2019 (12) TMI 639 - AT - Central Excise

Demand of duty without proper classification of goods in dispute - Manufactured product, Vermax 002 and Vermax 004 - scope of SCN - Chargeable to service tax or not - HELD THAT - The appellants were paying duty on the said goods till 30/06/2006. However, were simultaneously disputing the leviability of duty. On the advice of the consultant, they stopped paying duty on such goods from 01/07/2006 and started availing exemption. The raw material used by them for the manufacture of the aforesaid articles was co-mingled oil, which was classifiable under heading 2709. A Show Cause Notice was issued to the appellant which sought to confirm the demand of duty without specifying the heading under which the said product Vermax 002 and Vermax 004 are classifiable. The appellants sought the correct classification in their reply to the Order in Original. It is seen that the Show cause notice does not exactly classify the product. In show cause notice, there is no allegation seeking to change the classification claimed by the appellant. There a vague reference to chapter heading 2710 in the chemical examiner s report but there is nothing in the notice alleging that why the goods could not be classified under heading 2709. The notice simply seeks to appropriate the duty already paid by the appellant under protest. It is seen that in the Show Cause Notice there is no allegation as to why the classification claimed by the appellant viz 2709 should not be changed. And it also does not suggest why the goods should be classified under any particular heading. Thus, it is apparent that the appellants have been rightly pointing out that no demand can be made without classifying the finished products sought to be levied to tax. It is seen from the orders of lower authorities that they have only examined why the product is not classifiable under chapter heading 2709 sought by the appellant but none of them deal with the issue as to where the goods should have been classified or what should be a correct classification of goods. There is no allegation in the show cause notice seeking to change the classification of goods and there are no findings to that effect. Revenue cannot seek to demand duty without first classifying the goods under any particular heading. In any case, the burden of proving of classification lies on Revenue. The entire case of Revenue is that the goods are not classifiable under 2709. The Revenue has failed to establish under which heading goods are classifiable. The appeal of Revenue seeking impose redemption fine for enhancement of penalty is dismissed - decided against Revenue.

Issues Involved:
1. Classification of the products Vermax 002 and Vermax 004.
2. Demand of Central Excise duty on the products.
3. Imposition of penalty and redemption fine.
4. Competence of the Chemical Examiner in classifying the products.
5. Validity of Show Cause Notice without specific classification.

Detailed Analysis:

1. Classification of the Products Vermax 002 and Vermax 004:
The appellants, engaged in the manufacture of Vermax 002 and Vermax 004, initially classified these products under chapter heading 2710 and paid duty. Subsequently, they reclassified the products under chapter heading 2709, the same as their raw material 'co-mingled oil', and ceased paying duty. The Revenue's Chemical Examiner opined that the products should be classified under heading 271019, but the Show Cause Notice (SCN) did not specify a precise classification. The Tribunal found that the SCN lacked the necessary details to reclassify the products, referencing the decision of the Hon’ble High Court of Madras in the case of Indian Oil Corporation, which emphasized that a SCN must contain material particulars like the sub-headings under which the product should be classified.

2. Demand of Central Excise Duty on the Products:
The SCN issued to the appellants sought to confirm the demand of duty without specifying the heading under which the products Vermax 002 and Vermax 004 are classifiable. The Tribunal noted that the SCN did not provide a clear classification, making it insufficient to justify the demand. The Tribunal highlighted that the burden of proof for classification lies with the Revenue, and without establishing the correct classification, the demand for duty cannot be sustained.

3. Imposition of Penalty and Redemption Fine:
The Revenue argued for the imposition of a redemption fine and contested the reduction in the penalty. However, the Tribunal found that since the primary demand for duty itself was not justified due to the lack of proper classification, the penalties and fines associated with it also could not be upheld. Consequently, the appeal of the Managing Director, who was penalized, was also allowed.

4. Competence of the Chemical Examiner in Classifying the Products:
The appellants argued that the Chemical Examiner was not competent to classify the products and that any classification should have been independently determined by the Revenue. The Tribunal agreed that the Chemical Examiner's role was limited to providing an opinion on the chemical characteristics, not to classify the products. The Tribunal found that the Revenue had failed to independently classify the products, which was necessary to substantiate the demand for duty.

5. Validity of Show Cause Notice without Specific Classification:
The Tribunal emphasized that the SCN must specify the exact classification of the products to justify any demand for duty. The SCN in this case did not allege why the classification claimed by the appellant under heading 2709 should be changed, nor did it suggest an alternative classification. Citing the decision of the Hon’ble High Court of Madras, the Tribunal reiterated that a deficient SCN lacking material particulars like specific classification headings is not valid. Therefore, the Tribunal allowed the appeal on the grounds that the SCN was insufficient to sustain the demand for duty.

Conclusion:
The Tribunal allowed the appeal of the appellants, finding that the Revenue failed to establish the correct classification of the products and thus could not justify the demand for duty. Consequently, the penalties and fines associated with the demand were also dismissed. The appeal of the Revenue seeking to impose a redemption fine and enhance the penalty was dismissed.

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