2024 (9) TMI 455 - AT - Central Excise

Classification of HDP/ PP Bags - appellants pleaded that even if the product manufactured by them falls under Chapter 39, no duty is payable on goods which were supplied against H-Form - for CENVAT credit - cum- duty benefit - HELD THAT - The entry 3923 covers articles for conveyance or packing of goods; however, it is important to note that it does not talk about the process of manufacture of sacks; the impugned goods are manufactured by weaving; it is pertinent to note that HSN Explanatory Notes under Heading 3923 clarifies that the Heading excludes inter alia, household articles such as dustbins, and cups which are used as tableware or toilet articles and do not have the character of containers for the packing or conveyance of goods, whether or not sometimes used for such purposes (heading 39.24), containers of heading 42.02 and flexible intermediate bulk containers of heading 63.05. Hon ble High Court of Gujarat in latest judgment in the case of M/s CTM Technical Ltd. 2020 (12) TMI 1100 - GUJARAT HIGH COURT has gone into the issue in a detailed manner and has come to the conclusion that if the sacks/ bags are woven from plastic strips, they will be classifiable under Heading 6305. The impugned bags and sacks having been manufactured by weaving material derived from HDPE/ PP strips merits classification under Heading 6305 - even otherwise, without prejudice to the above classification, the appellants request for giving benefit of CENVAT credit, export and cum- duty is also acceptable - When the duty itself is held to be not chargeable, the question of interest and penalties does not arise and the same have to set aside. Appeal allowed.

Issues Involved:
1. Classification of HDPE/PP Bags.
2. Eligibility for CENVAT credit.
3. Eligibility for cum-duty benefit.
4. Eligibility for export benefit.
5. Imposition of penalties and interest.

Detailed Analysis:

1. Classification of HDPE/PP Bags:
The primary issue was whether the HDPE/PP Bags manufactured by the appellants should be classified under CETH 6305 3300 or CETH 3923 2990. The appellants argued that the bags should fall under CETH 6305 3300, which pertains to "Sacks and Bags of a kind used for the packing of goods" made of man-made textile materials. They cited the Hon'ble High Court of Punjab & Haryana's decision in M/s AR Plastics Pvt. Ltd. and the Supreme Court's decisions in Porrits and Spencer (Asia) Ltd. and Indo International Industries to support their claim that HDPE fabric is a textile.

The Department, however, classified the bags under CETH 3923 2990, arguing that they are articles for the conveyance or packing of goods made of plastics. The Adjudicating Authority based this classification on the fact that the bags were made from HDPE/PP granules, which are classified under Chapter 39.

The Tribunal found that the sacks are made out of HDPE/PP strips through a weaving process, thus qualifying them as textiles. The Tribunal referenced the Hon'ble Gujarat High Court's decision in M/s CTM Technical Ltd., which concluded that woven sacks/bags from plastic strips should be classified under Heading 6305. The Tribunal ruled in favor of the appellants, classifying the bags under Heading 6305.

2. Eligibility for CENVAT Credit:
The Adjudicating Authority denied the appellants' CENVAT credit claim of Rs.2,42,54,161/- on the grounds that the credit was taken beyond the one-year limitation period. The appellants argued that if the product is held liable to duty, the benefit of CENVAT credit cannot be denied, citing various judgments.

The Tribunal accepted the appellants' argument, noting that the appellants had maintained records and regularly filed VAT Returns. Therefore, the denial of CENVAT credit was unjustified.

3. Eligibility for Cum-Duty Benefit:
The appellants contended that the cum-duty benefit should be granted to them, referencing the Hon'ble Supreme Court's decision in Maruti Udyog Ltd. The Tribunal agreed with the appellants, stating that cum-duty benefit could not be denied.

4. Eligibility for Export Benefit:
The appellants claimed that they exported goods through merchant exporters against H-Form prescribed in the CST Act, 1956, and submitted VAT Returns and H-Forms to establish actual exports. The Tribunal found this argument valid and ruled that the benefit of export could not be denied.

5. Imposition of Penalties and Interest:
Given that the duty itself was held to be not chargeable, the Tribunal ruled that the imposition of penalties and interest was unjustified. Consequently, all penalties and interest were set aside.

Conclusion:
The Tribunal allowed all three appeals with consequential relief, if any, as per law. The HDPE/PP Bags were classified under Heading 6305, and the appellants were granted the benefits of CENVAT credit, cum-duty, and export. The penalties and interest imposed were set aside.

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