2012 (10) TMI 734 - AT - Central Excise

Classification of product Penalty u/s 11AC Assessee is engaged in the activity of grinding/pulverizing of mineral rocks into mineral powder of various micron sizes - Classify under CETA Sub Heading 25174100 As per AO, product is correctly classifiable under schedule 38249090 Held that - There is no dispute that the appellants are not adding anything other than the marble and the marble powder received to make the final product. Since revenue not able to substantiate his view, the product continues to be under Chapter 25 since the exclusion in the Note 1 to Chapter 25 cannot apply to the product. According to Note 3 of Chapter 25, any product classifiable under Heading 2517 and any other heading of this chapter are to be classified under Heading 2517 only. The specific heading has to be preferred to the general heading. Chapter 38, as submitted, is a residual chapter as compared to Chapter 25 and therefore, specific heading has to be preferred to the residual heading. In favour of assessee

Issues Involved:
1. Classification of the product under the appropriate Central Excise Tariff Heading (CETH).
2. Whether the product is obtained by mixing two separate minerals.
3. Whether the process amounts to manufacture.
4. Reliance on chemical examiner's report.
5. Applicability of HSN explanatory note.
6. Invocation of extended period for demand and imposition of penalty.

Detailed Analysis:

1. Classification of the Product:
The appellant classified their product under CETH 25174100 (marble powder), attracting NIL rate of duty. The Revenue argued it should be under CETH 38249090 (miscellaneous chemicals), attracting Central Excise duty. The appellant contended that their product, obtained from grinding/pulverizing marble chips with minimal calcite addition, should remain under CETH 2517 due to its predominant mineral content.

2. Mixing of Two Separate Minerals:
The Revenue's position was based on the premise that adding calcite to marble chips during grinding constitutes mixing two separate minerals, thus excluding the product from Chapter 25. The appellant countered that calcite is essentially marble in a different form, and the addition does not create a new product but maintains the same chemical composition. The Tribunal found merit in the appellant's argument, noting that both raw materials and finished products had similar compositions of calcium carbonate and magnesium carbonate, thus supporting classification under Chapter 25.

3. Process Amounting to Manufacture:
The appellant argued that grinding marble chips into powder does not constitute manufacturing under Section 2(f) of the Central Excise Act, 1944, as it does not change the product's chemical composition. The Tribunal agreed, referencing judicial precedents that mere physical transformation without altering chemical properties does not amount to manufacturing.

4. Reliance on Chemical Examiner's Report:
The Revenue relied on the chemical examiner's report to substantiate their claim of mixing different minerals. However, the Tribunal noted that the chemical composition of the raw materials and finished product was consistent, indicating no substantial difference. The Tribunal also criticized the denial of cross-examination of the chemical examiner, which was contrary to established judicial principles.

5. Applicability of HSN Explanatory Note:
The Revenue cited the HSN explanatory note to classify the product under Chapter 3824. The appellant argued that HSN should only be a guide when the Central Excise Tariff is ambiguous, which was not the case here. The Tribunal supported this view, emphasizing that the specific heading (Chapter 25) should be preferred over the residual heading (Chapter 38).

6. Invocation of Extended Period for Demand and Imposition of Penalty:
The Revenue invoked the extended period for demand, alleging non-disclosure of the manufacturing process. The appellant argued that they had disclosed the process when surrendering their Central Excise registration and acted under a bona fide belief regarding classification. The Tribunal found no evidence of fraud or suppression by the appellant, thus ruling out the applicability of the extended period and associated penalties.

Conclusion:
The Tribunal concluded that the product manufactured by the appellant was correctly classified under CETH 25174100 and not under CETH 38249090. The appeal was allowed with consequential relief to the appellant, and the impugned order was set aside.

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