2005 (2) TMI 423 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for concessional duty under Notification 22/94-C.E.
2. Classification of old gunny bags as rags.
3. Interpretation of the term "rags" in the context of Central Excise Tariff Act (CETA) and Harmonized System of Nomenclature (HSN).
4. Invocation of extended period of limitation for demand of duty.
5. Imposition of penalties and interest under Sections 11AC and 11AB of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

1. Eligibility for Concessional Duty under Notification 22/94-C.E.:
The core issue was whether the respondent was entitled to the benefit of Notification 22/94-C.E., which provided a concessional rate of duty to kraft paper made from pulp containing not less than 75% by weight of pulp made from materials other than bamboo, hardwood, softwood, reeds, or rags. The respondent used pulp made from old gunny bags, which the Revenue contended should be classified as rag pulp, thus disqualifying the respondent from the concessional duty.

2. Classification of Old Gunny Bags as Rags:
The Revenue argued that old gunny bags are rags and therefore the pulp made from them should be considered rag pulp. The respondent countered that the term "rags" in Notification 22/94 does not include rags of gunny bags. The Tribunal referred to the HSN and concluded that gunny bags, being textile materials, when worn out, soiled, or torn beyond repair, qualify as rags. Therefore, the pulp made from such gunny bags is rag pulp, which is excluded from the concessional rate under Notification 22/94.

3. Interpretation of the Term "Rags" in the Context of CETA and HSN:
The Tribunal examined various headings in the HSN to determine the classification of old gunny bags. It concluded that old gunny bags, which are worn out and fit only for recovery of fibers, fall under the category of rags. The Tribunal did not find merit in the respondent's argument that the term "rags" should be limited to cotton textiles. The Tribunal agreed with the Revenue that rags can be made of any textile material, including jute.

4. Invocation of Extended Period of Limitation for Demand of Duty:
The show cause notice sought to recover differential duty by invoking the extended period of limitation under Section 11A(1) of the Central Excise Act, 1944, alleging suppression and misdeclaration by the respondent. The Tribunal found that describing old gunny bag waste as jute waste did not amount to misdeclaration. It held that there was no conscious or deliberate withholding of information by the respondent, and mere failure or negligence is not enough to invoke the extended period. Therefore, the Tribunal did not find merit in invoking the larger period of limitation.

5. Imposition of Penalties and Interest under Sections 11AC and 11AB:
The Commissioner had dropped proceedings under Sections 11AB, 11AC, and Rules 226 and 173Q. The Tribunal upheld this decision, agreeing that there was no suppression or misdeclaration by the respondent. It concluded that the differential duty is recoverable under the normal period of limitation and did not interfere with the Commissioner's order dropping the penalties and interest.

Conclusion:
The Tribunal held that old gunny bag waste is rags and the pulp made therefrom is rag pulp. Consequently, the respondent was not eligible for the concessional rate of duty under Notification 22/94 and subsequent notifications. However, the Tribunal did not find any misdeclaration or suppression by the respondent and held that the differential duty is recoverable only within the normal period of limitation. The Tribunal also upheld the Commissioner's decision to drop penalties and interest. The Revenue's appeal was partly allowed, and the Revenue was directed to rework and quantify the amount of duty recoverable within the normal period of limitation.