2014 (3) TMI 127 - AT - Central Excise

Manufacture - Classification of wooden vessel hull - manufacturing of wooden hull motor yacht - Job work - export of goods - M/s. ABG had received a wooden structure from M/s. WBB for further fittings in their shipyard - ABG had discharged the service tax liability on such job work undertaken by them - M/s. ABG had been always stating that the yacht is to be exported from their premises which has been allowed by the port officer as well as customs authorities. - Held that - adjudicating authority has erred in coming to the conclusion that the yacht was cleared from the M/s. ABG shipyard to home consumption. The holding the services as being manufacturing activities may not arise as there is no dispute to the fact that M/s. WBB had cleared a wooden hull with super structure to the appellant, on which further activities were undertaken; the resultant structure was cleared for further fitment to Dubai, in terms of these, it cannot be held that the appellant M/s. ABG had intention to evade duty and hence misclassified the product. - there is strong force in the contentions raised by the ld. Counsel that if the goods have been exported, there cannot be any demand of duty and the minor procedural irregularities, if any, ought to be condoned. - Demand with interest and penalty set aside - decided in favor of assessee. Issue of classification of Hull - Held that - The appellants M/s. WBB have been canvassing before the authorities that they had bonafide belief that the said hull cleared by them gets classified under 89.06 and not under 89.03 and at the most it can be a question of misclassification which does not require invocation of extended period for demand of duty - matter remanded for re-adjudicating the case.

Issues Involved:
1. Classification of the wooden hull and superstructure under the correct heading of Central Excise Tariff Act (CETA).
2. Demand of Central Excise duty from M/s. WBB and M/s. ABG.
3. Imposition of penalties on M/s. WBB, M/s. ABG, and individuals.
4. Invocation of extended period of limitation for demand of duty.

Issue-wise Detailed Analysis:

1. Classification of the Wooden Hull and Superstructure:
The primary issue was whether the structure cleared by the appellants had acquired the essential character of a vessel of a particular kind. The appellants argued that the structure was classifiable under Chapter Heading 8906 if it did not have the essential character of a vessel of a particular kind. The Department, however, contended that the structure had attained the essential character of a yacht and should be classified under Heading 8903. The Tribunal noted that the hull and superstructure built by M/s. WBB could not have been used for any other purpose than a yacht, thus supporting the classification under Heading 8903 as determined by the adjudicating authority.

2. Demand of Central Excise Duty from M/s. WBB and M/s. ABG:
For M/s. ABG, the Tribunal found that the duty liability did not arise as the wooden structure received from M/s. WBB was exported to Dubai for further construction. The Tribunal held that since the goods were exported, no duty could be demanded, and any minor procedural irregularities should be condoned. Consequently, the demand against M/s. ABG was set aside.

For M/s. WBB, the Tribunal upheld the classification under Heading 8903 but remanded the matter back to the adjudicating authority to reconsider the issue of limitation and the consequent penalties and interest. The Tribunal noted that M/s. WBB had a bona fide belief that the structure was classifiable under Heading 8906 and that the adjudicating authority had not provided sufficient reasoning for invoking the extended period of limitation.

3. Imposition of Penalties on M/s. WBB, M/s. ABG, and Individuals:
The Tribunal found no reason to impose penalties on the individuals involved, given that the issue was one of interpretation of tariff entries in Chapter 89. Accordingly, the penalties imposed on all individuals were set aside. For M/s. ABG, since the demand of duty was set aside, the penalties were also deemed unsustainable. For M/s. WBB, the matter was remanded to reconsider the penalties based on the findings regarding the limitation period.

4. Invocation of Extended Period of Limitation:
The Tribunal found that the adjudicating authority had not adequately addressed the issue of limitation in the case of M/s. WBB. The Tribunal noted that the bona fide belief of M/s. WBB regarding the classification of the hull under Heading 8906 could not be easily disputed and required further consideration. Thus, the matter was remanded to the adjudicating authority to record findings on the limitation issue and reconsider the imposition of interest and penalties.

Conclusion:
The appeals were disposed of with the demand against M/s. ABG being set aside and the matter of M/s. WBB being remanded for reconsideration of the limitation issue. Penalties imposed on individuals were set aside. The Tribunal emphasized the need for clear findings on the limitation period and the bona fide belief of the appellants regarding the classification of the goods.

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