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TMI Blog2006 (8) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... re of Sole sheets was received from their sister unit viz. M/s. Kerala Footwear Products (M/s KFP, for short), Calicut. The rubber compound mix ("Strap mix") required for the manufacture of 'Plap' was also received from the same unit. The Sole sheets were manufactured by the following process: The 'upper sole mix' received from the Calicut unit is fed into a kneader mill and mixed with chemicals such as Sulphur, Ureka-F, TMT etc. and subjected. to a heating process, whereby the sole mix in plastic condition becomes elastic. The output from the kneader mill is fed into the upper extruder in a sheeting machine, wherefrom vulcanised 'upper sole sheets' are obtained as extruded product in white colour. Similarly, the 'lower sole mix' received from the Calictt unit is fed into the kneader mill and mixed with chemicals such as Sulphur. Ureka- F, TMT, processing oil etc. and subjected to a heating process. The output from the kneader mill is then fed into the lower extruder in the sheeting machine wherefrom vulcanised 'lower sole sheets' are obtained as extruded product in a different colour. The upper and lower sole sheets drawn from the extruders in the sheeting machine are joined and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bber Products which was engaged in the manufacture and marketing of leather footwear and, therefore, the clearances of all the 3 units were clubbed for the purpose of demanding duty from M/s. PFP. For quantification of the duty amount, the assessable value of the goods cleared from the factory up to 30-6-2000 was determined in terms of Rule 6b(ii) of the Central Excise (Valuation) Rules, 1975 and the assessable value of the goods cleared after that date was determined in terms of the corresponding provisions of the Central Excise (Valuation) Rules, 2000. The show-cause notice also demanded interest on duty under Section 11AB of the Central Excise Act and also proposed penalty on M/s. PFP under Rule 173Q of the Central Excise Rules, 1944/Rule 25 of the Central Excise (No. 2) Rules, 2001/Rule 25 of the Central Excise Rules, 2002 and under Section 11AC of the Central Excise Act. Separate penalties under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise (No. 2) Rules, 2001/Rule 26 of the Central Excise Rules, 2002 were also proposed on M/s. KEP and Shri M. Joy Verghese, Managing Director of M/s. PEP and Managing Partner of M/s. KFP. 3. In their reply to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99 (110) EL.T. 687]. In respect of Strap Plap, learned Counsel submitted that, as straps for Hawai chappals could be obtained by the simple process of cutting the thin rubber films in the Plap, the Plap should be considered to be having the essential character of straps and, accordingly, in terms of Rule 2(a) of the Interpretative Rules, the item should be held classifiable as straps (part of Hawai chappal) under SH 6401.92. In this connection, reliance was placed on Bharath Enterprises v. Commissioner of Central Excise, Delhi-I [2002 (139) E.L.T. 321 (Tri-Del.)]. Learned Counsel submitted that the straps were manufactured and cleared in the form of sheets only for convenience of transportation and that, at the receiving end, these sheets were cut into straps and the straps, after some trimmings, were used in the manufacture of Hawai chappals. In this connection, he referred to the Supreme Court's judgment in Nanya Imports Exports Enterprises v. Commissioner of Customs, Chennai [2006 (197) E.L.T. 154 (S.C)], wherein sheets of 'insoles' and 'midsoles' which were imported in rolled- up form for convenience of loading and transportation were held to be eligible for exemption under N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise [2003 (156) E.L.T. 149 (Tri.-Chennai)] wherein certain vulcanised rubber products (other than hardened) were held to be classifiable under SH 4016.19. As regards Strap plap, learned SDR argued that, on the reasoning adopted by the assessee for classification of vulcanised rubber sole sheets under Heading 40.08, the plap could be classified only under the same heading. A continuous sheet of rubber, from which individual straps could be obtained only by the mechanical processes of cutting and trimming, could not be considered as a part of Hawai chappal. The "essential character" test under Interpretative Rule 2(a) would fail in respect of the product inasmuch as a bundle of straps in the form of a continuous sheet could not be said to have the essential character of an individual strap. Thus learned SDR argued that Strap plap was classifiable only as a sheet of vulcanised rubber (other than hard rubber) under Heading 40.08. She ruled out its classification under SH 4008.21 and SH 4008.22 and submitted that its appropriate place was under SH 4008.29. Learned SDR also contested the appellants' plea of limitation. The appellants never informed the department that they wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Description of the goods No. heading No. 40.08 Plates, blocks, sheets, strip, rods, and profile shapes, of valcanised rubber other then hard rubber - Of cellular rubber 4008.11 - Plates, blocks, sheets and strip of microcellular rubber but not of latex foam sponge, used in the manufacture of soles, heels or soles and heels combined for footwear 4008.19 - Other - Of non-cellular 4008.21 - Plates, blocks, sheets and strip, used in the manufacture of soles, heels or soles and heels combined, for footwear 4008.22 - Plates, sheets and strip, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this part of the process of manufacture of the final product. The upper and lower sole sheets were joined arid passed through rollers, when the two sheets got bonded into a single sheet, which was cooled and cut to size. The resultant sheets were then pressed in hydraulic press at high temperature to make grooves and emboss designs and brand-name on the top and bottom surfaces, whereby the final product (micro-cellular rubber sole sheet) emerged. What falls for classification is the single sole sheet which resulted from bonding of the upper and lower sole sheets in the hydraulic press. It is indisputable, and is not in dispute, that this single sheet is a sheet of vulcanised rubber (other than hard rubber) from the time of its formation. Whether complete vulcanisation had or had not, taken place at the earlier stage of formation of the upper and lower sole sheets is an irrelevant question as any of these (upper and lower) sole sheets is not the item to be classified. Therefore, what remains to be examined is the nature of the processes done posterior to the bonding of these sheets, i.e., the question is whether the final sole sheet resulting from bonding of the upper and lower so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for surface-working viz. printing, embossing, grooving, channelling and ribbing. Its judgment proceeded thus: '19. To determine the nature of the impugned goods, the difference between "surface-worked" and "further-worked" is significant. "Surface- working" means working on the surface of the material. 'Surface-working' may include coating, polishing, colouring, embossing, corrugating or even grooving when such grooving is only on the surface of the material. 20. The Department contended that though at the initial stage the goods manufactured by the respondents emerged in the form of plates, sheets or strips, thereafter they are moulded, when their edges are rounded off and the shape of the cross-section becomes a trapezoid. As a result, the final products do not remain plates/sheets/strips as defined under Note 9 of Chapter 4, since they are further processed and hence, cannot be classified under sub-heading 4008.21. The classification under sub-heading 4016.99 as "other" articles of vulcanized rubber was more appropriate and, therefore, the exemption Notification No. 47/76, as amended, was not applicable to the appellants. The two members of a Bench of the Tribunal having d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded) In the present case, we have to decide whether the single sheet resulting from bonding of the upper and lower sole sheets was "surface-worked" or "further- worked" in the last stage of manufacture, which took place in the hydraulic press at high temperature and provided grooves and embossed designs and brand- name on the top and bottom surfaces of the sheet. Such grooving and embossing are among various types of surface-working illustrated in the relevant HSN Note in Chapter 40. Therefore, the single sheet which resulted from bonding of the upper and lower sole sheets was only "surface-worked" in hydraulic press and not "further- worked". The department has no case that the sheet was cut to any shape other than rectangular. The samples displayed by the Counsel in Court were of rectangular shape only. In the result, the vulcanised rubber sheets under classification would get covered under the expression "sheet" occurring under Heading No. 40.08, in terms of Chapter Note 9 as interpreted by the Apex Court in the case of Speedway Rubber Co. (supra). The facts being similar in the two cases, the decision in Speedway Rubber Co. case can be followed for classifying the sole sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling under that sub-heading were chargeable to 'nil' rate of duty during the said period. 9. In respect of Strap plap, it is not in dispute that it is in the form of a sheet of vulcanised rubber other than hard rubber. Unlike the Sole sheets, this item has a non-cellular structure. Learned Commissioner examined a sample of the goods and found it to be a rectangular slab from which straps could be extracted by trimming with a sharp instrument such as scissors. This finding of the Commissioner is not under challenge. Further, the appellants have no case that this sheet of rubber was "further-worked" within the meaning of this expression contained in Chapter Note 9. Therefore Strap plap would remain classified under Heading 40.08. Sheets of vulcanised rubber (other than hard rubber), remaining within the meaning of "sheets" in terms of Chapter Note 9, belong to Heading 40.08 and such sheets of non-cellular structure would get classified under sub heading 4008.21, 4008.22 or 4008.29: It appears that such sheets, used in the manufacture of soles, heels or sole-heel combination, for footwear, are classified under SH 4008.21, while sheets for resoling, repairing or retreading of rubbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 failing 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 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 Strap sheet (Plap) has the essential character of a strap, complete and finished. A Strap sheet cannot be classified as individual straps on the "essential character" test. The factual position in the case of Bharat Enterprises (supra) was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case involves interpretation of Tariff entries and it cannot be said that the appellants had any intention to evade payment of duty and, therefore, it was not open to the department to invoke the larger period of limitation for demanding duty. M/s. PFP were aware of the fact that only cutting and trimming operations on a Strap sheet would yield individual straps to be used as parts of Hawai chappals and that the sheet as such was not usuable as a part of Hawai chappal. A plap as such being used as strap for Hawai chappal was not even in their dreams of legendary humans with mammoth feet! There was no room for doubt regarding the classification of this item. There was no question of this item being classified under SH 6401.92 as part of Hawai chappal. On the other hand, it was easily classifiable under SH 4008.29 as a sheet of vulcanised rubber (other than hard rubber), of non-cellular structure, used in the manufacture of straps. But, as it is on record, M/s. PEP chose to classify the product in discordance with the clear terms of the specific Tariff entry (SH 4008.29) and engaged themselves in the manufacture and clearance of the goods clandestinely without taking Central Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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