2008 (2) TMI 106 - AT - Central Excise

Clearance of hinge unit components for bicycles without payment of duty to a bicycle manufacturer by claiming exemption in terms of Sl. No. 219A of the Table annexed to not. 6/2002 exemption denied by revenue alleging that inputs used in mfg. of hinge unit assembly are not eligible for exemption u/not. 67/95- parts and accessories of bicycles of Headings 87.12 and 87.13 were chargeable to nil rate of duty - goods are therefore exempt by virtue of Sl. No. 219A assessee appeal allowed

Summary

Issues:

1. Interpretation of Notification No. 6/2002-CE regarding duty exemption for bicycle components.
2. Classification of hinge unit components as parts/accessories of bicycles.
3. Allegations of captive consumption and duty liability on bolts, washers, nylon bush, etc.
4. Imposition of penalties on the appellant.

Issue 1: Interpretation of Notification No. 6/2002-CE

The appellant manufactured hinge unit components for bicycles and cleared them without duty payment, claiming exemption under Sl. No. 219A of Notification No. 6/2002-CE. The department alleged that certain items were not eligible for exemption due to captive consumption in the manufacture of hinge unit assembly. The Tribunal analyzed the notification and ruled that parts and accessories of bicycles under Heading 87.14, including the hinge unit assembly, were exempt from duty under Sl. No. 219A. The Tribunal rejected the Revenue's argument, emphasizing that the goods in question fell under the relevant headings for duty exemption.

Issue 2: Classification of Hinge Unit Components

The Tribunal examined the nature of the hinge unit assembly and its relationship to bicycles. It was established that the hinge unit assembly was cleared to a bicycle manufacturer for use in bicycle production. As per the notification, parts and accessories of bicycles were chargeable at a 'nil' rate of duty under Sl. No. 210A. Since the hinge unit assembly was considered a part/accessory of bicycles falling under Heading 87.14, the Tribunal concluded that it qualified for duty exemption. The classification of the hinge unit components as parts/accessories of bicycles played a crucial role in determining their duty liability.

Issue 3: Allegations of Captive Consumption and Duty Liability

The department issued show-cause notices alleging that certain items like bolts, washers, nylon bush, etc., were captively consumed in manufacturing the hinge unit assembly, making them ineligible for duty exemption. However, the Tribunal found that since these items were integral components of the hinge unit assembly, which was meant for bicycles, they were covered under the duty exemption provisions. The Tribunal's analysis focused on the relationship between the components, the assembly, and the final product to determine their eligibility for duty exemption.

Issue 4: Imposition of Penalties

Apart from the duty demands, penalties were imposed on the appellant by the original and appellate authorities. However, since the Tribunal allowed the appeals based on the duty exemption provisions, the penalties imposed were also set aside. The Tribunal's decision to grant duty exemption had a consequential impact on the penalties imposed, leading to their dismissal along with the duty demands.

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