2007 (7) TMI 64 - AT - Central Excise

Demand and penalty Department contended that appellant liable to pay duty along with penalty on the ground that goods cleared by appellant is of different grade from the rejected goods Held that department contention was not correct and set aside

Summary

Issues:
Manufacture of Sodium Carboxy Methyl Cellulose (SCMC) of different grades under Chapter Sub-Heading No. 3912.31 of CETA, 1985; Application of Rule 173H of Central Excise Rules, 1944 in the case of blending rejected SCMC with another grade of SCMC AKAYLOSE SD Grade.

Analysis:
The appeal was directed against an order-in-appeal concerning the manufacture of SCMC of different grades. The appellants had initially cleared 9000 kgs of SCMC AKAYLOSE TM Grade to purchasers, which was later rejected for not meeting standards. The appellants then blended this rejected SCMC with another grade, resulting in SCMC AKAYLOSE SD Grade. They cleared 27000 kgs of the blended SCMC but paid duty only on 18000 kgs, claiming Rule 173H benefit for the 9000 kgs used in remaking. The dispute arose when a show cause notice demanded duty for the 9000 kgs, alleging re-manufacture. The adjudicating authority confirmed the duty demand and imposed a penalty, upheld by the Ld. Commissioner (Appeals).

The Ld. Advocate for the appellants argued that Rule 173H applied, citing relevant Tribunal decisions. On the other hand, the Ld. SDR contended that the appellants engaged in re-manufacture, justifying the impugned order. After considering both sides' submissions and records, it was found that the appellants had properly declared the rejected goods and used them in blending, maintaining records accordingly. The blending resulted in SCMC AKAYLOSE SD Grade, which was essentially the same product as AKAYLOSE TM Grade. Thus, blending rejected SCMC with another grade did not constitute re-manufacture.

Referring to Tribunal decisions in similar cases, it was established that Rule 173H applied even if the process amounted to re-manufacture, as long as it did not create a new product from basic ingredients. The Tribunal's judgments emphasized the importance of resolving any ambiguity in the rule in favor of the assessee. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants, highlighting that blending rejected SCMC with another grade did not amount to re-manufacture under Rule 173H, as both grades were essentially the same product. The decision was based on established precedents and the principle of interpreting rules in favor of the assessee in case of ambiguity.