1990 (9) TMI 111 - AT - Central Excise

Issues Involved:
1. Classification of heating elements under the correct Tariff Item.
2. Applicability of longer period of limitation for duty demand.
3. Legality of the penalty imposed on the appellants.

Detailed Analysis:

1. Classification of Heating Elements:
The primary issue was whether the heating elements manufactured by the appellants should be classified under Tariff Item 22F(iv) or Tariff Item 68 of the Central Excise Tariff.

- Appellants' Argument: The appellants contended that the heating elements should be classified under Tariff Item 68, arguing that the product is known and used as "heating elements" and not merely as a product made from mineral fibres and yarn. They emphasized the functional character of the product and cited various judicial precedents, including the Supreme Court's decision in Atul Glass Industries Ltd., to support their claim that the product should be classified based on its primary function and trade parlance.

- Revenue's Argument: The Revenue argued that the product should be classified under Tariff Item 22F(iv) as it is manufactured from mineral fibres and yarn, which predominate in weight. They relied on previous Tribunal decisions, including the case of M/s. Raga Industries, which classified similar products under Tariff Item 22F(iv).

- Tribunal's Findings: The Tribunal analyzed the manufacturing process and composition of the heating elements, noting that the product is a composite of several materials, including glass fabric, asbestos yarn, Nichrome wire, and M.S. Ring. The Tribunal agreed with the appellants' argument that the product should be classified based on its primary function and trade parlance. They found that the interpretation in the case of I.P.G. Engineers (P) Ltd., which held that the term "manufactures therefrom" implies direct manufacture from mineral fibres and yarn, was more logical and relevant. Consequently, the Tribunal concluded that the heating elements should be classified under Tariff Item 68.

2. Applicability of Longer Period of Limitation:
The second issue was whether the longer period of limitation for duty demand was applicable.

- Appellants' Argument: The appellants argued that there was no willful suppression of facts on their part, and they genuinely believed that their product was not excisable. They cited the Supreme Court's decision in Chemphar Drugs & Liniments to support their claim that the longer period of limitation should not be invoked.

- Revenue's Argument: The Revenue contended that the appellants had failed to file the necessary declarations and had suppressed the fact of manufacture of heating elements, justifying the invocation of the longer period of limitation.

- Tribunal's Findings: The Tribunal found no evidence to suggest that the appellants had willfully suppressed facts or intended to evade payment of duty. They noted that the appellants' belief that their product was not excisable was genuine and that other manufacturers were also not paying duty. Therefore, the Tribunal held that the invocation of the longer period of limitation was not justified.

3. Legality of the Penalty Imposed:
The final issue was the legality of the penalty imposed on the appellants.

- Appellants' Argument: The appellants argued that the penalty was unjustified as there was no willful suppression of facts or intention to evade duty.

- Tribunal's Findings: The Tribunal set aside the penalty, agreeing with the appellants that there was no evidence of willful suppression or intent to evade duty.

Separate Judgment:
- D.C. Mandal, Member (T): In a dissenting opinion, D.C. Mandal argued that the heating elements should be classified under Tariff Item 22F(iv) based on the definition provided in the tariff entry, which includes manufactures in which mineral fibres or yarn predominate in weight. He disagreed with the majority view that trade parlance should be considered for classification when the tariff item itself provides a definition. However, he concurred with the majority on the issue of limitation, agreeing that the longer period of limitation was not applicable.

Conclusion:
The appeal was disposed of with the Tribunal holding that the heating elements should be classified under Tariff Item 68, setting aside the penalty, and recalculating the duty demand with consequential relief to the appellants.

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