1989 (2) TMI 227 - AT - Central Excise

Summary

Issues Involved:
1. Classification of latex foam sponge products.
2. Jurisdiction of the Central Government under Section 36(2) of the Central Excises and Salt Act, 1944.
3. Applicability of res judicata in tax matters.
4. End-use relevance in product classification.

Detailed Analysis:

1. Classification of Latex Foam Sponge Products:
The primary issue is whether the respondents' rubber products, such as bus seats, car seats, scooter seats, and motorcycle seats, should be classified under Item 16A(1) of the Central Excise Tariff (C.E.T.) as latex foam sponge or under Item 34-A as motor vehicle parts. The respondents initially classified these products under Item 16A(1) and paid the corresponding duty without protest. They later sought reclassification under Item 34-A and Item 68 for different periods. The Assistant Collector of Central Excise held that the products should remain classified under Item 16A(1), as they were primarily latex foam sponge articles and not motor vehicle parts ready for use without further finishing. The Appellate Collector, however, classified them under Item 34-A as motor vehicle parts.

2. Jurisdiction of the Central Government under Section 36(2):
The Central Government, invoking Section 36(2) of the Central Excises and Salt Act, 1944, reviewed the Appellate Collector's decision, tentatively concluding that the products were correctly classifiable under Item 16A(1). The respondents argued that there was no sufficient material to justify the Central Government's exercise of jurisdiction under Section 36(2). However, the Tribunal found that the Central Government had provided adequate reasons in the show cause notice, making the jurisdictional challenge untenable.

3. Applicability of Res Judicata in Tax Matters:
The respondents contended that there is no res judicata in tax matters, allowing them to argue the case afresh. The Tribunal acknowledged this principle but noted that the respondents had been given full liberty to present their case, including merits. The Tribunal referenced previous decisions, such as the case of Collector of Central Excise, Madras v. M.M. Rubber Co. Ltd., where similar products were classified under Item 16A(1). The Tribunal found no reason to deviate from these precedents.

4. End-Use Relevance in Product Classification:
The respondents argued that the functional character of the excisable product should determine its classification, citing various judicial decisions. They claimed that the latex foam seats, being manufactured directly from liquid latex as per customer orders, should be classified as motor vehicle parts under Item 34-A. However, the Tribunal held that the end-use of the product is not relevant for classification. The latex foam cushions, as manufactured, were not ready for use as motor vehicle parts without further finishing, such as covering with rexin or leather. The Tribunal cited several judgments supporting this view, including Dunlop India Ltd. v. Union of India and Indian Aluminium Cables Ltd. v. Union of India.

Conclusion:
The Tribunal concluded that the latex foam sponge products in question are correctly classifiable under Item 16A(1) of the Central Excise Tariff and not under Item 34-A as motor vehicle parts. The Tribunal set aside the Appellate Collector's order and restored the classification under Item 16A(1), aligning with its previous decisions and the rationale provided in the show cause notice by the Central Government.