1993 (6) TMI 173 - AT - Central Excise

Issues Involved:
1. Liability to pay duty under Rule 9(2) of Central Excise Rules, 1944.
2. Imposition of personal penalty under Rule 173Q of Central Excise Rules, 1944.
3. Classification of the manufactured goods under Central Excise Tariff.
4. Allegation of clandestine removal and violation of Rule 9(1) of Central Excise Rules, 1944.
5. Applicability of the extended period for demand under Rule 9(1) of Central Excise Rules, 1944.
6. Eligibility for exemption under Notification No. 105/80, dated 19-6-1980.
7. Bona fide belief and intention to evade duty.

Detailed Analysis:

1. Liability to Pay Duty under Rule 9(2):
The appellants were held liable to pay a duty of Rs. 3,20,695.98 on 883.400 m.t. of channels manufactured and cleared during the period from 1-8-1980 to 31-7-1981 without obtaining the necessary Central Excise L4 licence, approved classification list, gate-pass, and payment of Central Excise Duty (CED). The goods were manufactured using flat iron heated in a muffle furnace and processed through rolling mills, resulting in straight lengths of 't' shaped channels.

2. Imposition of Personal Penalty under Rule 173Q:
A personal penalty of Rs. 50,000 was imposed under Rule 173Q for contraventions of various provisions of Central Excise Rules, 1944. The appellants contested this penalty, arguing that there was no clandestine removal and hence no violation of Rule 9(1). They relied on the ruling in Hindustan Steel Co. Ltd. v. State of Orissa, AIR 1977 SC 252, to support their plea against the imposition of the penalty.

3. Classification of the Manufactured Goods:
The appellants contended that the goods were not channels but were Tonga and Rehri wheel rubber holders falling under sub-item (ia) of Item 26AA. They argued that the process of bending flat iron did not result in a new product and hence did not amount to manufacture under Section 52(f) of the Central Excises & Salt Act, 1944. The Collector, however, held that the goods were iron channels falling under Item 26AA(ia) and liable to duty. The Tribunal, after considering the definitions and trade understanding, concluded that the goods were not channels as they did not meet the specifications and were not known in trade as such. The goods were classified as articles of iron falling under T.I. 68.

4. Allegation of Clandestine Removal and Violation of Rule 9(1):
The appellants argued that there was no clandestine removal as the goods were manufactured openly, and the department was aware of their activities. They had surrendered their licence when their clearances fell below Rs. 15 lakhs and had been clearing goods under GP claiming exemption. The Tribunal found that the department had knowledge of the appellant's activities and hence there was no clandestine removal.

5. Applicability of Extended Period for Demand:
The Collector had rejected the plea of time bar, stating that the benefit of wrongly approved classification in respect of another unit did not prove the department's knowledge of similar goods being manufactured in the appellant's other unit. The Tribunal, however, held that the extended period under Rule 9(1) was not applicable as the department was aware of the appellant's activities, and there was no clandestine removal.

6. Eligibility for Exemption under Notification No. 105/80:
The appellants claimed exemption from duty under Notification No. 105/80, arguing that the goods were not channels but were articles of iron falling under T.I. 68. The Tribunal accepted this contention, holding that the goods were not channels and were eligible for exemption.

7. Bona Fide Belief and Intention to Evade Duty:
The appellants argued that they had a bona fide belief that the goods fell under T.I. 68 and there was no intention to evade duty. The Tribunal found that the appellants had been manufacturing these items since 1949 and had been paying duty at one time or another. The department's acceptance of the return of the licence without proper verification indicated that there was no intention to evade duty.

Conclusion:
The Tribunal set aside the impugned order, holding that the goods were not channels but articles of iron falling under T.I. 68, and there was no clandestine removal. The appeal was allowed, and the duty demand and penalty were set aside.

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