2005 (11) TMI 15 - AT - Central Excise

Central Excise - Bleaching earth (1) Activated fullers clay/earth (2) Process of manufacture and product (3) Classification

Summary

Issues Involved:
1. Classification of Fuller's Earth after processing.
2. Whether the process constitutes 'manufacture' under the Central Excise Act.
3. Applicability of the HSN Explanatory Notes.
4. Invocation of the extended period of limitation under Section 11A of the Central Excise Act.
5. Imposition of penalties and confiscation under the Central Excise Rules.

Issue-wise Detailed Analysis:

1. Classification of Fuller's Earth after processing:
The primary issue was whether the processed Fuller's Earth should be classified under Chapter 25 or Chapter 38. The Commissioner (Appeals) noted that the assessees procured Fuller's Earth lumps, crushed, pulverized, heated, and treated with Sulphuric Acid, resulting in a product with powerful adsorption properties used for decolorizing oils. This process was considered a manufacturing process, changing the product's classification to Chapter 38.02 as Activated Bleaching Earth. The Tribunal upheld this classification, referencing the HSN Notes which state that mineral substances are activated when their superficial structure is modified by treatment with heat or chemicals.

2. Whether the process constitutes 'manufacture' under the Central Excise Act:
The learned Counsel argued that the processes carried out did not constitute manufacture and that the product should remain classified under Chapter 25.02. However, the Tribunal, referencing the case of Manek Chemicals Pvt. Ltd., found that the processes employed, including heating and chemical treatment, resulted in structural changes in the product, thus constituting manufacture. The Tribunal emphasized that activation involves modification of the superficial structure, aligning with the definition of manufacture under the Central Excise Act.

3. Applicability of the HSN Explanatory Notes:
The Tribunal relied heavily on the HSN Explanatory Notes to determine classification. The Notes under Chapter 38.02 specify that products are activated when their superficial structure is modified by appropriate treatment, making them suitable for specific purposes like decolorizing. The exclusion clause under Chapter 38.02 also excludes naturally active mineral products that have not undergone any treatment modifying their superficial structure. The Tribunal found that the processed Fuller's Earth met the criteria for classification under Chapter 38.02.

4. Invocation of the extended period of limitation under Section 11A of the Central Excise Act:
The Tribunal addressed the issue of whether the extended period of limitation could be invoked. It was found that the appellants had declared their product as "activated earth" and described the manufacturing process accurately in their declarations. The department did not object to this classification during the material period. The Tribunal concluded that there was no willful misstatement, misdeclaration, or suppression of facts by the appellants, and thus, the extended period of limitation could not be invoked.

5. Imposition of penalties and confiscation under the Central Excise Rules:
The Tribunal examined the penalties imposed under Section 11AC and Rule 173Q. It found that the penalties could not be imposed in the absence of fraud, collusion, willful suppression, or misstatement. Additionally, the confiscation of goods under Rule 173Q was not sustainable as there was no intent to evade duty. The penalty under Rule 209A on Shri D.V. Patel was also set aside due to the lack of evidence that he dealt with excisable goods in a manner rendering them liable to confiscation.

Conclusion:
The Tribunal upheld the classification of the processed Fuller's Earth under Chapter 38.02, confirming it as an activated natural mineral product. The processes employed constituted manufacture, and the product was correctly classified according to the HSN Explanatory Notes. The extended period of limitation could not be invoked due to the absence of willful misstatement or suppression of facts. The penalties and confiscation were set aside, and the appeals were dismissed, affirming the findings of the lower authorities.