1998 (10) TMI 219 - AT - Central Excise

Summary

Issues Involved:
1. Classification and determination of duty payable on 18 products.
2. Denial of benefit of Notification No. 18/89-C.E.
3. Validity of duty demand for different years.
4. Correct classification and eligibility for exemption under Notification 101/66.
5. Re-determination of duty on specific products.
6. Dispute over manufacturing versus trading of certain products.
7. Consideration of Modvat credit and imposition of fine and penalty.

Detailed Analysis:

1. Classification and Determination of Duty Payable on 18 Products:
The primary issue in the first three appeals is the classification and determination of duty payable on 18 products, including Amino based silicon and silicon-based lacquer emulsion. The fourth appeal by the Revenue also arises from the same order. The Department confirmed a duty demand of Rs. 24,34,375.54 and imposed penalties on various appellants. The Collector confiscated seized goods and imposed fines for redemption.

2. Denial of Benefit of Notification No. 18/89-C.E.:
For `Zinac 22` (Item No. 1), the Department denied the benefit of Notification No. 18/89-C.E., dated 6-4-1989, on the ground that it was not used in the factory of production. The demand for duty in 1986-87 is based on a value of Rs. 2,93,644/- calculated @ 15% ad valorem. The assessee contended that the duty is not payable as products at Sl. Nos. 2 to 10 are wholly exempt from duty under Notification 101/66.

3. Validity of Duty Demand for Different Years:
The year-wise demand as per the show cause notice and the order-in-original varied significantly. For instance, the demand for 1986-87 was initially Rs. 16,36,000 but was reduced to Rs. 42,745.50 in the order-in-original. The Tribunal noted that the adjudicating authority did not consider the test report for products at Sl. Nos. 3 to 10, which classified them as surface-active preparations eligible for exemption under Notification 101/66.

4. Correct Classification and Eligibility for Exemption under Notification 101/66:
The Tribunal agreed with the assessees that once the Department reopens the matter and raises a duty demand, it is open to the assessees to challenge the rate of duty. The Tribunal cited the case of Lili Foam Industries (P) Ltd. v. Collector of Central Excise, which supports the assessees' right to contest the rate of duty when differential duty is demanded.

5. Re-determination of Duty on Specific Products:
The Tribunal remanded the matter to the jurisdictional Commissioner for deciding the classification of `Silmar 007` and considering the alternate plea of time bar. For products at Sl. Nos. 3 to 10, the Tribunal also remanded the issue for de novo adjudication in light of the test reports. The duty on `Octacyne PR` (Item No. 11) and `Zinac 22` was to be re-determined in terms of Notification 175/86.

6. Dispute Over Manufacturing Versus Trading of Certain Products:
For products at Sl. Nos. 17 and 18, the assessees claimed they were trading, not manufacturing. The adjudicating authority found the bills produced by the appellants were issued by non-existing or fictitious parties and disregarded their plea. The Tribunal upheld this finding but directed re-calculation of duty in terms of Notification 175/86 and consideration of Modvat credit.

7. Consideration of Modvat Credit and Imposition of Fine and Penalty:
The Tribunal directed the adjudicating authority to consider the aspect of imposition of appropriate fine and penalty and to examine the assessees' submission regarding Modvat credit of Rs. 30,76,000/- for duty paid on inputs used in the manufacture of final products.

Conclusion:
The appeals filed by the assessees were allowed by way of remand for re-adjudication on the classification and duty determination issues. The Revenue's appeal regarding `Zinac-22` was allowed, but the appeal concerning the classification of other products was rejected. The adjudicating authority was directed to re-assess the duty payable and consider the eligibility for Modvat credit and appropriate penalties.