2011 (7) TMI 972 - AT - Central Excise

Waiver of pre-deposit - SSI Exemption - Misdeclaration - Classification - held that - Supreme Court in the case of Benara Valves Ltd. v. CCE (2006 (11) TMI 6 - SUPREME COURT OF INDIA) and Indu Nissan Oxo Chemicals Industries Ltd. v. Union of India (2007 (12) TMI 220 - SUPREME COURT OF INDIA), for determining the question of waiver from the requirement of pre-deposit of duty demand, interest and penalty, in accordance with the provisions of the proviso to Section 35F, two factors have to be kept in mind - the aspect of undue hardship to the appellant and imposing conditions for safeguarding the interest of revenue. Classification - held that - Once the classification of a particular product been determined under Chapter 57, the question of its exact classification under Heading 57.01 or 57.02 or 57.03 has to be determined by applying sub-heading Notes 2(A) and 2(B) to Section XI, readwith Chapter Note 2 of this Section. Manufacture of the carpets - Classification - held that - There is no dispute that taking the base fabric and exposed surface as a whole, it is jute fibre which pre-dominates by weight and it is on this basis that the Appellant, relying upon sub-heading Note 2(A) readwith Note 2 of Section XI plead that the carpets, in question, have to be treated as non-woven carpets of Jute falling under sub-heading 5703.20. Prima facie view - held that - the carpets, in question, which are non-woven carpets with base/ground fabric of jute and exposed surface consisting of polyester/polypropylene fibre, are correctly classifiable as other carpets under sub-heading 5703.90. Appellant had at no stage disclosed the detailed manufacturing process of the carpets - appellant have not been able to establish prima facie case in their favour and hence this is not the case for waiver from the requirement of pre-deposit. - Stay granted partly.

Issues Involved:
1. Classification of carpets manufactured by the appellant.
2. Eligibility for SSI exemption.
3. Alleged suppression of facts and non-filing of required returns.
4. Applicability of extended limitation period and penal provisions.
5. Waiver of pre-deposit requirement for hearing the appeal.

Detailed Analysis:

1. Classification of Carpets:
The primary issue pertains to the classification of the carpets manufactured by the appellant. The appellant argued that their product should be classified under sub-heading 5703.20 as "other carpets of jute," which attracts a nil tariff rate. The department, however, contended that the product should be classified under sub-heading 5703.90 as "polyester/polypropylene carpet," which is chargeable to duty. The appellant's manufacturing process involved jute and polyester/polypropylene fibers, with the jute providing the base fabric and the polyester/polypropylene forming the exposed surface. The Tribunal, after considering the manufacturing process and relevant notes in Section XI of the Central Excise Tariff, leaned towards the department's view that the classification should be based on the exposed surface material, not the base fabric. Consequently, the product was classified under sub-heading 5703.90.

2. Eligibility for SSI Exemption:
The department alleged that the appellant was not eligible for the Small Scale Industry (SSI) exemption as their clearances exceeded Rupees three crores during the 2000-2001 period. The Tribunal did not explicitly address this issue in the stay application order but implied that the appellant's eligibility was questionable due to the classification and duty evasion issues.

3. Alleged Suppression of Facts and Non-Filing of Returns:
The department accused the appellant of suppressing the fact of manufacturing dutiable carpets by not filing RT-12/ER-1 returns and misdeclaring the description of the carpets in the declarations filed under Rule 173B of the Central Excise Rules, 1944. The Tribunal noted that the appellant had not disclosed the detailed manufacturing process to the department and had misdeclared their products, leading to the conclusion that there was a prima facie case of suppression of facts.

4. Applicability of Extended Limitation Period and Penal Provisions:
Due to the alleged suppression of facts, the department invoked the extended limitation period under the proviso to Section 11A(1) of the Central Excise Act, 1944. The Tribunal agreed with the department's stance, indicating that the longer limitation period was applicable. Furthermore, the Tribunal supported the imposition of penalties under Section 11AC due to the appellant's conduct, which prima facie appeared to involve suppression of relevant facts.

5. Waiver of Pre-Deposit Requirement:
The appellant sought a waiver of the pre-deposit requirement for hearing the appeal. The Tribunal, referencing the Supreme Court judgments in Benara Valves Ltd. v. CCE and Indu Nissan Oxo Chemicals Industries Ltd. v. Union of India, emphasized that for such a waiver, the appellant must establish a prima facie case and demonstrate undue hardship. The Tribunal concluded that the appellant did not have a strong prima facie case and directed them to deposit Rs. 2,00,00,000/- (Rupees Two Crores) within eight weeks. Upon compliance, the requirement for the pre-deposit of the remaining amount would be waived, and recovery would be stayed until the appeal's disposal.

Conclusion:
The Tribunal's judgment primarily focused on the classification issue, determining that the carpets should be classified under sub-heading 5703.90 based on the exposed surface material. The Tribunal also found that the appellant had not established a prima facie case for a complete waiver of the pre-deposit requirement, thus directing a partial pre-deposit to safeguard the revenue's interest.

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