Classification of Product:
The case involved the classification of medicaments manufactured by the respondent under the Central Excise Tariff Act, 1985. The dispute arose when the Department contended that the product, Erythromycin Thiocyanate Powder, should be classified under a specific tariff heading, while the respondent treated it as Animal Feed Supplement under a different chapter heading. The Department issued a show cause notice demanding duty payment, which was contested by the respondent. The Adjudicating Authority confirmed the demand, but the Commissioner (Appeals) set it aside, leading to the present appeal.

Interpretation of Show Cause Notice Scope:
The show cause notice issued by the Department focused solely on the non-payment of duty for the Erythromycin Powder manufactured by the respondent. The respondent defended themselves by stating that they purchased Erythromycin in bulk, diluted it to 2% concentration, and marketed it as an animal feed supplement, not a chemical product. The Commissioner (Appeals) and the Tribunal found that the allegations in the show cause notice were incorrect, as the product was indeed an animal feed supplement and not Erythromycin Powder as claimed by the Department. The Commissioner (Appeals) held that the Adjudicating Authority exceeded the notice's scope, leading to the dismissal of the demand and penalty imposed.

Adjudicating Authority and Commissioner (Appeals) Decisions:
The Adjudicating Authority relied on test reports and product profiles to classify the product as Erythromycin, an antibiotic medicine for animals, under a specific tariff sub-heading. However, the Commissioner (Appeals, supported by Tribunal decisions, found that the product, labeled as an animal feed supplement and sold as such in the market, should be classified under a different chapter heading. The Commissioner (Appeals) emphasized that the Adjudicating Authority's decision exceeded the show cause notice's scope, leading to the demand being set aside.

Confirming Demand and Imposing Penalty:
Ultimately, the Tribunal upheld the Commissioner (Appeals) decision, emphasizing that the Department's claims in the show cause notice were incorrect, and the respondent's product was correctly classified as an animal feed supplement. The Tribunal found no grounds for interference in the impugned order, leading to the dismissal of the appeal and confirming the decision in favor of the respondent.