2018 (10) TMI 1200 - AT - Central Excise

SSI Exemption - classification of manufactured goods - Whereas the revenue has classified the appellants final product as PU Foam Sheets classifiable under Chapter Heading No.39211310 of First Schedule to Central Excise Tariff Act, which is not entitled to the SSI benefit in terms of N/N. 8/2003-CE dated 01.03.2013 - appellants have contended that the product being manufactured by them is Waste Scrap Foam Sheet and is properly classifiable under Tariff Heading No.39211900, which is eligible for the benefit of SSI N/N. 8/2003-CE - extended period of limitation. Held that - The Appellate authority has simplicitor gone by the facts of pre dominance of PU polyurethane in the product as reported by Chemical Examiner. He has not gone through the other part of the said report which indicates that the sample is do different colours and also contains plastic material and also adhesives material - Apart from that, there is no rebuttal to the findings of the adjudicating authority that the appellant do not have the machinery to manufacture PU Foam and the manufacturing process adopted by them clearly show that what is being manufactured is Waste Foam Sheet. The Original Adjudicating Authority has also examined the raw materials required for the manufacture of PU Foam and has clearly come to a finding that no such material was purchased by the appellant from the market. Such evidences adopted by the Joint Commissioner, has not been considered by Commissioner (Appeals) and there is neither any finding on the same nor any rebuttal. The order of Original Adjudicating Authority restored - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the product manufactured by the assessee.
2. Eligibility for Small Scale Exemption benefit under Notification No. 8/2003-CE.
3. Examination of the manufacturing process and raw materials.
4. Validity of the Chemical Examiner's report.
5. Invocation of extended period for demand.

Issue-wise Analysis:

1. Classification of the Product:
The primary dispute centers on the classification of the product manufactured by the assessee. The revenue classified the product as "PU Foam Sheets" under Chapter Heading No. 39211310, which disqualifies it from Small Scale Exemption. The assessee argued that their product is "Waste Scrap Foam Sheet" under Tariff Heading No. 39211900, making it eligible for the exemption.

2. Eligibility for Small Scale Exemption:
The assessee contended that their product, classified as "Waste Scrap Foam Sheet," should be eligible for the Small Scale Exemption under Notification No. 8/2003-CE. The Additional Commissioner initially ruled in favor of the assessee, but the Commissioner (Appeals) reversed this decision, leading to the current appeal.

3. Examination of the Manufacturing Process and Raw Materials:
The manufacturing process involved purchasing waste and scrap of PU Foam mixed with cloth, cotton, and plastic scrap, shredding it, mixing it with chemicals, pressing it into blocks, and slicing the blocks into sheets. The assessee argued that they did not have the machinery or raw materials required to manufacture PU Foam, only to re-bond waste materials into sheets.

4. Validity of the Chemical Examiner's Report:
The Chemical Examiner's report indicated that the sample contained 91.3% PU Foam, 4.9% plastic material, and the balance adhesive. The Commissioner (Appeals) relied heavily on this report to classify the product as "PU Foam Sheets." However, the Original Adjudicating Authority noted that the product was made from waste materials and did not constitute a new product distinct from its raw materials.

5. Invocation of Extended Period for Demand:
The assessee contested the demand on the grounds of time-bar, arguing there was no malafide intent. The Commissioner (Appeals) justified the invocation of the extended period, citing suppression of vital facts by the assessee.

Judgment Analysis:
The Tribunal found merit in the Original Adjudicating Authority's decision, which had considered the manufacturing process, the raw materials used, and the lack of machinery for producing PU Foam. The Tribunal noted that the Commissioner (Appeals) had not adequately rebutted these findings and had overly relied on the Chemical Examiner's report without considering the full context. Consequently, the Tribunal set aside the order of the Commissioner (Appeals) and restored the Original Adjudicating Authority's order, allowing the appeal in favor of the assessee.