2024 (7) TMI 103 - AT - Central Excise

Classification of Goods - mixture of Melamine Formaldehyde Resin and Cardanol Phenolic Formaldehyde used as Adhesive/Glue/Resin for the manufacture of final product - classifiable under Chapter 35-06 as claimed by the appellant or under Chapter 39-09 as alleged by the Department? - time limitation. Classification of Goods - HELD THAT - This issue is no more res integra and has been settled by various decisions of the Tribunal wherein the Tribunal has consistently held that the mixture of items used as adhesive/glue/resins for the manufacture of laminates is held to be classifiable under Chapter heading 35-06. This issue has been examined and considered in various decisions relied upon by the appellant, reliance can be placed in VIRGO INDUSTRIES, WOOD STOCK LAMINATES PVT LTD, PUNJAB LAMINATES PVT LTD VERSUS COMMISSIONER OF C.E., CHANDIGARH-I 2019 (12) TMI 714 - CESTAT CHANDIGARH wherein the identical issue was involved and the Tribunal has held that the mixture of aforesaid items used as Glue/Resin/Adhesive in the manufacture of laminates are classifiable under chapter heading 35-06. It is found that no market inquiry was conducted with reference to the goods in question in order to establish as to whether the mixture is capable of being bought and sold. Further, the Revenue has not been able to establish in the case that the appellant has been either purchasing or selling the main items in the market. The Marketability of the product is an essential ingredients and criteria to hold that a product is dutiable/excisable and thus onus is on the Revenue to prove that the product is marketable or captatively being consumed. Time Limitation - HELD THAT - Thus, substantial demand upto December, 2010 is beyond limitation specially the fact of used of Melamine Formaldehyde was already in the knowledge or Department on 24.11.2006 the show cause notice was issued after the expiry of normal period of limitation when all the facts were in the knowledge of Department in 2006, the declaration was filed on 24.011.2006 containing the details of finished goods as well as raw materials including Melamine Formaldehyde Phenol etc., as well as verification of units in the year 2006 itself - the substantial part of the demand upto December, 2010 is barred by limitation. The impugned order is not sustainable in law - Appeal allowed.

Summary

Issues Involved:
1. Classification of Mixtures: Whether the mixture of Melamine Formaldehyde Resin (MFR) and Cardanol Phenolic Formaldehyde Resin (CPFR) used as Adhesive/Glue in the manufacture of laminates should be classified under Chapter 35-06 or Chapter 39-09 of the Central Excise Tariff.
2. Applicability of Exemption Notification: Whether the appellants are eligible for duty exemption under Notification No. 50/03-CE.
3. Limitation Period: Whether the demands raised by invoking the extended period of limitation under Section 11A of the Central Excise Act are justified.
4. Violation of Natural Justice: Whether the impugned order violated principles of natural justice by not providing the test report and denying cross-examination of witnesses.

Detailed Analysis:

1. Classification of Mixtures:
The primary issue is the classification of the mixture of Melamine Formaldehyde Resin (MFR) and Cardanol Phenolic Formaldehyde Resin (CPFR). The appellant contends that these mixtures should be classified under Chapter 35-06 as adhesives/glues, while the Department argues they fall under Chapter 39-09 as plastic resins. The Tribunal has consistently held in various decisions, including Virgo Industries v. CCE (2020), Shirdi Industries Ltd v. CCE (2018), and Balaji Action Buildwell v. CCE (2016), that such mixtures used as adhesives/glues in the manufacture of laminates are classifiable under Chapter 35-06. The Tribunal noted that the Department has accepted this classification in previous cases and has not filed appeals against these decisions, thereby attaining finality.

2. Applicability of Exemption Notification:
The appellants were availing full duty exemption under Notification No. 50/03-CE, which excludes goods specified in Annexure-I (Negative List). The Department argued that MFR and CPFR fall under the Negative List and are not eligible for exemption. However, the Tribunal referenced several decisions where it was held that these mixtures, used as adhesives/glues, do not fall under the Negative List and are thus eligible for exemption. The Tribunal also noted that the Department's failure to appeal against previous decisions on this issue signifies acceptance of this classification.

3. Limitation Period:
The Tribunal found that the major part of the demand, up to December 2010, is barred by limitation. The fact of using Melamine and Formaldehyde was already known to the Department as of 24.11.2006. The show cause notice was issued after the normal limitation period had expired, and the Department had not raised any objections during the verification of the unit in 2006. The Tribunal cited various Supreme Court decisions, including Tamil Nadu Housing Board v. CCE (1994) and Pushpam Pharmaceutical Co. v. CCE (1995), which held that there is no suppression when activities are duly reflected in records and intimated to the Department.

4. Violation of Natural Justice:
The Tribunal found that the impugned order violated principles of natural justice. The appellant was not provided with the test report and was denied the opportunity to cross-examine witnesses whose statements were relied upon in the show cause notices. The Tribunal emphasized that such procedural lapses invalidate the order, as per the principles laid down in CBEC Circular No. 464/30/99-CX and the Supreme Court's decision in Moti Laminates Pvt. Ltd. v. CCE (1995).

Conclusion:
The Tribunal set aside the impugned order, holding that the mixtures of MFR and CPFR are classifiable under Chapter 35-06, making them eligible for exemption under Notification No. 50/03-CE. The demands raised by invoking the extended period of limitation were found to be unjustified, and the order was deemed violative of natural justice principles. The appeal was allowed with consequential relief as per law.