2024 (8) TMI 259 - AT - Central Excise

Classification of goods - gear for Rotary Tiller and Parts of Rotary Tiller - to be classified under central excise sub heading 82349090 or under heading no. 848340000? - demand barred by time limitation or not - entitlement to cenvat credit of duty paid on the material used in the manufacture of aforesaid final product. HELD THAT - It is observed that Learned Commissioner (Appeals) has cited the fact that other manufacturers of the identical goods were also classifying the gears under CETH 84329090 as per para 23.11 of Order-In-Original. Therefore, this is one of the reason that the appellant had a bona fide belief about the classification which is of no fault in the said finding. It is further found that various courts have taken a consistent view that when there is dispute of classification, the malafide intention cannot be attributed to the assesse and it cannot be said that the assesse has intention to evade payment of duty. In the present case, the respondent has recorded all the transactions in question in their books of account, therefore, it cannot be assumed that the respondent can suppress the fact. Moreover, the respondent was entitled for the cenvat credit of inputs used for the manufacture of their final product which amounts to substantial reduction of the duty liability on the final product. It is also observed that undisputedly manufactured goods i.e. gears are used in the agricultural equipment, therefore, the bonafide belief of the respondent that it is correctly classifiable as parts of rotary tiller cannot be doubted - there is no suppression of fact or malafide intention on the part of the respondent for mis- classification of the goods i.e. gears and accordingly, the demand was rightly set aside on the ground of time bar. The classification of goods particularly in the facts of the present case is highly debatable in as much as the manufactured goods meant for agricultural equipment in a common sense can be classified as parts of agricultural equipment under CETH 84329090 but as per the strict interpretation of interpretative rule for classification the goods may be classifiable under 84834000 - since admittedly the issue of classification in the present case involved serious interpretation, this is also a reason that there is no mala fide intention on the part of the respondent to evade excise duty as there was no suppression of fact. In various judgments it is settled that in case of interpretation of classification of goods, the extended period of limitation shall not apply and demand will not sustain on the ground of time bar - reliance placed in the case of M/S SHAH FOILS LTD., SHRI KARTIK RAMESH SHAH, SUNCITY SHEETS PVT LTD, MUKESH AGARWAL VERSUS C.C. MUNDRA 2024 (5) TMI 336 - CESTAT AHMEDABAD where it was held that 'In these facts, since no suppression of fact is there and the show cause notice was issued beyond two years from the import, the entire demand is time barred. In this regard, the judgments cited by the appellant support their case on limitation also.' The order of the Learned Commissioner (Appeals) setting aside the demand on time bar does not suffer from infirmity. Hence, the finding of the Commissioner (Appeals) agreed on the aspect of time bar. Since we decided the matter on time bar, no conclusive finding given on the merit of the case. The setting aside of the demand ordered by the Commissioner (Appeals) upheld - the Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Classification of gear for Rotary Tiller and its parts.
2. Whether the demand is barred by limitation.
3. Entitlement to CENVAT credit on duty paid materials used in manufacturing the final product.

Detailed Analysis:

1. Classification of Gear for Rotary Tiller and Its Parts:
The primary issue is whether the gear for Rotary Tiller and its parts should be classified under central excise sub-heading 82349090 or 848340000. The Revenue argued that the gear was correctly classifiable under heading 848340000, making it liable for excise duty. The respondent contended that the gear, being solely and principally used for Rotary Tiller (an agricultural equipment), was correctly classified under heading 82349090, which attracts a nil rate of duty. The Tribunal observed that the classification of goods, particularly in this case, was highly debatable, involving serious interpretation. They noted that the manufactured goods, being used in agricultural equipment, could be classified under CETH 84329090, but strict interpretative rules might classify them under 84834000.

2. Whether the Demand is Barred by Limitation:
The Tribunal focused on whether the demand was barred by limitation. The Revenue argued that the respondent suppressed facts by not declaring the goods and their classification correctly, making the extended period of limitation applicable. The respondent maintained that all transactions were recorded in their books of account and they held a bona fide belief in the correct classification, thus no suppression of facts or malafide intention was involved. The Tribunal upheld the Commissioner (Appeals) finding that the demand was patently barred by time. They cited instances where other manufacturers classified similar goods under CETH 84329090 and noted the Department had unconditionally lifted the seizure of goods, indicating no evasion of duty. The Tribunal referenced multiple judgments supporting the view that in cases of classification disputes, malafide intention cannot be attributed, and the extended period of limitation does not apply.

3. Entitlement to CENVAT Credit:
The Tribunal noted that the respondent was entitled to CENVAT credit for inputs used in manufacturing the final product, which significantly reduced the duty liability. This entitlement further supported the respondent's bona fide belief in the correct classification and negated any suppression of facts or malafide intention to evade duty.

Conclusion:
The Tribunal concluded that the demand was rightly set aside on the ground of time bar, without delving into the merits of the classification issue. They upheld the Commissioner (Appeals) order, finding no infirmity in the decision to set aside the demand based on limitation. Consequently, the Revenue's appeal was dismissed.

Pronouncement:
The judgment was pronounced in the open court on 25.07.2024.