2004 (1) TMI 225 - AT - Central Excise

Summary

Issues Involved:
1. Classification of the products.
2. Application of the extended period of 5 years for demanding duty.
3. Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Classification of the Products:
The appellants classified their products under sub-heading 8432.00 of the Central Excise Tariff Act, 1985, declaring them as parts of Power Tillers. The Department, however, found that these goods were used in the manufacture of Internal Combustion (IC) Engines by their customers and should be classified under sub-heading 8409.00. The appellants argued that the Commissioner did not consider Section Note No. 2 of Section XVI properly, which governs the classification of parts. They contended that the parts should be classified with the machine they are principally used with, under sub-heading 8432.00. However, the Tribunal found that the parts in dispute are used in IC Engines, and thus, must be classified under sub-heading 8409.00. The Tribunal concluded that there was no need to refer to Note 2(b) or 2(c) of Section XVI, as the parts were specifically for IC Engines.

2. Application of the Extended Period of 5 Years for Demanding Duty:
The appellants argued that the extended period should not be applied as they had been paying duty under sub-heading 8432.00, and their classification lists were approved by the Department. They cited various case laws to support their claim that there was no intention to evade duty. However, the Tribunal found that the appellants knowingly classified the parts as parts of Power Tillers, despite being aware that they were parts of IC Engines. This constituted suppression of facts with the intention to evade duty. The Tribunal upheld the application of the extended period of 5 years for demanding duty, as the appellants had not disclosed the correct classification to the Department.

3. Imposition of Penalty under Section 11AC of the Central Excise Act, 1944:
The appellants contended that Sections 11AC and 11AB are not applicable for the period prior to 28-9-1996, relying on various case laws. The Department conceded that the penalty under Section 11AC is not imposable for the period before 28-9-1996. The Tribunal agreed, citing the Supreme Court decision in Elgi Equipments v. CCE, Coimbatore, which established that the provisions of Sections 11AC and 11AB are applicable from 28-9-1996. The Tribunal remanded the case back to the Commissioner to re-determine the penalty under Section 11AC and to charge interest under Section 11AB from 28-9-1996 onwards.

Conclusion:
The Tribunal upheld the classification of the parts under sub-heading 8409.00, affirmed the application of the extended period for demanding duty due to suppression of facts, and remanded the case for re-determination of the penalty and interest applicable post 28-9-1996.