2000 (8) TMI 757 - AT - Central Excise

Iron and steel products - Classification of inputs at the hands of receiver not challengeable - Demand - Limitation

Issues Involved:
1. Eligibility for duty exemption under Notification No. 202/88-C.E.
2. Classification of inputs (flats vs. bars) and its impact on exemption eligibility.
3. Extended period of limitation for demanding duty.
4. Duty demand on galvanised pipes made from purchased MS pipes.
5. Entitlement to Modvat credit on inputs.
6. Validity of penalty imposed.

Issue-wise Detailed Analysis:

1. Eligibility for Duty Exemption under Notification No. 202/88-C.E.:
The appellants challenged the duty demand of Rs. 1,19,46,941.00 and a penalty of Rs. 1 lakh imposed by the Commissioner of Central Excise, Jaipur, arguing that they were eligible for duty exemption under Notification No. 202/88-C.E. The exemption was applicable to pipes manufactured from specified inputs like flats, skelp, and strips, but the Department alleged that the appellants used non-specified inputs like strip bars and rectangular bars, thus disqualifying them from the exemption.

2. Classification of Inputs (Flats vs. Bars) and its Impact on Exemption Eligibility:
The Commissioner found that the appellants used bars, hot rolled bars, and rectangular bars, which fall under Tariff sub-heading 7214.90, not eligible for the exemption. The appellants argued that the inputs were classified as flats by their suppliers, who paid duty applicable to flats, and thus should be treated as flats for exemption purposes. The Tribunal noted that classification disputes existed at the time, and the description in Gate Passes should not be the sole determining factor, especially when the duty paid was for flats.

3. Extended Period of Limitation for Demanding Duty:
The Commissioner invoked the extended period of limitation, citing suppression of facts and clandestine removal of goods. The appellants contended that there was no intention to evade duty, and the classification issue was genuine. The Tribunal agreed, finding that the extended period could not be invoked due to the bona fide belief regarding the classification of inputs.

4. Duty Demand on Galvanised Pipes Made from Purchased MS Pipes:
The appellants claimed that part of the duty demand was for MS pipes purchased from the market and galvanised, which does not amount to manufacture. The Tribunal found merit in this claim, noting that the SCN and its annexures acknowledged the purchase of MS pipes. The duty demand of Rs. 31,93,285.00 for these pipes was thus deemed unsustainable.

5. Entitlement to Modvat Credit on Inputs:
The appellants argued that they were entitled to Modvat credit on inputs, including Zinc used for galvanising. The Department had accepted this in a counter-affidavit before the High Court. The Tribunal noted that if Modvat credit was considered, the duty demand would be significantly reduced. The appellants claimed that the total Modvat credit available would neutralize the entire duty demand.

6. Validity of Penalty Imposed:
The Commissioner imposed a penalty, asserting that the appellants wilfully suppressed facts to evade duty. The appellants argued that there was no mala fide intention, and the duty demand was neutralized by Modvat credit. The Tribunal, considering the bona fide belief regarding classification and the availability of Modvat credit, found the penalty untenable.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order. The appellants were found to have a bona fide belief regarding the classification of inputs, and the extended period for duty demand was not justified. The duty demand for galvanised pipes from purchased MS pipes was unsustainable, and the appellants were entitled to Modvat credit, which neutralized the duty demand. Consequently, the penalty was also set aside.

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