2003 (12) TMI 172 - AT - Central Excise

Summary

Issues Involved:
1. Classification of the product under the Central Excise Tariff Act.
2. Applicability of the extended period of limitation.
3. Imposition of penalty on the appellants.

Detailed Analysis:

1. Classification of the Product:

The primary issue is whether the product, security holograms and holographic films manufactured by the appellants, should be classified under Heading No. 49.01 as a product of the printing industry or under Heading No. 39.19 as self-adhesive film.

- The appellants argued that the product should be classified under Heading 49.01, asserting that the holographic effect is a result of printing, which is essential to the product's primary use. They highlighted that the metallised and coated polyester film without printing cannot be sold as a hologram, emphasizing that the hologram is a communicative product containing the customer's company image.

- The Department countered that the product is a self-adhesive film, classifiable under Heading 39.19, as it possesses adhesive quality and is laminated on one side. They referred to HSN Explanatory Notes and a Circular clarifying that self-adhesive embossed holograms fall under Heading 39.19.

- The Tribunal examined the manufacturing process, noting that the product is laminated and has adhesive qualities. They concluded that the product does not cease to be self-adhesive and cannot be classified under Heading 39.20. Furthermore, they referred to Note 2 to Section VII and HSN Explanatory Notes, which state that even if printing imparts essential character, products of Heading 39.19 remain classified under this heading. Thus, the product was held to be correctly classified under Heading 39.19.

2. Applicability of the Extended Period of Limitation:

The appellants contended that the extended period of limitation should not be invoked as they had filed a declaration under Rule 173B and had disclosed the manufacturing process. They argued that there was no suppression of facts.

- The Department argued that the declaration was silent about the product being self-adhesive, constituting suppression of vital information.

- The Tribunal agreed with the appellants, noting that the declaration mentioned the product and its brief manufacturing process. They also acknowledged that the Department's officers had visited the factory and observed the manufacturing process. Therefore, the extended period of limitation was not applicable, and the demand could only be made for the normal period specified in Section 11A(1) of the Central Excise Act.

3. Imposition of Penalty:

The appellants argued that no penalty should be imposed as the matter involved a classification dispute, and there was no evidence of intent to evade duty.

- The Tribunal concurred, stating that the appellants had not concealed the manufacturing process from the Department. Consequently, no penalty was imposable on either the company or its Chairman and Managing Director.

Conclusion:

The Tribunal upheld the classification of the product under Heading 39.19 of the Central Excise Tariff. They ruled that the extended period of limitation was not applicable due to the appellants' disclosure of the manufacturing process. The Tribunal also set aside the penalties imposed on the appellants, remanding the matter to the adjudicating authority for recomputing the duty in accordance with their findings. Both appeals were disposed of accordingly.