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F.No.V2(38)31/Ahd-III/2012

F.No.V2(38)14/EA2/Ahd-III/2012

F.No. V2(38)52/Ahd-III/2012

BRIEF FACTS OF THE CASE:

M/s. Victory Ceratech Pvt. Ltd., Plot No. 239, Village Dhanali, Taluka Kadi, Dist. Mehsana – 382 715 (herein after referred to as the appellant) filed two appeals alongwith stay against OIO Nos. AHM-CEX-003-ADC-066-11 dated 01.12.2011 and AHM-CEX-003-ADC-020-12 dated 07.02.2012 of Additional Commissioner, Central Excise, Ahmedabad-III. The Department also filed an appeal against the OIO No. AHM-CEX-003-ADC-066-11 dated 01.12.2011.

2. Brief facts of the case are that, M/s. Victory Ceratech are engaged in the manufacture of Ceramic Dust (Ceramic Body Clay Powder) and holding C. Ex. Registration. In the ER-3 returns for the period April 2010 to September 2010 and October 2010 to March 2011, it was noticed that they have classified Ceramic Dust (Ceramic Body Clay Powder) under Chapter heading No. 25309099 of the First schedule of Central Excise Tariff Act, 1985, availing exemption from payment of duty. It appeared that the said item is appropriately classifiable under Chapter heading No. 38249090 of the Act ibid attracting C.Ex. duty @ 10.30% . Therefore show cause notice bearing No. V.38/15-33/OFF/OA/2011-12 dt. 30.6.2011 and V.25/15-54/OFF/OA/2011-12 dt. 22.11.2011 has been issued to the appellant classifying the item under chapter heading No. 38249090 instead of 25309099; demanding C.Ex. duty amounting to Rs. 38,72,420/- and 35,58,599/- respectively under section 11A of Central Excise Act, 1944 ; demanding interest under section 11AB of Central Excise Act, 1944, and for imposition of penalty under section 25 of C.Ex. Rules, 2002 readwith section 11AC of Central Excise Act, 1944. The adjudicating authority vide impugned orders, classified the items under chapter heading No. 38249090; confirmed the duty under section 11A of the Central Excise Act, 1944 ; ordered for recovery of interest under 11AB of the Act and imposed penalty under Rule 25 of the Central Excise Rules, 2002 .

3.1. Being aggrieved, the appellant filed two appeals against the impugned orders on the ground that, since the goods were cleared to their other factory for manufacture of tiles on which duty was being paid through PLA, the entire exercise is revenue neutral; when the Note 1 of chapter 25 excludes products obtained by mixing, such exclusion is subject to the exception contained in Note 4 of chapter 25; it is clear from Note 4 of

chapter 25 that products of heading 2530 may be obtained by mixing or even calcinations; thus the stipulation/bar in Note 1 that the products should not be calcined or obtained by mixing does not apply to products of heading 2530, thus their products cannot be excluded from heading 2530 merely because it is obtained by mixing; their product is not at all a product used as extender in oil plant and therefore it cannot be said to be classifiable under heading 3824 by reference to the said clause (o) of HSN Explanatory Notes under heading 3206; their product comprises of mineral substances and therefore covered by chapter 25 and cannot be consigned to the residuary heading of chapter 38 which covers chemical products and preparations of the chemical or allied industries not elsewhere specified or included; there is no suppression of facts and a larger period of limitation is beyond one year and hence part of the demand is barred by time; since the demand is not maintainable there is no question of recovery of interest or imposition of penalty. The appellant relied upon the following judgments in support of their appeals.

(i)  Damodar J Malpani - 2002(146)ELT 483

(ii)  R.K. Chemicals - 2007(220)ELT 160

(iii)  Poulose & Mathen - 1997(90)ELT 264 (SC)

(iv)  Coca Cola Ind. P. Ltd. - 2007(213) ELT 490

(v)  Excel Corrugated Boxes - 2009(237) ELT 454

(vi)  Mafatlal Ind. – 2010 (255) ELT A77

(vii)  Electrolux Kelvinator - 2004(163)ELT 234

(viii)  Northern Plastics - 1998(101)ELT 549

(ix)  Uniflex Cables Ltd. - 2011(271)ELT 161

(x)  Whiteline Chemicals - 2008(229)ELT 95.

They also submitted a copy of letter received from the Range Supdt. dated 05.02.2002 under which they were denied the credit of capital goods as they were manufacturing mineral substances which are exempted from payment of duty and a letter dated 05.08.2011 of Asst. Commr., C.Ex. Div.II, Rajkot informing that Ceramic Body Clay Powder is classified under CETH 25309099 in their jurisdiction and no duty is levied/demanded. They also submitted that, prima face they got a strong case and requested for waiver of pre-deposit of duty, interest and penalty.

3.2. The Department filed an appeal against the order of the adjudicating authority dated 01.12.2011 on the ground that, the assessee working under self removal procedure, has to ensure that the goods which are sought to be removed have been duly intimated to the department

providing the process flow chart of manufacture as well as list of criticalraw materials; the said assessee in their intimation to the department vide their letter dated 19.04.2001 had only intimated that the commercial name of their product is “Dust for pressing Green Tiles” and that following raw materials viz. Bikaner Clay, Santalpur Clay, Wollostonite, Dolomite and Soapstone will be used. Adjudicating authority while deciding the classification of the product under S.H. 38249090 had found out that the mixing is done in a defined proportion and that the resultant product viz. ‘Ceramic Dust (Ceramic Body Clay Powder)’ is exclusively used in the manufacture of tiles. This fact was never intimated to department and thus a clear cut mensrea is present showing intent to evade payment of C. Ex. duty. The said assessee did not provide exact details of percentage wise utilisation of various inputs and processes involved in the manufacture of ceramic dust. This information came to light only after ascertaining such details from other manufacturers of ceramic dust located in the jurisdiction of Ahmedabad-III. These manufacturers were clearing such goods on payment of duty claiming the same as excisable. This clearly indicates that the said assessee merely provided names of inputs without specifying ratios of these inputs and processes involved in the manufacture. Thus they misguided the department by claiming their product as exempted. This act of the assessee clearly reveals that C. Ex. duty was short paid and the act of mis-statement and suppression of facts which clearly invokes provisions of Section 11AC. There was an intent to evade payment of duty by the said assessee by act of suppression of facts, which attracts penalty provisions under Rule 25 of C. Ex. Rules 2002 read with Section 11AC of Central Excise Act, 1944. The penalty of Rs. 20,000/- imposed under Rule 25 is not as required under Section 11AC as penalty in this case was required to be imposed equal to the duty evaded looking to the provisions of Section 11AC of Central Excise Act, 1944. The Department contended for the enhancement of penalty under Rule 25 of Central Excise Rules, 2002 read with Section 11AC of Central Excise Act, 1944. The Deptt. in its appeal, relied the Hon’ble High Court’s decision in case of Vidushi Wires (P) Ltd reported at 2003(156) ELT 168 (Bom.)

4. Personal hearing was held on 26.04.2012 when Shri J.C. Patel, advocate and Shri Uttam R. Bhandari, G.M. (F&A) appeared on behalf of the appellant. They stated that the ceramic clay powder is a Mineral product classifiable under Ch 2530; the word ‘mixing’ figuring in chapter note 1 of

chapter 25 is applicable for the items specified in Note 4 only and not for other items; the Rajkot Comm’te has clarified that the product is classifiable under chapter heading 25309099 and not chargeable to excise duty; the entire exercise is revenue neutral as their other unit utilising the clay powder would be entitled for the credit. They cited some case laws in support of their claim; as the issue involved is of classification, no penalty is imposable. They requested that the same arguments may be considered for the Departmental appeal also. They reiterated the submissions made in grounds of appeal and stay application.

DISCUSSION AND FINDINGS:

5.1. I have carefully gone through the facts of the case and the grounds of appeal filed both by the assessee and the department. The issue involved in these appeals is regarding classification of Ceramic Dust (Ceramic Body Clay Powder). Prima facie the appellant has made out a strong case in their favour. Therefore, I proceed to decide the appeal directly without insisting on any pre-deposit under Section 35F of Central Excise Act, 1944.

5.2. The appellants have been clearing the goods “Ceramic Dust” by classifying the same as mineral substances not elsewhere specified under the heading 25309099 and availing full exemption from payment of duty. The department has classified it as a chemical product and preparations falling under heading 38249090 which attracts C.Ex. duty. The appellant had filed appeals against the two impugned orders under which the adjudicating authority has classified the goods under chapter heading No. 38249090 and confirmed the demand of duty with interest and imposed penalty under Rule 25 of the Central Excise Rules, 2002. The appellant has contested the decision of the adjudicating authority arguing that the subject goods are classifiable under chapter heading 25309099 and are exempted from payment of duty.

5.3. The Department contesting the decision of the adjudicating authority regarding imposition of penalty in respect of one order. Department’s contention is that, the penalty imposed should be enhanced in accordance with section 11AC as mensrea to evade payment of duty is found. As all

the appeals are related to one party and are of classification dispute, I take all the three appeals together for decision.

6. 1. Regarding classification of the product, I find that the heading No.2530 under which the appellant classified the goods reads as under:

2530 MINERAL SUBSTANCES NOT ELSEWHERE SPECIFIED OR INCLUDED:

253010 : Vermiculite

253020 : Kieserite, epsomite (natural magnesium sulphate)

253090: other

25309050: Wollastonite

25309099: other

From the reading of the said heading it is clear that the said heading covers the mineral substances not elsewhere specified or included. The appellant has claimed that, the goods manufactured by them namely, ‘Ceramic Dust’ composed of mineral substances, such as various clays, dolomite powder, calcite powder etc. All these goods are mixed in a Ball Mill where water is added and the resulting slurry is put in a Spray Dryer chamber in which hot air is passed to obtain the ceramic dust/powder. This product is exclusively used for the manufacture of Ceramic Tiles and are cleared only to their own unit manufacturing Ceramic Tiles who clears the Ceramic Tiles on payment of appropriate duty. I find that the adjudicating authority has relied upon the explanation given in chapter Note 1 of 25 for deciding the classification of the goods under chapter heading 38249090. The explanation given in Note 1 of chapter 25 is reproduced as under:

“Except where there context or Note 4 to this Chapter otherwise requires, the headings of this Chapter cover only products which are in the

crude state or which have been washed (even with chemical substances eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes (except crystallisation), but not products that have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading”.

The above chapter note means that the Chapter 25 normally covers only products which are in crude state. It also covers products of minerals

were the impurities are removed in any one of the processes mentioned therein. However, the chapter does not cover the products that are roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading. But this exclusion is not applicable to goods which are covered under chapter Note 4.

The explanation given in Note 4 of chapter 25 is reproduced as below:

“Heading 2530 applies, inter alia, to : vermiculate, perilite and chlorites, unexpanded; earth colours, whether or not calcined or mixed together; natural micaceous iron oxide; meerschaum (whether or not in polished pieces); amber; agglomerated meerschaum and agglomerated amber, in plates, rods, sticks or similar forms, not worked after moulding; jet; strontianite (whether or not calcined), other than strontium oxide; broken pieces of pottery, brick or concrete”.

Thus as per the chapter Note 4 above, in respect of the products mentioned in chapter heading 2530, even the products which are roasted, calcined or obtained by mixing of some crude minerals will also fall within this chapter only. The ‘Ceramic Dust’ manufactured by the appellant is a mixture of various clay materials. Accordingly, I find merit in the contention of the appellant that the products that are obtained by mixing of minerals covered under chapter 2530, fall within the chapter 25 only.

6.2. Now let me look into what are the goods covered under heading 3824. The said heading reads as under:

3824 PREPARED BINDERS FOR FOOUNDRY MOULDS OR CORES; CHEMICAL PRODUCTS AND PREPARATIONS OF THE CHEMICAL OR ALLIED INDUSTRIES (INCLUDING THOSE CONSISTING OF MIXTURE OF NATURAL PRODUCTS), NOT ELSEWHERE SPECIFIED OR INCLUDED.

The said heading covers the articles of foundry mould, chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products) such as Non-agglomerated metal carbides, water proof compounds mixtures containing halogenated derivates of methane, ethane or propane, surface tension reducing agents , capacitor fluids etc.