1995 (1) TMI 193 - AT - Central Excise

Summary

Issues Involved:
1. Classification of Taspa Yarn under the new Central Excise Tariff effective from 1-3-1986.
2. Invocation of the extended period beyond six months under the proviso to Section 11A of the Central Excises and Salt Act, 1944.
3. Imposition of penalty under Rule 173Q(1)(a), (b), and (c) of CE Rules, 1944.

Issue-Wise Detailed Analysis:

1. Classification of Taspa Yarn:
The primary dispute was whether Taspa Yarn should be classified under Chapter Heading 56.06 (as held by the department) or under Chapter Heading 5403.20 (as claimed by the appellants). The appellants argued that Taspa Yarn was a textured filament yarn and should fall under Chapter 54, specifically under Heading 5403.20. They cited various certificates from research institutions (MANTRA and SASMIRA) and affidavits from experts, asserting that Taspa Yarn did not have a core and thus could not be classified as special yarn under Heading 56.06. The department, however, pointed out that Taspa Yarn consisted of two yarns moving at different speeds, creating deliberate irregularities, and thus qualified as a special yarn. The Tribunal observed that the characteristics of special yarn include deliberately produced irregularities and that Taspa Yarn met these criteria. Consequently, the Tribunal held that Taspa Yarn is a special yarn classifiable under Chapter Heading 56.06.

2. Invocation of Extended Period Beyond Six Months:
The appellants contended that the demand beyond six months was barred by limitation, arguing that there was no suppression or willful misstatement of facts. They referenced previous classification lists approved by the department and claimed that the nature of the yarn remained unchanged. The department argued that the appellants failed to file a revised classification list when the new Central Excise Tariff was introduced on 1-3-1986, which constituted suppression of facts. The Tribunal found that the appellants did not submit the revised classification list or claim exemption under the new notification, indicating an intention to evade payment of duty. Therefore, the Tribunal upheld the invocation of the extended period under the proviso to Section 11A of the Central Excises and Salt Act, 1944.

3. Imposition of Penalty:
The appellants argued against the imposition of a penalty, asserting that they had a bona fide belief that Taspa Yarn was exempt under the new tariff, just as it was under the old tariff. They cited various case laws to support their contention that no penalty should be imposed in the absence of mens rea. The department argued that the appellants' failure to submit a revised classification list and claim exemption indicated a deliberate intention to evade duty. The Tribunal agreed with the department, noting that the appellants' actions demonstrated mens rea. However, considering that Taspa Yarn was previously exempt from duty and continued to be exempt as textured filament yarn after 1-3-1986, the Tribunal found the penalty amount to be excessive. Consequently, the penalty was reduced from Rs. 6,50,000 to Rs. 3,00,000.

Conclusion:
The Tribunal concluded that Taspa Yarn is classifiable under Central Excise Tariff Chapter Heading 56.06. The demand for duty amounting to Rs. 19,87,122.70 was confirmed, and the penalty was reduced to Rs. 3,00,000. The appeal was disposed of with these modifications.