1993 (10) TMI 168 - AT - Central Excise

Issues Involved:
1. Irregular availment of MODVAT credit.
2. Demand for differential duty on misclassified goods.
3. Demand for duty on Orange Oil and Lemon Oil.
4. Imposition of penalty.

Detailed Analysis:

1. Irregular Availment of MODVAT Credit:
The appellants contended that the Collector erred in finding the MODVAT credit availed by them as irregular due to a mere technical breach in the declaration filed under Rule 57G. They argued that the inputs in question, falling under Chapters 29 and 33, were covered by Notification No. 177/86 and were received under duty-paying documents. The duty-paid inputs were used in the manufacture of the declared final products, thereby complying with the MODVAT scheme. The Tribunal agreed with the appellants, noting that "Flavouring Essences" and "Iso Propyl Alcohol" were specifically mentioned in the declaration. It was held that there was substantial compliance with the MODVAT scheme, and the incorrect classification of inputs was only a technical breach. The Tribunal cited the case of Eagle Spring Industries v. Collector of Central Excise and Customs, which held that MODVAT credit should not be denied when the declaration gives a detailed description of the inputs and tariff headings as per the manufacturer's understanding. Therefore, the Collector's order confirming the demand of Rs. 2,66,995.72 and reversing the credit amounting to Rs. 32,492.18 was found unsustainable.

2. Demand for Differential Duty on Misclassified Goods:
The Collector had confirmed a demand of Rs. 3,69,121.50 on the grounds that the appellants misclassified certain items used in the food and beverage industry as "Organic Chemicals" under Chapter 29 instead of Heading 3302.10. The appellants argued that they had given a full and complete description of the goods in the relevant classification lists 2/86 and 3/86, which were duly approved. They contended that in the absence of suppression or misstatement, the demand for differential duty for the period beyond six months was time-barred under Section 11A of the Act. The Tribunal found that the appellants had provided detailed and correct descriptions of the goods in the lists attached to the classification lists, which were approved by the concerned officer. Citing the Supreme Court case of Collector of Central Excise v. Chemphar Drugs and Liniments, the Tribunal held that the demand for differential duty was time-barred as there was no suppression of facts. Therefore, the demand of Rs. 3,69,121.50 was found to be time-barred.

3. Demand for Duty on Orange Oil and Lemon Oil:
The Collector confirmed demands of Rs. 64,866/- and Rs. 61,754.61 for the periods 28-2-1986 to 19-7-1986 and 1-10-1983 to 27-2-1986, respectively, on the grounds that the appellants cleared "Orange Oil" and "Lemon Oil" without filing any classification list or price list and failed to discharge the duty liability. The appellants argued that they acted under the bona fide belief that these products were chargeable only to Cess and not Central Excise Duty. They also contended that they declared these products in Column 5 of the Classification Lists 2/86 and 3/86. The Tribunal agreed with the appellants, noting that they had failed to file proper classification lists and price lists due to a bona fide belief. Citing the Supreme Court case of Padmini Products v. Collector of C. Excise, the Tribunal held that mere failure or negligence does not attract extended limitation. Therefore, the demand for duty for the period beyond six months was time-barred. The Tribunal held that duty shall be recoverable only for the period within six months from the date of the show cause notice.

4. Imposition of Penalty:
The Collector had imposed a penalty of Rs. 1,00,000/- on the appellants. Given the overall facts and circumstances and the Tribunal's findings, the penalty was reduced from Rs. 1,00,000/- to Rs. 10,000/-.

Conclusion:
The appeal was disposed of with the following terms:
- The demand of Rs. 2,66,995.72 and reversal of credit amounting to Rs. 32,492.18 were set aside.
- The demand for differential duty amounting to Rs. 3,69,121.50 was found time-barred.
- Duty on Orange Oil and Lemon Oil was recoverable only for the period within six months from the date of the show cause notice.
- The penalty was reduced to Rs. 10,000/-.

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