Judgment:
1. The above appeals arise out of the order of the Additional Collector of Central Excise, Aurangabad, confirming a duty demand of Rs. 2,29,617.20 for the period from October, 1985 to August, 1986 on "Vinrub" holding this product to be classifiable under sub-heading 3904.90, rejecting the claim of the assessees for classification as PVC compound under 3904.20 and imposing a penalty of Rs. 50,000/- on the first appellant and Rs. 10,000/- on the second appellant, who is the Commercial Manager of the first appellant company.
2. The brief facts of the case are that M/s. Rishiroop Polymers P. Ltd. manufactured Polyvinyl chloride, etc. They also manufactured a product called 'Vinrub' during the period October, 1985 to December, 1986 and declared this as PVC compound falling under T.I. 15A of the Schedule to the erstwhile Central Excise Tariff and claimed exemption from payment of duty under Notification 70/84, dated 1-3-1984. After the introduction of the new Tariff from 1-3-1986, the assessee claimed classification under Heading 3904.20 of the CETA, 1985 and claimed exemption under Notification No. 132/86, dated 1-3-1986. Samples of the products were sent for analysis to the Deputy Chief Chemist, Bombay who informed the Department vide letter dated 17-2-1988 that the product is not a PVC compound. Since the Department was of the view that benefit of the exemption had been wrongly claimed by misdeclaring the product as PVC compound, a show cause notice was issued to the asses-sees, proposing recovery of duty and imposition of penalty. The adjudicating authority relied upon the Dy. Chief Chemist's report that the product cannot be considered as PVC compound because of the use of 30 to 50% of Nitryl Rubber along with 40 to 60% PVC resin in the product as it was recognised in technical literature that only 10 to 25% of Nitryl Rubber is usually used in PVC compound and since the product is not PVC compound, there was no need to determine the specific gravity of the product which became relevant w.e.f. 17-9-1986 by issue of amendment Notification 418/86 to Notification 132/86 by which amendment two categories were created for PVC compound viz. (i) having specific gravity of less than 1.28% - fully exempted from duty and (ii) having specific gravity above 1.28% - attracting duty @ 30% adv. The product was, therefore, treated as falling under 3904.90 as a kind of fluoro-polymer. The extended period of limitation was held applicable in the case due to mis-declaration of the product as PVC compound.
Hence the duty demand was confirmed and penalty is imposed as set out above.
3. We have heard Shri S.U. Jagesha, learned Consultant and Shri A.K.Agarwal, learned SDR.4. We find that for the period in dispute the assessees had filed classification lists describing the product as PVC compound and claiming classification under T.I. 15A (for the period upto 1-3-1986) and exemption from duty under Notification 70/84 and under sub-heading 3904.20 subsequently and claiming benefit of exemption from duty under Notification 132/86. The assessees furnished details regarding raw material and process of manufacture and end use of the disputed product (Vinrub), sample of which was sent for chemical analysis on 3-9-1985 (pages 61 to 62 of the paper book). The classification as claimed was approved only after receipt of result of the chemical examiner's report the samples drawn on 3-9-1985 (which test report was not furnished to the appellants). Therefore, it cannot be said that there was any suppression or misdeclaration or misstatement with intent to evade payment of duty, so as to warrant invocation of the extended period of limitation which has been invoked in the present case. It appears that the present demand is raised on the basis of the opinion of the Chemical Examiner in relation to the classification list effective from 17-8-1986 when a sample was drawn for testing the specific gravity of the product which was relevant from the point of view of Notification No. 418/86, dated 17-9-1986 amending Notification No. 82/86. The change in opinion based upon a subsequent report of the chemical examiner cannot operate for a period beyond six months prior to the issue of the show cause notice and cannot be used to attribute any suppression or mis-declaration by the assessees so as to make the extended period of limitation available to the Department. We, therefore, hold that the show cause notice dated 31-1-1989 and the demand adjudged consequent thereto are barred by limitation. In the result, the impugned order both relating to duty and penalty is set aside and the appeals allowed on the ground of time bar, without going into the merits of the case.
5. The ld. Counsel stated that the appellants were the manufacturers of product VEMRUB which was described by them in their classification list effective from 29-8-1985 as PVC compound since it was a new product developed for the first time. While furnishing the classification list they had made known all the facts and after due process the classification list was approved by Asstt. Collector on 27-1-1986.
After filing the classification list claiming heading under T.I. 15A as above, the department had drawn samples of the product vide its memo dated 3-9-1985. The appellants had also furnished vide their letter dated 3-9-1985 the detailed description of raw materials used, process of manufacture and the end-use of the final product. However, no test report was communicated to them and they continued to clear the goods as per approved classification list. Due to change in the tariff and the Notification No. 132/86 they filed a revised classification list effective from 17-9-1986 which was provisionally approved. Again the samples of the products were drawn on 13-11-1986 to ascertain the specific gravity and the so-called report of the Dy. Chief Chemist was communicated which shows that on the basis of the literature supplied by the appellants the Dy. Chief Chemist was of the opinion that the product could not be treated as PVC The appellant's represented against the decision of the Asstt. Collector on the above opinion and subsequently appealed against his order, and the appellant's order were still awaited when the impugned show cause notice was issued and the Addl. Collector passed the impugned order. It was their submission that they had declared all facts and therefore it was not correct to say that they had mis-declared the product.The sample drawn on 3-9-1985 was got tested and apparently the test result were favourable to them hence no action was initiated and the approval of the Asstt. Collector continued. The sample drawn second time has not been tested at all and instead of testing the Dy. Chief Chemist had merely expressed his opinion which was not his job. In this connection they would like to cite the orders as reported in 1983 (12) E.L.T. 179 (Tribunal) and 1983 (12) E.L.T. 46 (Bom.). In support of their contentions they would also like to cite 1988 (35) E.L.T. 605 (S.C.); 1987 (27) E.L.T. 334 (Tribunal). It was also their submission that their appeal against AC's order has also since been decided and the matter remanded vide order other Collector (A) dated 26-3-1990 observing that Dy. Chief Chemist's report appears to be too casual and the Asstt. Collector should call for a detailed report and if necessary after testing the sample come to a clear factual finding and then decide twin issue of tariff classification and eligibility to 132/86 separately.
6. Even otherwise technical literature filed by them namely extracts from the book "Synthetic Rubber" by B.S. Whitby, C.C. Davis and R.F.Dunbrooke and "Handbook of Elastomers, New Developments and Technology" by Anil K. Bhowmick and Howard L. Stephens amongst others would go to show that PVC compound can be of Nitryl rubber and PVC used in ratio upto 50 : 50 by weight and a similar product (PVC compound) PVC/NBR Blend under trade name GN 005 is also manufactured by M/s. NOCIL, Bombay and the product information sheet thereof shows that Nitryl Rubber and PVC are used in the ratio of 50 :50 by weight and the range of specific gravity is also confined approx. 1.13 to 1.15.
7. The Chemical Examiner was therefore wrong in stating that PVC compound cannot contain more than 15 - 20% Nitryl Rubber and they rely on the cases cited and judgments reported in 1980 (6) E.L.T. 538/759 (Gujarat) in the case of M/s. Suhrid Giegy Ltd. It was their contention that their product is a PVC compound which is made by physical i.e., mechanical plant mixture of various ingredients. It is not a product of chemical reaction or chemical synthesis.
8. Their product Vinrub is a compound which mainly consists of PVC resins (Nitryl Rubber) Acrylonitrile Butadiene Rubber, Plasticizer, DOP (Dioc-tyl Phthalate) and to other additives like stabiliser, processing aids, etc. Since the chemical examiner has not reported what the product is, how the department could classify it under Heading 3904.20 or 3904.80. In fact the department itself does not appear to be sure of its stand. It was their contention that they had correctly declared the process and the product, and in any case the demand was time barred.
9. Ld. DR stated that the assessee claimed the classification of this product under Chapter Heading 3904.20 and claimed exemption from duty under Notification No. 132/86. Samples of this product were drawn. The Dy. Chief Chemist, Bombay informed that it is not PVC compound. It was, therefore, noticed that the assessee had wrongly claimed the exemption by mis-declaring the product as PVC compound. A show cause notice dated 31-8-1989, was, therefore, issued.
10. Ld. DR further stated that the central issue in this case is whether the product namely VINRUB manufactured by the assessee merits classification under sub-heading 3904.20 and entitled to exemption from payment of duty or is classifiable under sub-heading 3904.80.
Notification No. 132/86 was claimed but this notification was amended by another Notification No. 418/86, dated 17-9-1986. The effect of the amended notification was that the two categories were created for PVC compound based on density. However, as the product was not PVC compound, there was no need to determine the specific gravity of the product. Where the classification of the product is dependent upon its composition, the issue has to be settled on the basis of the opinion expressed by the Dy. Chief Chemist. Since in the present case, by the party's own admission and as per the literature submitted by it, it is seen that percentage of Nitryl Rubber used in the compound is much higher i.e. in the range of 30-50% it has been held that such a compound cannot be considered as PVC compound. The product is, therefore, correctly classifiable under Chapter Heading 3904.90. As regards time bar, the assessee has misdeclared the product as PVC compound (as the same was not found to be a PVC cpmpound on a reference made to the Dy. Chief Chemist, Bombay). Such misdeclaration on the part of the assessee was deliberate and with an intention to avail exemption from payment of duty fraudulently. Therefore, the proviso to Section 11A is correctly applicable in this case and duty for the extended period beyond six months can be recovered from the assessee. Shri L.P.Acharya has made himself liable to a penalty under Rule 209A since he was overall incharge of the company and it was his responsibility to have furnished the full and correct information to the department whereas he deliberately misdeclared the product to the department and thereby evaded duty of excise in the past period as aforesaid.
11. We have considered the above submissions. We observe that the appellants have been able to show that they had given sufficient details about their product at the very beginning and in fact even after introduction of new tariff they had once again given the details of the ingredients, process of manufacture, nature of the product, end-use and even the percentage of ingredients vide their letter dated 18-11-1986 addressed to Inspector, Central Excise, Nasik. They had also admittedly forwarded the relevant technical literature.
12. It is also noteworthy that their earlier classification list had already been approved finally (after initial provisional assessment) and subsequently also they had filed all the required details and the Dy. ChiefChemist had erred in not testing the sample (or not communicating the test report, if it was tested) and merely giving an opinion on the basis of his reading-of the technical material furnished by the assessee was not sufficient. Furthermore in these circumstances it became the duty of the A.C. and the Addl. Collector to direct the Chemistry Lab to test and report and in any case to go through the technical literature and thereafter judge for themselves as to whether the declaration was correct or incorrect. The Collector (A) had therefore rightly remanded the matter with appropriate observations.
However, insofar as the present case is concerned since in view of the above facts only normal period of limitation was available to the department but the show cause notice has been issued much after the said period the demand was time barred. We therefore set aside the demand and in view of the above position allow the appeal as already announced in the open court.