1985 (8) TMI 240 - AT - Central Excise

Issues Involved:
1. Classification of fibre drums under Central Excise Tariff Item 17(4) or Item 68.
2. Validity of changing an approved classification.
3. Retrospective effect of classification changes.
4. Limitation period for raising demand of duty.

Issue-wise Detailed Analysis:

1. Classification of Fibre Drums:

The primary issue revolves around the correct classification of fibre drums manufactured by the respondents. Initially, these drums were classified under Tariff Item 68. However, post the 1982 budget, the respondents claimed classification under the new Tariff Item 17(4), which was approved on 29th March 1982. Subsequently, the department reconsidered and felt the correct classification should be under Tariff Item 68, leading to a demand for duty based on this classification.

The appellants argued that the product is a composite article, not exclusively made of paper, and thus should not be classified under Tariff Item 17(4), which pertains to articles of paper and paperboard. They cited several case laws, including the CEGAT decision in the case of M/s. Indian Textile Paper Tube Company Ltd., which was upheld by the Supreme Court, to support their stance that composite products with significant non-paper components should not be classified under Item 17(4).

The respondents countered that fibre drums are commercially known as articles of paper, emphasizing the trade understanding and common parlance criteria. They provided evidence, including trade notices and certificates from industry associations, to support their claim that fibre drums are recognized as paper products in trade circles.

2. Validity of Changing an Approved Classification:

The respondents argued that an approved classification cannot be changed without new facts, changes in law, or tariff modifications. The appellants, however, pointed out that there is no estoppel in the matter of classification, and the department can re-determine the correct classification provided the proceedings are initiated lawfully and the assessee is given due opportunity to present their case.

The Tribunal referenced the decision in the case of M/s. Indian Textile Paper Tube Co. Ltd., where it was held that the department could reconsider and re-determine the classification of goods if done in accordance with the law.

3. Retrospective Effect of Classification Changes:

The respondents contended that any change in classification should not have retrospective effect. They cited decisions, including the Government of India's revision case relating to Naveen Industries and the CEGAT decision in the case of M/s. Entremonde Polycoaters Pvt. Ltd., to support their argument that modifications in the classification list or revocation of approval should only be prospective.

The Tribunal agreed that while modifications in classification should be prospective, there is no bar to raising demands within the limitation period provided in Rule 10 of the Central Excise Rules 1944.

4. Limitation Period for Raising Demand of Duty:

The Tribunal noted that the show cause notice was issued on 26th June 1982, with the demand period starting from 28th February 1982. The respondents were notified about the proposed change in classification through a letter dated 14th April 1982. Given these facts, the Tribunal held that the demand for duty was not barred by limitation.

Conclusion:

The Tribunal concluded that the fibre drums should be classified under Tariff Item 68, concurring with the decision in the case of M/s. Indian Textile Paper Tube Co. Ltd. The order of the Collector of Central Excise (Appeals), Bombay, was set aside, and the appeal was allowed. The Tribunal also clarified that while the change in classification should be prospective, the demand for duty within the limitation period was valid.

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