2024 (4) TMI 1010 - AT - Central Excise

Classification of goods - agglomerate plastic granules - classifiable under Heading 39159029 as waste, paring and scrap of plastic, or as polymers of ethylene in primary form under 39019090? - availability of concessional rate of 5% under Notification No. 21/2002-Cus., dated 01.03.2022 - HELD THAT - The chapter heading 3915 does not apply to waste, parings and scrap of a single thermoplastic material transform into primary form and for such material the appropriate heading is 3901 to 3914. A perusal note would indicate that the terms primary form applies to lumps, powder and granules. The chemical examiners report clearly holds that the goods are single thermoplastic material and are in form of lumps, powder granules etc. The chemical examiner further holds that the goods are in primary form. In these circumstances, the attempts to sustained classification of goods under heading 3915 cannot be upheld. In terms of Notes 6 and 7 and in terms of the chemical examiner report, it is apparent that the goods are not classifiable under heading 3915 being of single thermoplastic material in primary form. If single thermoplastic material is transform into primary form from waste scrap, it would remain classifiable under heading 3901 to 3914. Thus, it is apparent from the explanatory note of HSN that the impugned goods cannot be classified under heading 3915 and have to be classified under heading 3901 to 3014 depending on the material. In the instant case, the Chemical Examiner Reports have clearly indicated that the material is polyethylene and it is in primary form. In this instant case, the goods being polyethylene are classifiable under heading 3901 - there are no merit in the impugned order and the same is set aside - appeals are allowed.

Summary

Issues Involved:
The issues involved in the judgment are the classification of goods under Central Excise Act, 1944 and Notification No. 23/2003-CE, applicability of duty rates under Notification No. 21/2002-Cus., imposition of penalties under Section 11AC, and the conflict between Chapter Note 3 and Chapter Notes 6 and 7 of Chapter 39.

Classification of Goods under Central Excise Act:
The appellants were engaged in importing Duty Free Inputs and clearing manufactured products in DTA under the Foreign Trade Policy. The revenue contended that the goods manufactured by the appellants were classifiable under Heading 39159029, attracting a higher Basic Customs Duty rate. The appellants argued that the goods were classifiable under Chapter Heading 3901 to 3914. The Chemical Examiner reports confirmed that the goods were single thermoplastic material in primary form. The Tribunal held that the goods were classifiable under heading 3901 due to being polyethylene in primary form, setting aside the impugned order.

Applicability of Duty Rates under Notification No. 21/2002-Cus.:
The revenue claimed that the concessional rate of 5% under Notification No. 21/2002-Cus. was not available to the appellants as the goods fell under Heading 39159029. This resulted in a short payment of Central Excise Duty by the appellants. However, the appellants argued that the goods should be classified under Chapter Heading 3901 to 3914 based on the Chemical Examiner reports. The Tribunal found that the goods being polyethylene in primary form were correctly classifiable under heading 3901, leading to the allowance of the appeals.

Imposition of Penalties under Section 11AC:
Penalties under Section 11AC were imposed on the appellants for short payment of Central Excise Duty. The penalties were imposed by the original adjudicating authority and later reduced by the first appellate authority. The Tribunal considered the arguments presented by the appellants regarding the classification of goods and the Chemical Examiner reports. Based on the findings, the Tribunal set aside the impugned order and allowed the appeals, indicating a lack of merit in the penalties imposed.

Conflict between Chapter Note 3 and Chapter Notes 6 and 7:
The revenue relied on Chapter Note 3 of Chapter 39, which specified that goods produced by chemical synthesis fall under certain categories. However, Chapter Notes 6 and 7 indicated that waste, parings, and scrap of a single thermoplastic material transformed into primary forms should be classified under heading 3901 to 3914. The Tribunal resolved this conflict by referring to the General Notes to Chapter 39 in the HSN, which clarified that goods transformed into primary form from waste scrap are classifiable under heading 3901 to 3914. This clarification led to the setting aside of the impugned order and the allowance of the appeals.