2009 (2) TMI 161 - AT - Central Excise

Classification filters, air motor, pumps - the parts are to be classified as per Note 2(a) of Section XVI and since the items in question are included in the Heading 8421, 8412 and 8414, their classification in these headings and parts under the relevant sub-headings is correct and Commissioner (Appeals) order to this effect cannot be faulted with - the question of imposition/enhancement of any penalty does not arise. - Besides, as already stated earlier, there is no mis-description of goods in invoices so as to warrant any penalty, in view of the fact that classification list was submitted and duly approved by the department

Summary

Issues Involved:
1. Classification of goods under the Central Excise Tariff Act, 1985.
2. Imposition of penalties under Rule 173Q(bbb) and Rule 209A.
3. Appeals by both the assessee and the revenue regarding classification and penalties.

Issue-wise Detailed Analysis:

1. Classification of Goods:

The primary issue revolves around the classification of various products manufactured by the assessee, including spray painting booths, paint circulating systems, air filters, paint filters, air motors, and paint circulating pumps. The assessee claimed classification under different headings such as 8479.19, 8421.10, and 8412.10, while the revenue proposed classification under Chapter sub-heading 8424.10 and 8424.80, arguing that these products collectively function as mechanical appliances for spraying liquids.

- Assessee's Argument: The spray painting booth and paint circulating system are independent equipment with distinct functions and do not spray liquids themselves. They should be classified under Chapter Heading 8479.19 and 8479.90 respectively, as they are not mechanical appliances for spraying liquids. The parts of these systems should also be classified under the respective headings for parts.

- Revenue's Argument: The items collectively function as mechanical appliances for spraying liquids and should be classified under Chapter Heading 8424.10 and 8424.80. The parts should be classified under Chapter Heading 8424.90 and 8424.99.

- Tribunal's Decision: The Tribunal found that the spray painting booth and paint circulating system are not essential for spraying liquids and are not classified as mechanical appliances for spraying liquids. They are independent equipment and should be classified under Chapter Heading 8479.19 and 8479.90. The parts of these systems should also be classified under the respective headings for parts. The Tribunal upheld the classification claim of the assessee.

2. Imposition of Penalties:

The revenue imposed a penalty of Rs. 168 lakhs on the assessee under Rule 173Q(bbb) for willfully changing the classification to facilitate their customers to avail Modvat credit and a penalty of Rs. 10 lakhs on the General Manager under Rule 209A.

- Assessee's Argument: The change in classification was made as per the instructions and advice given by the Range staff, and the classification lists were approved by the department. There was no misdeclaration of goods in the invoices, and the penalty under Rule 173Q(bbb) is not applicable.

- Revenue's Argument: The Chapter Heading was wrongly mentioned in the invoices to enable the customers to avail of the Modvat credit, and the penalty was rightly imposed under Rule 173Q(bbb).

- Tribunal's Decision: The Tribunal observed that the classification was declared to the revenue and verified by the jurisdictional Superintendent. There was no misdeclaration of goods in the invoices, and the penalty under Rule 173Q(bbb) is not applicable. The Tribunal set aside the penalties imposed on both the assessee and the General Manager.

3. Appeals by Both the Assessee and the Revenue:

- Assessee's Appeals: The assessee disputed the classification of products at S. Nos. 1, 2, and 3 sustained by the Commissioner (Appeals) and the imposition of penalty.

- Revenue's Appeals: The revenue disputed the classification accepted by the Commissioner (Appeals) in respect of products listed at S. Nos. 4 to 10 and the reduction of penalty.

- Tribunal's Decision: The Tribunal allowed the assessee's appeals, setting aside the Commissioner (Appeals) order relating to the classification of products at Serial No. 1, 2, and 3. The Tribunal dismissed the revenue's appeals, agreeing with the Commissioner (Appeals) order regarding the classification of products at Serial No. 4 to 10 and finding no merit in the revenue's contention.

Conclusion:

The Tribunal concluded that the spray painting booth and paint circulating system are not mechanical appliances for spraying liquids and should be classified under Chapter Heading 8479.19 and 8479.90. The parts of these systems should also be classified under the respective headings for parts. The penalties imposed on the assessee and the General Manager were set aside, and the revenue's appeals were dismissed.