2017 (10) TMI 188 - AT - Central Excise

Wrong Classification of products - CENVAT credit - inputs which had gone into manufacture of their final products - levy of penalty - Held that - the entire issue was essentially in nature of classification dispute from the beginning and the issue has been going on since 1992 - the adjudicating authority has observed that the appellants mis-declared the description of the goods as the usage/utility was well known to them and they misclassified their product with intent to evade the duty. However, the issue is same in show cause notices in this appeal and before the Hon ble Apex Court and the Hon ble Tribunal. Since it was classification dispute, which attained finality in the Supreme Court judgment in 2005, and the classification declarations were being filed regularly and the issue was very much in the knowledge of the Department, allegations of mis-declaration of description/usage in these circumstances are unsustainable. In view thereof, the penalty in these show cause notices is also not justified. As a result of the classification of final products as decided by Hon ble Supreme Court in O.K. Play (I) Ltd. vs. CCE, Delhi-III 2005 (2) TMI 114 - SUPREME COURT OF INDIA , the appellants would not be entitled to nil/concessional rate of duty and would be required to pay duty at the prescribed statutory rate in the Tariff during the relevant period. However, they would be entitled to the Cenvat Credit in respect of inputs used in manufacture of aforesaid final products on which duty has been paid. The matter is required to be remanded back to the adjudicating authority for quantification of the duty amounts on the final products and verification of proof of duty payment on the inputs - appeal allowed by way of remand.

Summary

Issues:
Classification dispute regarding various goods manufactured by the appellants. Penalty imposition under Rule 173 Q. Cenvat Credit eligibility for inputs used in manufacturing final products.

Classification Dispute:
The Department observed misclassification by the appellants for goods like Baby Swing, Chairs, Play Pool, School Bags, Fun Station, and See Saw. Adjudication in 2005 confirmed demands against certain items under specific chapter sub-headings. The appellants disputed penalties imposed, citing a settled Supreme Court decision from 2005 and previous Tribunal rulings in their favor. The Tribunal noted that the issue was a long-standing classification dispute since 1992, emphasizing the lack of willful suppression by the appellants as per the Supreme Court judgment. The penalty was deemed unjustified due to the sustained nature of the classification issue.

Penalty Imposition:
The appellants contested the penalty under Rule 173 Q, arguing against misdeclaration accusations and asserting their compliance with duty payment based on product categorization. The Tribunal found the penalty unwarranted, given the historical context of the classification dispute and the absence of willful intent to evade duty. The Supreme Court's decision in a related case supported the appellants' position on Modvat Credit entitlement and penalty imposition, reinforcing the Tribunal's stance against penalizing the appellants.

Cenvat Credit Eligibility:
The Tribunal acknowledged the appellants' claim for Cenvat Credit on inputs used in manufacturing final products, subject to duty payment obligations as per the Supreme Court's classification ruling. The matter was remanded to the adjudicating authority for quantifying duty amounts on final products and verifying duty payment proofs on inputs. The appellants were granted an opportunity to present their case during the duty amount determination process and Cenvat Credit assessment.

In conclusion, the Tribunal disposed of the appeal by ruling in favor of the appellants on the penalty issue, emphasizing the lack of justification for penalties due to the longstanding classification dispute and absence of willful suppression. The decision also highlighted the appellants' entitlement to Cenvat Credit for inputs used in manufacturing final products, subject to duty payment obligations as per the Supreme Court's classification judgment.