2017 (6) TMI 885 - AT - Central Excise

Area Based Exemption - N/N. 50/2003-CE - classification of the intermediate product namely- Phenol Formaldehyde Resin, Urea Formaldehyde Reason, and Melamine Formaldehyde Resin, which is 100% for captive purposes for manufacture of decorative plywood, particle board, etc. - The Department was of the view that these resins would not be eligible for captive consumption exemption under N/N. 67/95-CE, and since the same are not covered by the Hill area exemption under N/N. 50/2003-CE, the same would be chargeable to duty - whether the intermediate product-resin is marketable or capable of being marketed or not? - Held that - The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. The word Marketable means saleable or suitable for sale. It need not in fact be marketed - The characteristics of which are same and use or degree of quality of product may differ, but the product is known by the same and unique name in the market and has a commercial identity - learned Commissioner have erred in holding that the appellant s goods are also capable of being bought and sold without any chemical composition comparison along with competitive shelf life study. Whether the resins in question are classifiable under heading 3909 or 3506? - Held that - Once it is established that paper is quoted with certain resols which have the essential characteristics of meriting classification under chapter 39 and which according to Note-01 of chapter 39 are to be called plastics. We find that learned Commissioner erred in relying on the said ruling in absence of comparison of chemical composition - as per HSN explanatory notes to chapter 39, glue manufactured by appellant for use as adhesive is outside the preview of chapter 39. Admittedly, the glue in question is curried glue to which hardner and other substances are added and therefore, glue manufactured by the appellant is not covered by clause 1 to note 6 of chapter 39, such glue being not in the form of block, lump or powder - the impugned order is bad and fit to be set aside. Extended period of limitation - penalty - Held that - Since the matter is highly debatable and the Clarification issued by Ministry is in Appellant s favor, hence extended period of limitation cannot be invoked and consequently penalty also cannot be imposed. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of intermediate product (Phenol Formaldehyde Resin, Urea Formaldehyde Resin, and Melamine Formaldehyde Resin).
2. Marketability of the intermediate product.
3. Applicability of area-based exemption under Notification No. 50/2003-CE.
4. Applicability of captive consumption exemption under Notification No. 67/95-CE.
5. Extended period of limitation and penalty.

Detailed Analysis:

1. Classification of Intermediate Product:
The primary issue revolves around the classification of the intermediate products (Phenol Formaldehyde Resin, Urea Formaldehyde Resin, and Melamine Formaldehyde Resin). The Department argued these resins should be classified under Heading 39.09 of the Tariff, making them ineligible for area-based exemption under Notification No. 50/2003-CE. The appellant contended that these resins should be classified under Chapter 35 of the CET Act. The Tribunal found that the resins manufactured by the appellant, which are used as adhesives, fall under Chapter 35 based on the HSN Explanatory Notes and a clarification from the Ministry of Chemicals and Fertilizers (OM No. 46016/41/2012/PC-II dated 01/06/2012). The Tribunal also referred to the decision in Balaji Action Buildwell vs. CCE, Meerut, where similar products were classified under Chapter 35.

2. Marketability of the Intermediate Product:
The Tribunal examined whether the resins were marketable or capable of being marketed. The Department relied on data from various websites and the BIS standards to argue that the resins were marketable. However, the Tribunal found this evidence insufficient, stating that the characteristics of the appellant's products were not compared with those listed on the websites. The Tribunal emphasized that marketability must be proven with concrete evidence, including chemical composition and shelf life studies, which the Department failed to provide.

3. Applicability of Area-Based Exemption:
The appellant's unit, located in Uttarakhand, was availing duty exemption under Notification No. 50/2003-CE. The Department argued that since the intermediate resins fell under Heading 39.09, they were not eligible for this exemption. The Tribunal, however, concluded that the resins should be classified under Chapter 35, making them eligible for the area-based exemption.

4. Applicability of Captive Consumption Exemption:
The Department contended that the resins were not eligible for captive consumption exemption under Notification No. 67/95-CE because they were not covered by the Hill area exemption under Notification No. 50/2003-CE. The Tribunal's decision to classify the resins under Chapter 35 rendered this argument moot, as the resins were eligible for the area-based exemption, thus qualifying for the captive consumption exemption.

5. Extended Period of Limitation and Penalty:
The Department invoked the extended period of limitation, alleging that the appellant had not declared the production of resins in their exemption claim. The Tribunal found that the issue was highly debatable and that the appellant had a reasonable ground based on the clarification from the Ministry and the Tribunal's previous decision in Balaji Action Buildwell. Consequently, the Tribunal held that the extended period of limitation and the penalty were not applicable.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential benefits to the appellant. The Tribunal's decision was based on the misclassification of the intermediate products, insufficient evidence of marketability, and the applicability of the area-based and captive consumption exemptions. The Tribunal also left the question of limitation open, considering the appellant's reasonable grounds for their claims.

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