1988 (11) TMI 271 - AT - Central Excise

Summary

Issues Involved:
1. Classification of bimetallic strips under Tariff Item 68.
2. Demand for duty under Rule 9(2) read with Section 11A of the Central Excises & Salt Act, 1944.
3. Imposition of penalty under Rule 173Q of the Central Excise Rules.

Detailed Analysis:

1. Classification of Bimetallic Strips under Tariff Item 68:
The appellants contested the classification of bimetallic strips under Tariff Item 68 of the Central Excise Tariff. However, during the appeal, they specifically confined their submissions to the charge of suppression of manufacture and clandestine clearances, and did not press the issue of excisability and classification of the goods. The Collector had classified the goods under Tariff Item 68 and demanded duty accordingly.

2. Demand for Duty under Rule 9(2) read with Section 11A:
The primary issue was whether there was suppression of fact with intent to evade payment of duty, justifying the invocation of the extended time limit of five years for demanding duty under Section 11A. The appellants argued that there was no suppression as the Department had knowledge of the manufacturing activity. They highlighted that their units were located side by side, and the Department had inspected their units and called for their Balance Sheets, which mentioned bimetallic strips. The Department, however, contended that the appellants did not obtain a license for the bimetallic strip factory and did not inform the proper officer about their manufacturing activities.

The Tribunal found that the Department had ample opportunities to know about the manufacturing activities of the appellants. The appellants had provided detailed information about the manufacturing process and the use of bimetallic strips in their final products. The Tribunal noted that the Department's failure to pursue the information further did not justify the charge of suppression. The Tribunal also emphasized that the Department should have been aware of the manufacturing activities through extensive surveys and inspections, especially after the introduction of Item 68 in 1975.

3. Imposition of Penalty under Rule 173Q:
The imposition of a penalty was challenged on the grounds that there was no deliberate effort at clandestine production and removal. The appellants argued that their manufacturing activities were open and documented, and they had nothing to gain by evading duty as they would have been eligible for exemption under Notification No. 118/75. The Tribunal agreed with the appellants, stating that the breach of provisions was technical and not surreptitious. The Tribunal referred to the Supreme Court's decision in Hindustan Steel v. State of Orissa, which held that penalties should not be imposed for technical or venial breaches or when there is a bona fide belief that the offender is not liable to action.

Conclusion:
The Tribunal concluded that the demand for duty under the extended period was not sustainable as there was no suppression of facts or clandestine removal of goods. The penalty imposed on the appellants was also unjustified. The appeal was allowed, setting aside the demand for duty and the penalty.