1996 (9) TMI 141 - HC - Central Excise

Issues Involved:

1. Classification of Tyre Cord Fabrics under the Central Excise Tariff Act.
2. Imposition of differential duty and penalty.
3. Requirement of pre-deposit for filing an appeal under Section 35F of the Central Excises and Salt Act, 1944.
4. Impact of Section 11AA on the discretion to waive pre-deposit under Section 35F.

Issue-wise Detailed Analysis:

1. Classification of Tyre Cord Fabrics under the Central Excise Tariff Act:

The petitioner, a leading manufacturer of textiles, converts imported high tenacity yarns into tyre cord fabrics on a job work basis. These fabrics are classified under Chapter 59.02 and cleared at a 'Nil' rate of duty availing exemption under Notification No. 63/87-C.E. The dispute arose when certain lots of dipped tyre cord fabrics failed to meet the prescribed tenacity, leading the first respondent to reclassify them under Chapter Heading 5905.20 and impose a differential duty. The petitioner contended that the classification as "Tyre Cord Fabric of other than High Tenacity Yarn" was contrary to law, as no such product is enumerated under the Central Excise Tariff Act.

2. Imposition of Differential Duty and Penalty:

The first respondent initiated proceedings under the proviso to Section 11A of the Central Excises and Salt Act, 1944, directing the petitioner to show cause why the 82,742 kgs of dipped tyre cord fabrics should not be depicted as a new product and why duty under Chapter Heading 5905.20 should not be imposed. The petitioner argued that the assumption and demand for duty were contrary to law. Despite this, the first respondent imposed a differential duty and a penalty of one lakh rupees. The petitioner's appeal to the High Court was dismissed, and the Supreme Court upheld the direction to file a statutory appeal under Section 35 of the Act.

3. Requirement of Pre-deposit for Filing an Appeal under Section 35F:

The petitioner filed an appeal to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) and sought to dispense with the deposit of the excise duty and penalty. The CEGAT allowed the application but directed the petitioner to make a pre-deposit of Rs. 17,00,000/-. The petitioner contended that this direction was without jurisdiction and not a proper exercise of discretion under the proviso to Section 35F of the Act.

4. Impact of Section 11AA on the Discretion to Waive Pre-deposit under Section 35F:

The petitioner argued that with the insertion of Section 11AA, which provides for interest on delayed payment of duty, the appellate authority should not insist on a pre-deposit, as the interest of the revenue is safeguarded. The respondent countered that Section 11AA deals with the assessment and payment of duty, while Section 35F deals with the pre-requisite of deposit for an appeal. The court agreed with the respondent, stating that Section 11AA and Section 35F deal with different aspects and that the right of appeal under Section 35B is subject to the conditions of Section 35F. The court emphasized that the appellate authority must exercise its discretion considering the prima facie case, undue hardship, and the interests of revenue.

Conclusion:

The court concluded that the insertion of Section 11AA does not affect the discretion under Section 35F. The appellate authority must still consider the conditions under Section 35F, including undue hardship and the interests of revenue, before dispensing with the pre-deposit. The court found no infirmity in the CEGAT's order directing the petitioner to deposit Rs. 17,00,000/- and dismissed the writ petition.

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