Full Judgment
2. Shri K.S. Ravishankar, the learned Chartered Accountant appearing for the appellant pleaded that the appellants manufacture two category of goods i.e. Control linkage system and brake band. He pleaded that while Control Linkage system (CLS) falls under Heading 8431 the other item Brake band (BB) falls under Tariff Heading 6806 and they were eligible for the benefit of exemption Notification 175/86 in respect of these two items falling under two headings to the extent of Rs. 15 lakhs each and if this facility is given, there would not be any demand of duty and hence they would also not be liable to penalty. He pleaded that the BB manufactured by them has been held to be falling under Heading 8431 and therefore taking into account the clearances of this item, it has been held, they exceeded the limit of exemption and the appellants would not be eligible for the benefit of the said Notification. He pleaded that the appellants had also been held guilty of suppression and the learned lower authority has invoked the longer period of limitation in terms of Section HA of the CESA, 1944 for demand of duty. He pleaded that the appellants have been under the impression that BB was covered by Tariff Heading 6806. He was asked to explain how BB is formed, he pleaded that BB is a lining material rivetted to the metal heads and these are cleared for use as brakes in the vehicles and bull dozers. Use of this BB helps in the manipulation of the bulldozers for use in the field. He was asked to explain how the material as manufactured by them could be taken to be falling under Heading 6806, he could not clarify and he merely stated that inasmuch as the expression in the tariff heading shows lining material, brake band (BB) should be taken to be covered by Tariff Heading 6806 which covers friction materials and articles thereof. He also pleaded that the appellants were not guilty of any suppression. He pleaded that the learned lower authority while holding against the appellants had taken note of the fact that they have not taken out a licence after they crossed the limit of Rs. 10 lakhs as required under the rules. He pleaded that the appellants were clearing the goods under exemption Notification and they felt that they need not take any licence. He also pleaded that the appellants had sought for the cross-examination of the officers which was not allowed. He further pleaded that BB are different from brakes 3. The learned DR for the department pleaded that the appellants have sought assessment of BB as brake linings. He pleaded that brake linings are different from BB. Brake Bands he pleaded, are parts of machinery and brake linings go to make the parts of machinery along with some other material and these are used for proper steering for the vehicles.
4. We have considered the pleas made by both the sides. We observe that clearances by the appellants of the two categories of goods have been aggregated for the reason that both these items fall under Heading 8431 and therefore, benefit of exemption Notification has to be limited in terms of Notification 175/86 for one heading. The appellants have however claimed the benefit of the notification under two separate Headings i.e. 8431 and 6806. The plea of the appellants is that while Brake band system falls under Heading 6806, control linkage system falls under Heading 84.31. The .tariff entry 68.06 is reproduced below for convenience of reference.
68.06 Friction material and articles thereof (for example, sheets, rolls, strips, segments, discs, washers, pads), not mounted, for brakes (brake linings and pads) for clutches or the like, with a basis of asbestos, of other mineral substances or of cellulose, whether or not combined with textile or other materials It is seen that friction material covered under Heading 68.06 has to be such that it is not, mounted but has to be used as such for making brakes and pads etc. The goods, manufactured by the appellants are by use of this friction material by mounting the same on the metal strips/bands and a new article is formed and goes by the name brake band. It is not understandable how the appellants can be taken to have misunderstood the scope of Heading 68.06 and how in spite of clear description under Tariff Heading 68.06 they could have considered the BBs to be falling under Tariff Heading 68.06 to avail of the benefit of exemption Notification separately under this tariff heading. There is no explanation from the appellants for holding back the information in regard to manufacturing process of this item from the department. If they had any doubt, they should have sought for clarification from the authorities before starting to avail the benefit of exemption Notification. There is no ambiguity in the wording of the Tariff [Heading] 68.06 to lead to any doubt as to the scope of the items covered under this heading. The appellants therefore have to be taken to have availed of the benefit with intention to evade payment of duty.
The fact that the appellants did not go before the authorities when they crossed Rs 10 lakhs in regard to the details of BB manufactured by them further confirms the appellants' intention to evade the duty. The learned lower authority has rightly invoked the longer period of limitation for demand of duty and therefore, we uphold the order in regard to the same. The appellants have pleaded that their request for cross-examination of the officers has not been allowed. We hold that in the context of the issue to be decided, even if there is denial of the request for cross-examination it does not make any difference to the case as what has to be seen whether the appellants had cleared the goods under Chapter [Heading] 68.06 wrongly and exceeded the limit as set out in the Notification 175/86 5. We observe that penalty has been imposed both on the proprietary concern as well as the Proprietor. Imposisition of penalty could have been either on the proprietary concern or on the Proprietor. We, therefore, set aside the penalty on the firm and uphold the penalty on the Proprietor. In the facts and circumstances of the case, we hold that ends of justice would be served if the penalty on the Proprietor is reduced to Rs. 5,000/- (RUPEES FIVE THOUSAND) and we order accordingly. But for the above modifications the appeals are otherwise dismissed.