1997 (5) TMI 206 - AT - Central Excise

Issues Involved:
1. Contravention of Rule 9(2) of Central Excise Rules, 1944.
2. Applicability of Notification No. 217/86-C.E. and Notification No. 221/86-C.E.
3. Alleged willful suppression of facts by the assessee.
4. Eligibility for Modvat credit.
5. Validity of extended period for demand and imposition of penalty.

Issue-wise Detailed Analysis:

1. Contravention of Rule 9(2) of Central Excise Rules, 1944:
The Collector of Central Excise, Hyderabad, held that the assessee had contravened Rule 9(2) of the Central Excise Rules, 1944, making them liable to pay duty of Rs. 4,02,142.81 and a penalty of Rs. 50,000/-. The assessee was found to be manufacturing ceramic products (wash basins, urinals, pans) under Chapter sub-heading 6908.10 and plaster of paris moulds under Chapter sub-heading 6807.00. The assessee had filed a classification list for ceramic products but not for plaster of paris moulds, which were used within the factory for manufacturing ceramic products.

2. Applicability of Notification No. 217/86-C.E. and Notification No. 221/86-C.E.:
The Collector argued that Notification No. 217/86-C.E. did not apply to the plaster of paris moulds as they were considered apparatus/equipment used for shaping sanitaryware and remained unchanged during the process. However, the assessee contended that these moulds were exempt under Notification No. 221/86-C.E. when used within the factory for manufacturing ceramic products. The Tribunal in Hindustan Sanitaryware & Industries Ltd. v. Collector of Central Excise had previously held that plaster of paris moulds used in the manufacture of ceramic products were exempt under Notification No. 221/86-C.E. and that the first proviso to Notification No. 217/86-C.E. would apply only if the moulds were cleared from the factory as final products.

3. Alleged Willful Suppression of Facts by the Assessee:
The assessee denied any willful suppression of facts, stating they had submitted all necessary documents, including ground plans and process details, to the department. They argued that the omission in the classification list was based on a bona fide belief that plaster of paris moulds were not goods subject to duty. The Tribunal found merit in the assessee's argument, noting that the department had been informed about the manufacturing process and the use of moulds. The Tribunal concluded that there was no deliberate suppression of facts or intention to evade duty.

4. Eligibility for Modvat Credit:
The Collector rejected the assessee's claim for Modvat credit on the grounds that the moulds were not considered inputs for the manufacture of the final product. The Tribunal, however, referred to its previous ruling in Hindustan Sanitaryware & Industries Ltd., which recognized plaster of paris moulds as inputs for the manufacture of ceramic products, thereby entitling the assessee to Modvat credit. The Tribunal directed the Collector to reconsider the claim for Modvat credit for the normal period of six months prior to the date of the show cause notice.

5. Validity of Extended Period for Demand and Imposition of Penalty:
The Tribunal noted that the show cause notice was issued on 15-7-1988, and the Collector confirmed the duty for the periods 1-3-1986 to 23-4-1986 and 1-3-1987 to 31-3-1988. The Tribunal held that demands for the period from 1-3-1986 to 23-4-1986 were time-barred, and only demands within six months prior to 15-7-1988 were valid. Consequently, the Tribunal set aside the extended period for demand and the imposition of penalty, remanding the matter to the Collector for de novo consideration for the normal period.

Conclusion:
The Tribunal allowed the appeal by remanding the case for de novo consideration, setting aside the demands raised for the extended period and the penalty imposed. The Tribunal directed the Collector to reconsider the eligibility for Modvat credit for the normal period of six months prior to the date of the show cause notice, in light of the observations made in the judgment.

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