2014 (4) TMI 334 - AT - Central Excise

Denial of exemption Notification No.50/2003-CE dated 10.6.2003 - manufacture of polyurethane foam - Denial on the ground that the manufactured goods are covered under Annexure - I to the Notification - area based exemption - Classification - Held that - Board Circular clarified that if the polyurethane foam products obtained are in the form of blocks of regular geometric shape, that is to say, are similar to each other in dimension like height, breadth, length and curvature whether or not printed or otherwise surface-worked, uncut or cut into rectangles (including squares) but not further worked (even when not cut, they become articles ready for use), then by virtue of note 10 of Chapter 39, such products would merit classification under Heading No.39.21, from 28.2.86 onwards. Despite the above Board Circular, having been brought to the notice of the adjudicating authority, the said authority failed to analyze the clarification and even to refer to it. - The Board circular is clear. Irregular blocks of polyurethane form which is an intermediary product manufactured by the appellant requires to be classified under Tariff Heading 39.21 as clarified in the Circular and is therefore entitled to exemption under Notification No. 50/2003-CE. - Decided in favour of assessee.

Issues: Classification of goods under Central Excise Tariff Act, 1985; Exemption under Notification No.50/2003-CE; Liability for central excise duty, interest, and penalty; Interpretation of Board Circular No.10/1989; Adjudication order analysis.

Classification of Goods under Central Excise Tariff Act, 1985:
The appellant manufactured goods under Tariff Item No.309 50 00 of the Central Excise Tariff Act, 1985. The adjudication order classified irregular blocks of polyurethane foam under Tariff Sub-Heading 3909 50 00, leading to a demand for central excise duty. The appellant argued that the intermediate product falls within Chapter Heading 39.21, citing the Board Circular No.10/1989. The Circular clarified that products with a regular geometric shape under Heading No.39.21 merit classification, emphasizing the predetermined shape of polyurethane foam products. Despite this clarification, the adjudicating authority failed to analyze the Circular, resulting in an incorrect classification of the goods.

Exemption under Notification No.50/2003-CE:
The appellant claimed exemption under Notification No.50/2003-CE for excisable goods manufactured and cleared from a specific area. The declaration submitted did not mention the emergence of irregular blocks of polyurethane foam falling under Heading 3909 50 00. The authority alleged that the appellant withheld this information to evade duty payment, leading to the imposition of duty, interest, and penalty. However, the Board Circular clarified that the intermediary product should be classified under Heading 39.21, entitling it to exemption under the said notification.

Liability for Central Excise Duty, Interest, and Penalty:
The adjudication order confirmed the demand for central excise duty, interest under Section 11AB and Section 11AA of the Act, and imposed a penalty equivalent to the duty demand for contravention of Central Excise Rules. The appellant's liability was based on the classification of irregular blocks of polyurethane foam under Tariff Sub-Heading 3909 50 00. However, the Circular and proper classification under Heading 39.21 would have entitled the appellant to exemption, rendering the duty demand and penalty unjustified.

Interpretation of Board Circular No.10/1989:
The Board Circular clarified the classification of polyurethane foam products based on their shape and predetermined characteristics. The Circular emphasized that products with a regular geometric shape fall under Heading No.39.21, entitling them to specific treatment and exemptions. Despite the appellant's reliance on this Circular, the adjudicating authority failed to consider or analyze it, resulting in an erroneous classification and subsequent duty demand.

Adjudication Order Analysis:
Upon careful analysis, the Tribunal found that the adjudicating authority failed to consider the Board Circular in its decision-making process. The Circular unambiguously stated that irregular blocks of polyurethane foam should be classified under Tariff Heading 39.21, making them eligible for exemption under Notification No.50/2003-CE. Consequently, the Tribunal deemed the impugned order unsustainable and quashed it, allowing the appeal in favor of the appellant.

This detailed analysis of the judgment highlights the key issues surrounding the classification of goods, exemption eligibility, liability for duty, interpretation of legal circulars, and the flaws in the adjudication order, providing a comprehensive overview of the legal proceedings and the Tribunal's decision.

← Previous Next →