2024 (2) TMI 1303 - AT - Central Excise

SSI Exemption - classification of goods - manufacturing articles of rubber - goods conforming to description corresponding to tariff item 4008 1110 of Schedule to Central Excise Tariff Act, 1985 was sought to be re-classified against tariff item 4008 1190 of Schedule to Central Excise Tariff Act, 1985 - HELD THAT - Taking up the issue of classification as it is contingent upon resolution thereto that the discarding of claim for exemption available to small scale industry (SSI) will become relevant. At the outset, particular emphasis laid on the rigours of classification, within the framework of General Rules for Interpretation of the Schedule appended to Central Excise Tariff Act, 1985 and judicial determination, which forecloses admission in statements from having anything but peripheral influence on the exercise. In the absence of any exposition of description corresponding to the proposed classification, it is well nigh impossible to approve the manner in which the adjudicating authority has proceeded. Though there is elaborate discussion on the purported evidence, such as formulation found in private records, admission in statements that these reflected reality and samples sent for testing, the key to the findings are the reports of tests from Deputy Chief Chemist, Vadodara on the composition of the end product as being polyethylene. This, along with the conclusion that the product is not rubber , led to the re-classification insofar as the appellant-assessees are concerned. While the presence of polyethylene does fulfill the requirements of note 1 in chapter 39 of Schedule to Central Excise Tariff Act, 1985 and has not been controverted, there is abundantly less certainty on the conclusion in the test report of no rubber especially when concatenated with the findings in the impugned order that rubber was consumed in the production process. The grounds of appeal preferred in the challenge mounted by Revenue to the impugned order confirms the need for re-determination. On the outcome of fresh determination also rests the appropriateness of penalty imposed on the individual-appellant. For those purposes, the impugned order is set aside and notice restored to the original authority for fresh decision on claim of appellant-assessees. Matter remanded on issue insofar as appellant - assessee is concerned, the appropriate disposal of this appeal of Revenue too is re-determination of the dispute by the original authority - the appeals allowed by way of remand.

Summary

Issues Involved:
1. Classification of goods.
2. Eligibility for exemption benefits under specific notifications.
3. Validity of test reports and their impact on classification.
4. Imposition of duty liability and penalties.

Summary:

Classification of Goods:
The primary issue revolves around the classification of rubber articles manufactured by the appellant-assessees and the re-classification proposed by the Revenue. The impugned order re-classified the goods under tariff item 3921 1900, rendering them ineligible for the benefits of notification no. 3/2005-CE dated 24th February 2005 and the 'nil' rate of duty. The Tribunal emphasized that the onus of establishing the correct classification lies with the Revenue, citing the Supreme Court judgments in Hindustan Ferodo Ltd v. Commissioner of Central Excise, Bombay and HPL Chemicals v. Commissioner of Central Excise, Chandigarh. The Tribunal found that the adjudicating authority failed to discharge this onus properly.

Eligibility for Exemption Benefits:
The appellant-assessees claimed exemptions under notification no. 3/2005-CE and the 'small scale industry (SSI)' benefits under notification no. 8/2003-CE. The Tribunal noted that the eligibility for these exemptions hinges on the correct classification of the goods. The impugned order's reliance on the composition of goods to deny these exemptions was found to be flawed due to the improper classification process.

Validity of Test Reports:
The Tribunal scrutinized the test reports from the Deputy Chief Chemist, Vadodara, which were used to support the re-classification. The appellant-assessees argued that these tests were inappropriate and that their own tests from private laboratories were favorable. The Tribunal found that the adjudicating authority's reliance on these reports was not credible, especially since the reports did not conclusively test for 'rubber' properties. The Tribunal suggested that a proper test, including a visit to the manufacturing process, should be conducted.

Imposition of Duty Liability and Penalties:
The impugned order imposed a duty liability of Rs. 4,57,09,954 on the appellant-assessees and penalties under rule 25 of the Central Excise Rules, 2000. The Tribunal found that these liabilities were based on an improper classification and thus needed re-evaluation. The Tribunal set aside the penalties and remanded the matter for fresh determination.

Appeal of Revenue:
The Revenue's appeal contested the dropping of proceedings against M/s Konark Rubber. The Tribunal noted that the adjudicating authority had relied on unofficial test reports and failed to obtain fresh reports from a government-approved laboratory. The Tribunal found this approach improper and remanded the matter for re-determination.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the original authority for fresh decision on the classification of goods, eligibility for exemptions, and imposition of penalties, based on proper tests and observations. The Tribunal emphasized the need for a thorough and accurate classification process to resolve the disputes.