2009 (5) TMI 105 - AT - Central Excise

Demand duty liability and classification - Polyester covered yarn and Nylon covered yarn - it is quite clear that the products manufactured by the appellant are nothing but air mingled yarns and cannot be classified under Chapter Heading 5606 in view of the fact that it does not contain a core around which another yarn has been woven. Goods are classifiable under CSH 5402.61/5402.62 of Central Excise Tariff Act 1985 - The next question to be decided is the method of calculation of duty payable. We find that till the notification was amended on 1-3-2002 Notification No. 2/1995-C.E. dated 4-1-1995 required the appellants to pay duty @ 50% of each duty of customs only. It is only after the amendment of Notification the revised calculation method can be adopted. We also agree that retrospective amendment of Section 3 of Central Excise Act does not help the Revenue in view of the specific provisions in Notification No. 2/95-C.E. Further regarding demand raised by invoking extended period it is held that since appellant did not mis-declare the description or mfg. process etc. demand consequent to reclassification to be limited to the period available to department i.e. within one year only

Summary

Issues Involved:
1. Classification of Polyester/Nylon covered yarn.
2. Calculation of duty on Domestic Tariff Area (DTA) clearances.
3. Invocation of the extended period for demand.
4. Imposition of penalties and recovery of interest.

Detailed Analysis:

1. Classification of Polyester/Nylon Covered Yarn:
The primary issue was whether the polyester/nylon covered yarn manufactured using the air covering method should be classified under Chapter Heading 5606.06 or 5402.62/61. The appellants argued that their product should be classified under Chapter 56 based on the HSN Explanatory Notes, which describe gimped yarn as having a core around which other yarns are wound spirally. They contended that their air-covered yarn met this description because the core does not undergo twisting. However, the department's test reports indicated that the yarns were intermingled, not covered, and thus should be classified under Chapter 54. The Tribunal upheld the Commissioner's order that the yarns are classifiable under Chapter 54, emphasizing that the explanatory notes do not support the appellants' claim as there is no core around which another yarn is woven.

2. Calculation of Duty on DTA Clearances:
The appellants contested the method of duty calculation on DTA clearances, arguing that they correctly paid duty at the rate of 50% of each duty of customs as per Notification No. 2/95-C.E., dated 4-1-1995, until it was amended on 1-3-2002. They cited the Tribunal's decisions in Fabworth (India) Ltd. and Asian Peroxide Ltd., which supported their method of duty calculation. The Tribunal agreed with the appellants, stating that the retrospective amendment of Section 3 of the Central Excise Act does not affect the specific provisions of the Notification No. 2/95-C.E., which exempted goods in excess of the amount calculated at 50% of each of the duties of customs. The matter was remanded to the Commissioner to reconsider the exact amount of duty payable.

3. Invocation of the Extended Period for Demand:
The appellants argued that the extended period for demand should not have been invoked as they had notified the department about the change in classification and the technology used. The Tribunal found that the department was indeed aware of the technology and the classification used by the appellants. It was noted that the Customs House had assessed similar yarn under Heading 56.06. Consequently, the Tribunal held that the extended period should not have been invoked, limiting the demand to the period within one year from the date of the show cause notice, making the demand prior to 1-8-2001 time-barred.

4. Imposition of Penalties and Recovery of Interest:
Given the Tribunal's findings on the non-applicability of the extended period, the penalties imposed on both the appellant unit and the Managing Director were set aside. The Tribunal directed the Commissioner to reconsider the duty payable under Notification No. 2/95-C.E. after considering the Tribunal's precedent decisions and the law. The appellants were to be given an opportunity to present their case before the final decision.

Conclusion:
The Tribunal upheld the classification of the yarn under Chapter 54, set aside the invocation of the extended period, and remanded the matter of duty calculation to the Commissioner. Penalties were also set aside, and the appellants were to be given a chance to present their case regarding the duty payable.