1996 (7) TMI 303 - AT - Central Excise

Issues Involved:
1. Misdeclaration of yarn composition and duty evasion.
2. Classification of "mill neps" under the Central Excise Tariff.
3. Marketability and excisability of mill neps.
4. Allegation of willful suppression of facts.
5. Applicability of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Misdeclaration of Yarn Composition and Duty Evasion:
The Collector of Central Excise confirmed a duty demand of Rs. 12,55,223.90 on the yarn cleared by the assessee, alleging misdeclaration of its composition under Section 11A read with 9(2) of the Central Excise Rules, 1944. The officers found 627.7 kgs of mill neps, which were seized under Section 110 of the Customs Act, 1962, as applicable to Central Excise. The Collector directed confiscation of mill neps and imposed a penalty of Rs. 50,000/- under Rule 173Q of the Central Excise Rules, 1944.

2. Classification of "Mill Neps" under the Central Excise Tariff:
The core issue was whether mill neps should be classified under sub-heading 5506.21 (yarn of artificial staple fibre) or sub-heading 5506.29. The Collector relied on the definition from Fair Child's Dictionary of Textiles, which described neps as small knots of tangled fibres. The Collector concluded that mill neps are impurities or short fibres and classified them under sub-heading 5606.29, rejecting the assessee's contention that mill neps are artificial staple fibres.

3. Marketability and Excisability of Mill Neps:
The Collector held that mill neps are marketable as they were used by the assessee in manufacturing fancy yarn, thus satisfying the test of marketability. The Collector noted that marketability does not require actual sale in the market but the capability of being sold. The assessee's use of dyed and grey neps in various yarn lots demonstrated their marketability.

4. Allegation of Willful Suppression of Facts:
The Collector rejected the assessee's argument of no willful suppression, stating that the classification list and gate passes did not disclose the blending of mill neps. The Collector concluded that the assessee intentionally suppressed facts to evade duty.

5. Applicability of the Extended Period of Limitation:
The Collector invoked the extended period of limitation under Section 11A, citing willful suppression. The assessee contended that the show cause notice issued on 28-6-1990 was time-barred for the period 1985-86 to April 1990. The Collector rejected this contention, stating that the suppression justified the extended period.

Judgment Analysis:
The Tribunal examined the definitions and characteristics of mill neps. It found that mill neps, being small knot-like aggregates of fibres, do not qualify as "textile material" under the Fair Child's Dictionary of Textiles. The Tribunal noted that mill neps are categorized separately from textile materials in the HSN Explanatory Notes. Consequently, mill neps remain artificial staple fibres and do not fall under sub-heading 5606.29. The Tribunal accepted the assessee's contention that mill neps are covered under sub-heading 5506.21.

Conclusion on Limitation:
The Tribunal found merit in the assessee's plea of bona fide belief regarding classification, supported by the regular scrutiny of records by departmental officials. The Tribunal concluded that the extended period of limitation was not applicable, as the department had knowledge of the use of mill neps. The impugned order was set aside, and the appeal was allowed.

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