1997 (10) TMI 151 - AT - Central Excise

Summary

Issues:
1. Classification of steel cops under Central Excise rules.
2. Applicability of exemption notification.
3. Limitation period for issuing the show cause notice.
4. Sale of steel cops by the appellants.
5. Valuation of steel cops.
6. Modvat credit eligibility.
7. Quantum of redemption fine and penalty.

Classification of Steel Cops:
The appellants contested the duty demand on steel cops, arguing that fitting adaptors to steel tubes does not constitute manufacture and that the cops are not covered under the relevant classification. However, the Tribunal upheld the duty demand, emphasizing that the process transformed the steel tubes into steel cops with a new name, character, and use. The steel cops were deemed excisable goods under sub-heading 7308.90, distinct from tubes, and not exempted under Chapters 84 or 85.

Applicability of Exemption Notification:
The appellants claimed exemption under Notification 281/86, contending that the steel cops were manufactured for machine maintenance. The Tribunal rejected this argument, ruling that the cops were designed for winding yarn, not machine maintenance. The notification did not apply as the cops were not essential for machine upkeep.

Limitation Period for Show Cause Notice:
Regarding the limitation period, the Department invoked the extended period due to alleged suppression by the appellants. The Tribunal found that the Department lacked prior knowledge of the appellants manufacturing cops from steel tubes, rejecting the appellants' claim of bona fide belief. The demand was deemed not time-barred.

Sale of Steel Cops:
The appellants' assertion that they never sold steel cops but received them back from yarn buyers was deemed irrelevant. The duty liability arose upon manufacture, irrespective of subsequent transactions. The demand for duty was upheld.

Valuation of Steel Cops:
The valuation of Rs. 10 per cop was upheld, as supported by documentary evidence, despite the appellants' claim that it was a security deposit. The Department's valuation was deemed correct in the absence of contrary evidence.

Modvat Credit Eligibility:
The Tribunal directed authorities to consider granting Modvat credit for duty paid on imported steel cops if found eligible, rejecting the argument that non-filing of declaration under Rule 57A should bar credit when the excisability of the product was in dispute.

Quantum of Redemption Fine and Penalty:
The redemption fine was reduced to Rs. 25,000, and the penalty reduced to Rs. 2.5 lakhs considering the value of the seized goods. The appeal was disposed of accordingly, with the Department's cross-objections abating.