1999 (5) TMI 162 - AT - Central Excise

Summary

Issues: Classification of cotton fabric dipped in phenol formaldehyde resin and dried thereafter, Allegation of collusion between parties, Limitation period for issuing show cause notice

Classification Issue:
The case involves a dispute over the classification of cotton fabric dipped in phenol formaldehyde resin and dried thereafter. The Revenue contends it falls under Tariff Heading 59.03, while the Appellants argue for classification under Chapter Heading 3922.90. The key point of contention is whether the fabric is completely embedded in plastics, which would affect the classification. The Appellants rely on the interpretation of the term 'embedding' from KIRK-OTHMER Encyclopedia of Chemical Technology to support their argument. They also refer to a Board's Clarification stating that fabrics coated or covered with plastics are classifiable under Chapter 39, not Chapter 59. The Appellate Tribunal agrees with the Appellants, ruling that the fabric falls under the exception in Note 2(a)(3) of Chapter 59, thus classifying it under Chapter 39.

Allegation of Collusion:
The Revenue alleges collusion between the Appellants and Revenue officers, claiming a deliberate misstatement in the description of the fabric to evade classification under Tariff Heading 59.03. The Collector found circumstantial evidence of collusion but dismissed the charge of wilful misstatement against the Appellants. The Appellants argue that the collusion charge is unfounded, as no action was taken against the officers accused of collusion, and they were not given an opportunity to rebut the allegation adequately. The Tribunal concurs with the Appellants, noting that the finding of collusion lacks substantial evidence and is based on inferential reasoning. It also highlights that the show cause notice issued beyond the normal limitation period is unjustified, especially considering the absence of wilful misstatement or suppression of facts by the Appellants.

Limitation Period Issue:
The Appellants challenge the show cause notice issued beyond the standard six-month limit, arguing that the Revenue was aware of the fabric manufacturing process for an extended period. They contend that the notice is time-barred, especially since no evidence of wilful misstatement or suppression of facts exists. The Tribunal agrees with the Appellants, emphasizing that the notice is indeed barred by time, given the lack of substantiated charges against the Appellants. Consequently, the Tribunal sets aside the impugned order and rules in favor of the Appellants, allowing the appeal with consequential relief.