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TMI Blog2009 (4) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... units used the trade name Premier on the products. It is seen that ail these units had been engaged in some of the process relating to manufacture of footwear. In other words, fully assembled footwear had never been manufactured in a single unit. The unit at Vengali was within the Calicut Development Authority. It was registered under the names of three concerns. The factory layout plan showed the apportionment of the areas and machineries between the three concerns. The unit did the mixing for micro-cellular sheets and straps owned by the group at Chinnampalayam, Pollachi. These sheets were brought back to the Vengali unit and the soles for footwear were cut and thereafter sent to the other contract units for assembling. The Chinnampalayam unit was started in the year 1999. Prior to that, the sheeting was done at the Vengali unit itself. All the footwear manufactured by the three concerns carried the brand name Premier . The brand name is owned by Shri Joy Varghese as the Proprietor of M/s. Kerala Rubber Products. The factory at Naduvattom is of M/s. Kerala Rubber Products and engaged in making of straps, insoles out of EVA mixes, sheets and soles which were thereafter sent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2007 remanding the matter to the Original authority. In the meantime another show cause notice dated 30-3-2006 was issued for the subsequent period on the same lines demanding duty amount of Rs. 16,39,091/- and Education Cess of Rs. 7,709/- on the products cleared by the Kerala Footwear Products. In the same notice an amount of Rs. 2,75,873/- being the Central Excise duty and Rs. 134/- Edn. Cess was demanded on products cleared by M/s. Premier Footwear Products. Penalties were also proposed. The Commissioner took up the remand order and fresh show cause notice together and decided the issue by passing the impugned order. The impugned order deals with the de novo proceeding ordered by the Tribunal and also the proceedings consequent to the show cause notice dated 30-3-2006. The gist of the order is given below :- 31. In de novo proceedings on Order (Original No. 6/05 dated 15-6-05) (1) I demand an amount of Rs. 56,64,067/- (Rupees Fifty six lakh sixty four thousand and sixty seven only) being duty for the period from 1-4-99 to 30-1-03 from M/s. Kerala Footwear Products under proviso to Section 11A (1) of the Central Excise Act, 1944. (2) I demand an amount of Rs. 26, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11AC of the Central Excise Act, 1944. (5) No personal penalty is imposed on Mr. Joy Varghese in view of the above. 5. The Commissioner has taken both the remand directions and the show cause notice issued subsequently and given his findings in Paragraphs 16 to 30 of the impugned order. Before the Adjudicating authority, the assessee pressed their claim for the benefit of exemption Notification No. 67/95 C.E. dated 16-3-95 meant for captive consumption. In the original proceedings, the assessee objected to combine the clearances of three units together. This stand which is diametrically opposed to the earlier contention of the assessee, was noticed by the Commissioner. This Commissioner has not accepted their contentions regarding captive consumption. He noted in Para 16 of the impugned order that - Even if products were removed within the factory between three units, it cannot be termed as removal for captive consumption as the three units were in the name of three different entities having separate legal standing. In this instance, what emerged at the various locations were products like mix, sole sheets, straps etc. which, are finished goods in their individual right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was the Rubber Mix that was removed for vulcanization in Pollachi unit. The SRMB was made by mixing (1) Synthetic Rubber (2) Natural Rubber (3) Fillers (4) Polymer granules, etc. in the Banbury Machine. In a similar process, Colour Master Batch (CMB) was made by compounding (1) Natural Rubber (2) Pigments (3) Other Polymeric Compounds in the kneader mill. SRMB and Colour Master Batch were stored within the premises. However, by their own admission, the SRMB was not necessarily used in the same unit at Vengali to manufacture Rubber Mix. They were generally removed between the units. Since he had stated that the removal between the different units cannot be considered as captive consumption, he was off the view that SRMB cannot be classified under chapter heading 4005.20 as claimed by the assessee. He held that the product SRMB is classifiable under chapter heading 4005.90 and liable to duty @.16% adv. In Para 20 of the order, the Commissioner has dealt with the point raised by the assessee that samples were not sent to Central Revenue Control Laboratory, as required by the Chemical Examiner. The Commissioner has stated that the sample had been tested by Chemical Examiner an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice dated 30-3-2006. The reason is that the unit was visited on 30-1-2003 and the proceedings were initiated against them by the Revenue. It is true that the classification of three products were accepted by them. In these circumstances, the assessee should have discharged the duty liability on the said items. He refrained from imposing any personal penalty on Shri Joy Varghese. 10. The learned Consultant made the following submissions with regard to the findings of the Commissioner :- (i) Denial of exemption for goods used captively in the factory of manufacture: It was contented that all the concerns should be treated as one for giving the benefit under Notification No. 67/95. Our attention was invited to the Commissioner s observations that it has become necessary to pin point the manufacturer by lifting the corporate veil. The result of such an exercise actually supports the case of the appellants that it is only one factory and registration of the three separate units does not affect the position. In Para 23 of the impugned order, the Commissioner has observed : The assessee has violated the provisions of Central Excise Act and Rules by the mode in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er afresh independent of the decision taken earlier by his predecessor. He has held that the prime reason for classification under residuary heading 4005.90 was that it was removed to outside factories for vulcanization. It was correctly pointed out to him that the product SRMB was not removed but stored for use in the manufacture of Rubber Mix in the same factory and that it was such Rubber Mix that was removed for vulcanization to Pollachi. This was the position stated by three executives of the company. There was no statement, much less an admission, by any one as alleged by the Commissioner in his order. Therefore the demand on SRMB for duty to an extent of Rs. 47,15,019/- should be struck off. This will have its effect on the duty demand for the year 2000-01 as SSI exemption was denied for that year alleging that the total value of clearances of excisable goods in the previous year 1999-2000 exceeded Rs. 300 lakhs. By excluding Rs. 1,09,14,480/-, the value of clearances of this item in 1999-2000 the value of clearances of other items fell below Rs. 300 lakhs and hence SSI exemption was available for the next year 2000-01. (iii) Classification of Colour Master Batch (CMB) : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shoe uppers on cutting is identifiable as part of shoe, classifiable under heading 6406.10. It was observed that PVC sheet was not a plain sheet, but having regular pattern with grooves for cutting into three pieces and that it had substantial and essential characteristics of shoe uppers. The plea for its classification as PVC cloth and not as Shoe Upper on the ground that the PVC cloth could be transformed into shoe upper only after cutting into pieces and piercing holes therein and putting a flap on it was rejected by the Supreme Court. Apart from this clinching support for the appellants claim for classification of strap-plaps as straps themselves, the Tribunal itself had held in other cases that the fact that a product in the form in which imported was not usable as part of surgical instrument or as battery separator was not bar to its clarification as such part as, by mere cutting, the required product could be obtained. The following are the similar decisions:- (a) Collector of Customs v. South India Surgical Company [2007 (210) E.L.T. 553] (b) Amararaja Batteries [2008 (228) E.L.T. 117] (c) Exide Industries Ltd. v. Collector of Customs, Chennai [2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailability of the extended period of limitation to the Department for the second show cause notice, it is submitted that actually no duty is due for the years 2002-2003, 2003-2004 and 2004-2005 as the value of clearances of all the units in these years was well below the exemption limit prescribed in the SSI exemption notification. The total Value of clearances for these three years was Rs. 5;83,239/-, Rs. 65,22,606/- and Rs. 48,62,684/-. No duty demand survives on this score. (vii) Denial of Modvat benefit : The Modvat credit has been denied by the Commissioner that proper documents have not been maintained. The need for Modvat benefit will get considerably whittled down if duty demand goes down on the different products due to grant of exemption and nil-rated assessment. That apart, duty has been demanded from EVA (Ethyl Vinyl Acetate) at various stages. Duty paid granules of EVA give rise successively to EVA Mix, EVA sheets, EVA insoles and EVA waste (crumbs). If duty were to be payable on EVA Mix produced by the appellant, then it will be available as credit for the net stage product and so on. (viii) Penalty : As the extended period of limitation under the proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e schedule and the appellant is feigning on the matter. (v) The classification of the item CMB and EVA Mix was never an issued raised by the appellant in the earlier appeal before CESTAT as well as during the de novo proceedings. As such this ground may not be accepted. (vi) While classifying the product strap-plaps, the Commissioner has only followed the Tribunal decision in the party s own case which is more relevant to this case. (viii) The Commissioner has amply justified the invocation of the longer period. The second notice is not hit by time bar as the assessee intentionally refrained from following the Central Excise law and have thereby attracted the extended period for issue of demand. 12. We have gone through the records of the case carefully. The impugned order has been passed consequent to this Bench s Final Order No. 500 - 503/2007 dated 30-4-2007. While passing the remand order, the Commissioner has also dealt with the issue arising out of the show cause notice dated 30-3-2006 which was issued subsequently. In the Final Order of the Tribunal, certain defects in the first Order-in-Original were pointed out. It appears that the Adjudicating authority has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this schedule Nil 4005.90 Other 16% xxx xxxx xxx If the SRMB is used within the factory of production, the same is subject to nil rate of duty. But the Revenue has classified under 4005.90 which carries 16% rate of duty. The Commissioner has just followed the Order-in-Original of his predecessor which has been set aside by the Tribunal. The show cause notice issued to the assessee indicates that there is no demarcation of factory premises and the machinery were used commonly by all the three units. The workers were called upon to do the work of all the three concerns and maintained the accounts of all the factories and contract units. The staff, premises and the instruments are not distinguished between the three concerns. It is only for record purposes that these three concerns are accounted separately. It has also been stated by the appellants that SRMB which is produced in Vengali unit has not been removed as such. It was used to produce Rubber Mix and Rubber Mix was only sent to Pollachi unit for vulcanization. In these circumstances, the classification of SRMB under 4005.20 appears to be correct. Therefore we set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chappal. Individual straps are obtained by simply cutting with scissors and trimming the rough edges. The Chennai Bench of the Tribunal in Final Order No. 817-819 dated 31-8-2006 [2007 (207) E.L.T. 149 (Tri. - Chennai)] in the case of Premier Footwear Product s (P) Ltd. v. CCE, Coimbatore, has classified the item under heading 4008.29 as sheet of vulcanized rubber used in the manufacture of straps and not straps themselves to fall under heading 6401.92 carrying nil rate of duty. It was stated that no manufacture is involved in cutting the strap-plaps to obtain straps. The Chennai Bench rejected the plea raised in terms of Rule 2 (a) of the Rules for the Interpretation of the Central Excise Tariff Schedule, that the strap-plaps having acquired essential character of the straps on the ground that sheet as such was not usable as part of Hawai chappal. It would be worth mentioning the findings of the Tribunal s Chennai Bench in respect of the classification of strap-plaps. Para 9 of the said decision in the case of Premier Footwear Products (P) Ltd. (supra) are reproduced herein below :- 9. In respect of Strap plap, it is not in dispute that it is in the form of a sheet of vulcanised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as it was possible to obtain individual straps from the plap by the simple activity of cutting and trimming, it must be held that the plap had the essential character of straps. Interpretative Rule 2(a) reads thus : Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled. According to the first part of the above Rule, where an incomplete or unfinished article has the essential character of the complete or finished article, it can be classified under the Tariff Heading covering the latter. In the present case, for classification of the plap as strap under SH 6401.92, it must be shown that it has the essential character of a strap. Even according to the appellants, by cutting/trimming activity, a plap would yield numerous individual straps. Therefore it will be erroneous to hold that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge as parts of Hawai chappals, classifiable under SH 6401.92. The learned Consultant contended that this is sharp conflict with the Supreme Court s decision in the case Phoenix International Ltd. v. Collector of Customs, Raigad (supra) holding that printed and embossed PVC cloth yielding three pieces of shoe uppers on cutting is identifiable as part of shoe, classifiable under heading 6406.10. It was observed that the PVC sheet was not a plain sheet, but having regular pattern with grooves for cutting into three pieces and that it had substantial and essential characteristics of shoe uppers. The plea for its classification as PVC cloth and not as shoe upper on the ground that the PVC cloth could be transformed into shoe upper only after cutting into pieces and piercing holes therein and putting a flap on it was rejected by the Supreme Court. Hence we feel that there is much force in the appellant s contention. If we take a decision in favour of the assessee, the same would be in conflict with the decision of the Chennai Bench. In view of this we are of the view that this matter needs to be referred to a Larger Bench for deciding its classification. The issue before the Larger ..... X X X X Extracts X X X X X X X X Extracts X X X X
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