1994 (11) TMI 272 - AT - Central Excise

Issues Involved:
1. Classification of Blended Yarn under the Central Excise Tariff Act, 1985.
2. Validity of the test reports and the method of averaging the results.
3. Alleged mis-declaration by the appellants.
4. Applicability of the extended period for demanding duty under Section 11A of the Central Excises & Salt Act, 1944.
5. Imposition of penalty on the appellants.

Detailed Analysis:

1. Classification of Blended Yarn:
The primary issue was whether the Blended Yarn manufactured by the appellants should be classified under sub-heading 5504.22 or 5504.29 of the Central Excise Tariff Act, 1985. The appellants argued that the average polyester content was less than 70%, which would classify the yarn under sub-heading 5504.22. However, the Department contended that the average polyester content was more than 70%, justifying classification under sub-heading 5504.29.

2. Validity of Test Reports and Averaging Method:
The Central Excise Officers initially tested the yarn and found it to contain 76.2% polyester. The appellants requested a re-test, which resulted in two additional reports showing 70% and 66.8% polyester content, respectively. The Tribunal noted that the original test report was not discarded and directed a re-test by a higher authority. The Chief Chemist's re-test showed varying results, and the Department argued that the average of all three reports should be considered. The Tribunal agreed, stating that the average polyester content was more than 70%, thus supporting classification under sub-heading 5504.29.

3. Alleged Mis-declaration:
The Department accused the appellants of mis-declaring the yarn's composition to evade higher duties. The appellants had declared the yarn as containing less than 70% polyester in their classification lists, which were initially approved. However, the Tribunal found no substantial evidence that the yarn was made from waste materials, as claimed by the appellants.

4. Applicability of Extended Period for Demanding Duty:
The Tribunal considered whether the extended period under Section 11A of the Central Excises & Salt Act, 1944, could be invoked. The Department argued that the appellants had mis-declared the yarn's composition, justifying the extended period. However, the Tribunal found some merit in the appellants' argument that the variation in test reports indicated no intentional suppression of facts. The Tribunal referred to the Supreme Court's observation that both fraud and intent to evade duty must be evident to invoke the extended period. Given the variations in test reports, the Tribunal concluded that the demand beyond six months was time-barred.

5. Imposition of Penalty:
The Tribunal set aside the penalty imposed on the appellants, considering the variations in test reports and the lack of clear evidence of intentional mis-declaration. The Tribunal extended the benefit of doubt to the appellants, restricting the demand to six months and setting aside the penalty.

Separate Judgments:
Majority Opinion:
The majority opinion, including the views of Member (Judicial) and Member (Technical), concluded that the demand beyond six months was time-barred and the penalty should be set aside. They agreed that the average polyester content justified classification under sub-heading 5504.29 but found no substantial evidence of intentional mis-declaration to invoke the extended period for demanding duty.

Vice President's Opinion:
The Vice President disagreed, holding that the appellants had mis-declared the yarn's composition and that the extended period under Section 11A was justified. The Vice President upheld the differential duty demand and the penalty imposed on the appellants.

Final Order:
In view of the majority opinion, the Tribunal extended the benefit of doubt to the appellants, holding that the demand beyond six months was barred by time and setting aside the penalty. The appeal was disposed of accordingly.

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