1992 (9) TMI 204 - AT - Central Excise

Summary

Issues Involved:

1. Classification of Micro Porous Rubber Separators.
2. Applicability of extended period of limitation for duty demand.
3. Imposition of penalty under Rule 173Q(1) of the Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Classification of Micro Porous Rubber Separators:

The appellants claimed classification under Heading 8507.00 of the Central Excise Tariff Act, 1985, while the Department sought classification under Heading 4016.11. The appellants argued that separators, irrespective of their material, should be classified under Heading 8507.00, which specifically includes separators. They referenced Section Note 2(a) of Section XVI and Rule 3A of the Interpretative Rules, asserting that the separators should fall under Chapter sub-heading 8507.00. The Department issued a show cause notice alleging misdeclaration and suppression of facts to evade duty, proposing classification under Chapter sub-heading 4016.11, which attracts a 60% duty rate.

The Tribunal found that the adjudicating authority had relied on Note 1(a) to Section XVI to exclude separators from Heading 8507.00. However, it was noted that Heading 40.16 covers articles of vulcanised rubber not specified elsewhere, and since separators are specifically mentioned in Heading 85.07, they should be classified there. The Tribunal also considered Note 9 to Chapter 40, which states that items cut to rectangular shape remain classified under Heading 40.08, thus not excluded from Section XVI.

2. Applicability of Extended Period of Limitation for Duty Demand:

The Tribunal held that the extended period of limitation was not available to the Department. The appellants had been manufacturing M.R. Separators since 1957, and their classification lists had been approved under TI 68 (prior to 1986) and under Heading 85.07 subsequently. The Department had approved the classification under Heading 85.07 even in the face of a Chemical Examiner's report recommending classification as sheets of rubber. The Tribunal referenced the case of Collector of Central Excise v. Muzzaffarnagar Steels, which emphasized the duty of the Assistant Collector to conduct thorough inquiries before approving classification lists. The Tribunal concluded that the Department could not allege suppression and invoke the extended period on the ground that the appellants did not provide evidence of technical literature or compounding ingredients.

3. Imposition of Penalty under Rule 173Q(1) of the Central Excise Rules, 1944:

Given the Tribunal's finding that the demand for duty was barred by limitation and that the M.R. separators were correctly classified under Heading 85.07, the imposition of a penalty was also set aside. The Tribunal emphasized that the appellants had been under the bona fide belief that their classification was correct and had consistently filed classification lists accordingly.

Conclusion:

The Tribunal set aside the impugned order, holding that the M.R. separators are classifiable under Heading 85.07 of the CETA 1985, the demand for duty is barred by limitation, and the penalty imposed is also set aside. The appeal was allowed.