2009 (5) TMI 415 - AT - Central Excise

Notification No. 10/2003, dated 1.3.2003- Mosaic Tiles- The appellants are engaged in the manufacture of various tiles mosaic tiles chequered tiles, paving tiles, inter locking tiles etc. Mosaic tiles are exempted from payment of Central Excise duty. Only for a brief period from 1-3-2002 to 28-2-2003 they were subjected to a concessional rate of duty of 4%.A show cause notice dated 25-10-2005 was issued for the period 1-4-2001 to 31-10-2004 alleging that the appellants did not manufacture mosaic tiles and therefore they would not be entitled for the benefit of the exemption. Held that- absence of evidence purchase of stone chips by assessee was immaterial. Impugned order were, in commercial sense, mosaic tiles entitled to benefit of Notification No. 10/2003-C.E., even though they were used for external application.

Summary

Issues Involved:
1. Classification of products as mosaic tiles.
2. Eligibility for exemption under specific Central Excise notifications.
3. Use of mosaic chips in the manufacture of tiles.
4. Commercial parlance and market understanding of mosaic tiles.
5. Validity of the Chemical Examiner's report.
6. Statements from dealers and end users.
7. Invocation of the extended period of limitation.
8. Imposition of penalties under Section 11AC.

Detailed Analysis:

1. Classification of Products as Mosaic Tiles:
The core issue was whether the products (chequered tiles, paving tiles, interlocking tiles) manufactured by the appellants could be classified as mosaic tiles. The appellants argued that their products should be classified as mosaic tiles based on commercial parlance and previous judicial pronouncements. The Tribunal referred to several cases, including Empire Industries Ltd. v. CCE and Mridul Enterprises v. CCE, which emphasized the importance of commercial understanding in classifying products.

2. Eligibility for Exemption under Specific Central Excise Notifications:
The appellants sought exemption under Notification No. 10/2003 and its predecessors, which provided exemptions for tiles commercially known as mosaic tiles. The Tribunal noted that the description in the exemption notification specified "mosaic tile that is to say tiles known commercially as mosaic tiles." The Tribunal concluded that the products should be considered mosaic tiles if they were commercially recognized as such.

3. Use of Mosaic Chips in the Manufacture of Tiles:
The Department alleged that the appellants did not use mosaic chips in the manufacture of their tiles, except for brief periods. The appellants countered that they had used stone chips obtained by sieving stone dust. The Tribunal found that the Commissioner's conclusion-that the appellants did not use stone chips-was not based on sound evidence. The Tribunal emphasized that the absence of direct purchase records of stone chips did not conclusively prove their non-use.

4. Commercial Parlance and Market Understanding of Mosaic Tiles:
The Tribunal examined statements from dealers and end users. Initially, some dealers stated that the products were not known as mosaic tiles. However, when approached later, they confirmed that the products were known as mosaic tiles. The Tribunal emphasized the importance of commercial parlance, citing the Supreme Court's decision in Kedia Agglomerated Marbles Ltd., which highlighted the relevance of commercial understanding and the use of trade names.

5. Validity of the Chemical Examiner's Report:
The Chemical Examiner's report did not definitively state whether the tiles contained mosaic chips. The Tribunal found that the Commissioner's reliance on the report to conclude the absence of stone chips was unsustainable. The Tribunal noted that the question posed to the Chemical Examiner did not specifically address the presence of chips.

6. Statements from Dealers and End Users:
The Tribunal considered the statements from various dealers and end users. While some initially stated that the products were not known as mosaic tiles, subsequent statements confirmed their recognition as mosaic tiles. The Tribunal found that the Commissioner's rejection of these statements was not justified.

7. Invocation of the Extended Period of Limitation:
The show cause notice was issued on 25-10-2005 for the period from 1-3-2001 to 31-10-2004, invoking the extended period of limitation. The Tribunal found that the Department was aware of the appellants' activities, especially since the appellants had registered with the Central Excise authorities and filed returns during the period when the exemption was not available. The Tribunal concluded that the invocation of the extended period was not justified.

8. Imposition of Penalties under Section 11AC:
The Commissioner had imposed penalties equal to the duty demand under Section 11AC. The Tribunal found that since the demand itself was unsustainable, the imposition of penalties was also unwarranted.

Conclusion:
The Tribunal allowed the appeal, concluding that the appellants' products should be classified as mosaic tiles and were eligible for the exemption under the relevant notifications. The demand for differential duty was dropped, and the invocation of the extended period of limitation and the imposition of penalties were found to be unjustified.