2023 (4) TMI 654 - AT - Central Excise

Classification of goods - Compounds of PBT - classifiable under Chapter Sub Heading No. 39079190 of the schedule to Central Excise Tariff Act, 1985 or not - Compound of Polyamide - classifiable under Chapter Sub Heading No. 39081090 of the schedule to Central Excise Tariff Act, 1985 or not - recovery of differential Excise Duty with interest and penalty - denial of exemption notification no. 4/2006-CE - extended period of limitation - HELD THAT - From the above exemption N/N. 4/2006-CE, it is found that the exemption is granted to polyester chips falling under chapter heading no. 3907 and nylon chips falling under heading no. 3908. It is to be noted that for the purpose of exemption eight digit subject heading has not been prescribed under the notification therefore, it is clear that all the polyester chips falling under 3907 is eligible for exemption similarly, all the nylon chips falling under 3908 is eligible for exemption. The adjudicating authority has denied the exemption relying on the clarification given by the Chemical examiner and chemical examination report - The adjudicating authority has put entire emphasis on the clarification issued by Chemical Examiner that against the question raised before the chemical examiner that whether the product compound of PBT can be reported as polyester chips or not. The chemical examiner has answered as above that the sample is other than pure PBT and other than pure nylon chips. From the above clarification, it is also clear that even though both the products are not pure PBT and pure nylon chips but both are pre-dominantly consists of more than 70% of polyester and nylon. It is settled law that any chemical compound is classifiable on the basis of its active ingredient only. In the present case, since both the products are admittedly pre-dominance of Polyester and Nylon, the same are classifiable under 3907 and 3908 respectively. Undisputedly, the form of the product is in chips so therefore, both the products are clearly qualified as polyester chips and nylon chips being constituent of pre-dominantly polyester and nylon respectively. The classification of the product decided by the commissioner will have no adverse effect on the eligibility of the notification so long the product falls under chapter heading 3907 and 3908 and the same is polyester chips and nylon chips irrespective of the same is not in the pure form therefore, the appellant are eligible for exemption notification in respect of their product namely polyester chips and nylon chips. Extended period of limitation - HELD THAT - The appellant categorically informed the department vide letter dated 29.12.2006 that they are eligible for exemption. With these correspondence, the revenue was absolutely free and nothing prevented them to issue show cause notice well within the normal period of limitation. However, the show cause notice was issued on 02.11.2010 covering the period from August 2006 to June 2009 invoking proviso to Section 11A(1)of the Central Excise Act, 1944 - there is absolutely no suppression of fact on the part of the appellant therefore, the entire demand raised under the extended period will not sustain on limitation itself therefore, the demand is liable to be set aside on the ground of limitation also. Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the classification of excisable goods under specific chapter subheadings, denial of exemption notification for manufactured goods, and imposition of Central Excise duty, interest, and penalty.

Classification of excisable goods:
The appeal challenged the classification of compounds of PBT and Polyamide under specific chapter subheadings by the Commissioner. The appellant contended that the products should be classified as Polyester Chips and Nylon Chips respectively, based on the principle of predominance of polyester and nylon content. The Chemical Examiner's clarification was a key factor in the denial of exemption, stating that the products were compounded and not pure, leading to the demand for Central Excise duty.

Denial of exemption notification:
The denial of exemption notification number 4/2006-CE for the manufactured goods, compounds of Polyamide 6 (PA 6) and Nylon-6, was based on the contention that the products were not pure polyester chips or nylon chips as required by the notification. The appellant argued that the products predominantly consisted of polyester and nylon, meeting the criteria for exemption. The issue revolved around the interpretation of relevant entries in the notification and the Chemical Examiner's report.

Imposition of Central Excise duty, interest, and penalty:
The order confirmed the recovery of Central Excise duty amounting to Rs.2,88,58,033, along with interest and penalty, from the appellant. The penalty imposed was subject to reduction under specific provisions of the Central Excise Act, 1944. The appellant challenged the imposition of duty, interest, and penalty, citing compliance with notification requirements and disputing the extended period of limitation for raising the demand.

Conclusion:
After considering the submissions and records, the Tribunal set aside the impugned order, ruling in favor of the appellant. It was held that the products qualified as polyester chips and nylon chips under the exemption notification, despite not being in pure form. The invocation of the extended period for raising the demand was deemed unsustainable due to the appellant's timely declaration and communication with the revenue department. Consequently, the demand for Central Excise duty, interest, and penalty was set aside, and the appeal was allowed with consequential relief as per the law.