1998 (12) TMI 286 - AT - Central Excise

Issues Involved:
1. Classification of the product (vanadium sludge).
2. Alleged evasion of duty.
3. Violation of principles of natural justice.
4. Imposition of penalty.
5. Applicability of the extended period of limitation.

Detailed Analysis:

1. Classification of the Product:
The appellants, manufacturers of aluminium, classified a by-product termed "vanadium sludge" under different headings over time, eventually claiming exemption under Heading 26.15. The Department contended that the product was actually sodium orthovanadate decahydrate, classifiable under sub-heading 2841.90, based on the Chief Chemist's analysis. The Chief Chemist's report indicated that the product contained mainly sodium orthovanadate, a separate chemically defined inorganic compound, and was not a sludge or residue. The Adjudicating authority relied on this report and a subsequent analysis by Dr. M.C. Chattopadhyaya, which supported the classification under Chapter 28.

2. Alleged Evasion of Duty:
The Department alleged that the appellants deliberately changed the classification from Heading 28.51 to 26.15 to wrongfully avail of exemption under Notification 19/88, thereby evading duty on clearances between March 1988 and October 1990. The appellants argued that the product was a mixture of various salts and not a single chemically defined compound, and that the classification change was not deliberate but based on the product's characteristics.

3. Violation of Principles of Natural Justice:
The appellants contended that they were denied the opportunity to cross-examine the Chief Chemist, whose report was crucial to the proceedings. Additionally, they were not provided with a copy of Dr. Chattopadhyaya's report before the conclusion of the hearing, which they argued was a violation of the principles of natural justice. The Tribunal found merit in these submissions, noting that the denial of cross-examination and the failure to furnish the report constituted a significant procedural lapse.

4. Imposition of Penalty:
The appellants argued against the imposition of a Rs. 5 lakhs penalty, asserting that there was no deliberate misclassification or intent to evade duty. The Department, however, maintained that the change in classification was done with mala fide intention to evade duty, justifying the penalty under the relevant rules.

5. Applicability of the Extended Period of Limitation:
The appellants claimed that the demand for the period March 1988 to October 1990 was time-barred, as they had consistently described the product as vanadium sludge and filed classification lists and returns accordingly. The Department invoked the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, 1944, arguing that the misclassification was deliberate.

Conclusion and Remand:
The Tribunal set aside the impugned order and remanded the matter to the Adjudicating authority. The authority was directed to allow the appellants to cross-examine the Chief Chemist and Dr. Chattopadhyaya, and to adduce evidence supporting their classification claim. The authority was also instructed to consider the appellants' plea of time bar and pass fresh orders accordingly. The appeal was thus allowed by way of remand.

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