1997 (7) TMI 229 - AT - Central Excise

Summary

Issues: Classification dispute, imposition of penalty

Classification Dispute:
The case involved a dispute over the classification of the appellants' product, which was initially considered under Heading 4823.90. However, a Circular issued by the Board clarified the classification under Heading 48.20, making the product eligible for exemption under Notification 43/86. The main issue was whether the appellants were liable for penalty despite the classification dispute being settled. The Department argued that the appellants should have followed Central Excise procedures regardless of the classification dispute. The appellants contended that they were not engaged in manufacturing but in processing paper into computer stationery. The Additional Collector's order acknowledged doubt on both sides regarding classification, leading to the imposition of a penalty. The Board's withdrawal of a previous Circular and issuance of a new one further complicated the classification issue.

Imposition of Penalty:
The question of whether the appellants were liable for a penalty hinged on the absence of mens rea and intention to evade duty payment. The appellants argued that since there was no obligation to pay duty and no mens rea was present, the penalty was unjustified. The Tribunal noted that both sides had doubts regarding the classification during the relevant period, and the appellants had given up their excisability challenge. Considering the absence of mens rea and the resolution of the classification dispute under Heading 48.20, the Tribunal found no justification for imposing a penalty. The Additional Collector's acknowledgment of the absence of mens rea led the Tribunal to set aside both the demand and the penalty, upholding the classification under Heading 48.20 and extending the benefit of the exemption notification.

In conclusion, the Tribunal resolved the classification dispute in favor of the appellants under Heading 48.20, citing the Board's Circular and the exemption notification. The imposition of a penalty was deemed unwarranted due to the absence of mens rea and doubt on both sides regarding classification during the relevant period. The Tribunal set aside both the demand and the penalty, ultimately accepting the appeal.