2005 (11) TMI 144 - AT - Central Excise

Classification of 'Calcined China Clay' - Demand - Limitation - Extended period - Suppression - Penalty - HELD THAT - By the proposals of 1995-96, completely exempted all goods falling under Heading 25.05 eliminating need for separate enumeration of various sub- headings. The tariff rate of duty was given as nil for the Heading 25.05. Consequently there was no need to have a separate sub heading for the calcined china clay under Heading 25.05. Thus, the purpose of deleting the sub heading 2505.10 was not to classify the calcined china clay out of Heading 25.05. HSN Heading 25.07 specially covers kaolin and other kaolinic clays, whether or not calcined. In fact the relevant portion of the sub-heading 2505.10 of the tariff as it stood after enactment of Finance Act, 1990 and before enactment of Finance Act, 1995 was pari materia with Heading 25.07 of HSN. Thus, the calcined china clay will fall under Heading 25.05 of Central Excise Tariff attracting nil rate of duty being the tariff rate applicable to that If heading. Note 2 to chapter 25, no doubt, indicates that the Heading 25.05 does not apply to products that have been calcined. However chapter note begins with the expression except where the context otherwise requires this expression was introduced by the Finance Act, 1990 simultaneously with the specific enumeration of calcined china clay in heading 2505.10. If the interpretation were to be that any calcined product were outside heading 25.05, then the specific enumeration of calcined china clay, under heading 2505.10 would be an exercise in futility. It is settled law that no interpretation should be adopted that renders an legislation redundant and nugatory. In fact to put this principle on a firm statutory basis, note 2 itself appears to be amended by addition of the expression, except where the context otherwise requires. Therefore the requirement of chapter note 2 that calcined product would be outside the scope of heading 25.05 would not be applicable to the present case. The plea that in any event, the demand made pursuant to the show cause notice for the period 7th February, 2000 to 6th October, 2001 is barred u/s 11A of the Act the only ground on which the larger period is invoked is that the appellants did not declare in the declaration that they manufacture calcined china clay and only declared the china clay has to be upheld . limitation bar is to be applied. In any event, the issue involved in the present appeal relates to the classification of calcined china clay and therefore, the proviso to Section 11A(1) cannot be invoked and penalties cannot be imposed as no intent to evade by incorrect classification can be established. The duty demands are not upheld. Therefore as arrived imposition of penalty cannot be upheld. The order is therefore set aside appeal allowed.

Summary

Issues:
Correct classification of 'Calcined China Clay' under different chapter headings, interpretation of tariff headings and subheadings, applicability of exemption notifications, invocation of Section 11A for duty demands and penalties.

Classification of Calcined China Clay:
The dispute revolved around the correct classification of 'Calcined China Clay'. The appellants initially sought to classify it under chapter Heading 26.06 but later alternatively claimed classification under chapter Heading 25.05. However, the respondent classified the product under chapter subheading 3824.20. The appellants procured raw 'kaolin', a hydrated aluminum silicate, which was then processed through calcination to remove excess water and obtain the final product. The process involved crushing, firing, and agglomerating the material to achieve the desired particle size.

Interpretation of Tariff Headings and Subheadings:
The analysis delved into the interpretation of Tariff Heading 25.05 and its relevance to calcined products. Note 2 to Chapter 25 specified that Heading 25.05 covers products processed through washing, crushing, grinding, etc., but not those that have been roasted, calcined, or mixed. The enactment of subheading 2505.10 under Heading 25.05 specifically covered calcined kaolin, which essentially refers to China clay. This legislative inclusion indicated that calcined China clay fell under the description of 'mineral substances not elsewhere specified' in Heading 25.05. The subsequent deletion of subheadings under Heading 25.05 did not alter the classification of calcined China clay.

Applicability of Exemption Notifications:
Notification No. 7/92 exempted goods falling under Heading or Subheading of 25.05 until 1995 when the exemption was rescinded, and the tariff rate for Heading 25.05 was set to nil. The budget circular of 1995 reflected this change, eliminating the need for separate enumeration of subheadings under 25.05. The deletion of subheading 2505.10 was not intended to reclassify calcined China clay outside of Heading 25.05, which attracted a nil rate of duty.

Invocation of Section 11A and Penalties:
Regarding duty demands and penalties, the plea was made that the demand for the period specified in the show cause notice was barred under Section 11A of the Act. It was argued that the appellants had indeed declared the manufacturing process of calcined China clay, thus limiting the period for invoking the demand. The issue of incorrect classification did not warrant the imposition of penalties under Section 11A(1) as no intent to evade through misclassification was established. Consequently, the duty demands were not upheld, leading to the setting aside of penalties and allowing the appeal.

In conclusion, the judgment clarified the classification of calcined China clay under specific tariff headings, emphasizing legislative intent, interpretation of notes, and the impact of exemption notifications. The analysis also addressed the invocation of Section 11A for duty demands and penalties, highlighting the importance of accurate declarations and intent to evade in determining liability.