Maruti Foam (Pvt.) Ltd. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. this appeal is directed against the order dated 8-7-1992 passed by the commissioner of customs and central excise, meerut. the facts of the case are as follows:- the appellants are manufacturers of polyurethane foam falling under chapter 39 of the central excise tariff act. in this case the dispute has arisen due to the classification of waste & scrap' of the above product. earlier the appellants had submitted classification list no. 1/89, dated 10-3-1989 classifying the said 'waste & scrap' under tariff heading no. 39.15 showing the effective rate of duty at 40% ad valorem in view of notification no. 54/88, dated 1-3-1988 (sl. no. 6), which was duly approved and the appellants made clearances after payment of duty accordingly. in the process of manufacturing the polyurethane foam, two types of waste & scrap arise, namely, (1) irregular cuttings and trimmings of the foam sheets; and (2) top skin, bottom skin, side skin and shreddings (in the form of hard substance generated due to want of proper chemical reaction). classification of the latter type of waste & scrap had been in dispute for some time, but after due consideration by the department, not only the ahmedabad commissionerate vide their trade notice no. 67/89 but meerut commis-sionerate also, vide their trade notice no. 51/89, dated 4-5-1989 clarified that these items, top skin, bottom skin, side skin and shreddings, would be classifiable as "waste parings and scrap of plastic falling under tariff heading no. 39.15". accordingly, the appellants submitted an additional classification list no. 2/90 effective from 11-1-1990 classifying the said top, bottom and side skins and shreddings under tariff heading 3915.90 as 'waste parings and scrap or plastic" with effective duty at nil rate in view of notification no. 53/88, dated 1-3-1988. on the basis of the aforesaid classification list dated 11-1-1990, the appellants started making clearances and cleared 27,905 kgs. of said waste parings and scrap of plastic during 12-1-1990 to 7-3-1990 at nil rate of duty and also submitted regularly the r.t. 12 monthly returns showing the said clearances with nil rate of duty. however, on receiving a letter on 8-3-1990 from the range superintendent directing the appellants for payment of duty provisionally at the effective rate of rs. 40/- per kg., they started making clearances accordingly, but under protest, and made clearances between 12-3-1990 to 18-4-1991 after payment of duty to the tune of rs. 4,64,276.51 from their personal ledger account and rs. 5,41,840.00 through rg 23a part ii. on 21-5-1990, the assistant commissioner of the division issued a show cause notice c : no. v(30)d/52/90/552 demanding duty of rs. 17,34,574.50 on the clearances made during 12-1-1990 to 7-3-1990 at nil rate of duty and also proposing to impose a penalty for contravention of the provisions of central excise law. after contest by the appellants, the commissioner of central excise, meerut, passed adjudication order no. 59/collector/90-91, dated 2-5-1991 accepting the appellants' contention about the classification and dropping the demand as well as the proposal for imposing penalty. the appellants took the credit on 3-7-1991 of the aforesaid two amounts of duty paid by them under protest. rs. 4,64,276.51 in their personal ledger account (entry no. 118) and rs. 5,41,840.00 in their rg 23a part ii (entry no. 62). again, the appellants showed these credits in the monthly rt 12 return submitted for the months of july, 1991. however, in october 1991, the range superintendent started raising objection to the said credits and asking the appellants to reverse the two credit entries being not in accordance with the prescribed procedure. the appellants having not complied with the aforesaid directions of the range superintendent, the subject show cause notice c.no. v(15) off/adj/7/92/5265, dated 11-3-1992 served on the appellants on 17-3-1992 was issued by the commissioner of central excise, meerut, invoking the extended period of limitation under the proviso to section 11a of the central excises and salt act, 1944 proposing to disallow the credit and recover the said both amounts of rs. 4,64,276.51 and rs. 5,41,840.00 being the irregular credits taken suo moto and also to impose penalty under rule 173q(bb) for violation of rules 57a, 173f and 173g.2. after considering the reply to the show cause notice and hearing them in the matter the commissioner passed the impugned order confirming the demand of rs. 4,64,276.51 of the amount taken in the pla unauthorised and utilised for payment of excise duty by the appellants under rule 9(2) of the central excise rules read with section 11a of the central excises and salt act, 1944. he also confirmed the demand of rs. 5,41,840.00 of the amount of credit taken in rg 23a part ii under rule 57(1) of the central excise rules. the' commissioner further observed that since the classification list, assessment of waste, parings and the scrap has been kept provisional, the duty already paid under protest on waste, parings and scrap would be finalised on the finalisa-tion of classification /assessment of waste, paring and scrap by the jurisdiction-al assistant commissioner and the credit taken in this regard in pla and rg 23a should be reversed. the commissioner also imposed personal penalty of rs. 1,000/-.3. shri vinay garg, the learned counsel alongwith shri bipin garg, the learned counsel appeared for the appellants and contended that the department had sought to get the order of the commissioner on classification in their favour reviewed by an application before the tribunal but the application has been rejected by the tribunal upholding the classification on top skin, bottom skin and side skin under heading 39.15 of the central excise tariff act, 1985 as waste paring and scrap of plastics eligible for exemption under notification no. 53/88. the learned counsel further contended that the credit taken by the appellants in their pla and rg 23a were rightly taken as consequential refund in terms of the unamended section 11b(3) of the central excises and salt act, 1944. there was also the facility given for such adjustment in terms of section rule 173b and rule 173-1. it was further submitted that classification list no. 2/90 is still to be approved by the assistant commissioner. it was also argued that the demand for duty was barred by limitation under section 11a and rule 57-1 being beyond six months from the date of taking of the credit.shri satnam singh, the learned departmental representative reitrated the reasoning of the adjudicating authority and contended that the appellants ought to have filed a proper refund claim under section 11b and could not have taken the credit on their own. it was also pointed out by the learned departmental representative that even after being told by the jurisdictional superintendent to reverse the credit, the appellants did no such thing although their director had assured the superintendent that they will do so shortly by the end of october, 1991. the learned departmental representative also contended that the bar of limitation will not apply as they had been told by the superintendent within six months of taking the credit to reverse the same.4. we have carefully considered the submissions. we find that on the issue of the classification of top skin, bottom skin and side skin and about an eligibility of the goods of notification no. 53/88 the matter now stands settled by the tribunal decision in which the tribunal had upheld on classification under heading 39.15 ceta and held that the goods will be eligible for exemption under the notification as reported in 1996 (85) e.l.t. 157 (tribunal) in the case of collector of central excise, meerut v. maruthi foam (p) ltd. the net result will be that the appellants need not have paid duty on these goods being eligible for the exemption on the classification thereof under heading 39.15 central excise tariff act. the duty payment made during the period is also seen to be provisional and according to the appellants paid under protest.on merits, therefore, the refund would be admissible to the appellants.the only flaw in their action is having taken credit on their own in the pla and the rg 23a in the part ii. they could not have straightaway done this as they claimed in their endorsement in the rt 12 as a consequential refund flowing out of the commissioner's order on classification dated 2-5-1991. what they ought they have done properly would have been to come up with a refund application under section 11b citing the commissioner's order as a ground for refund. the argument of the appellants that they had chosen this method of taking credit on their own, as nothing was heard from the assistant commissioner regarding refund of duty paid under protest during 12-3-1990 to 18-4-1991 does not have any force because the commissioner's adjudication order on classification was one which was only dropping the demand raised. on the part of the department also, it is submitted before us that the classification list no. 2/90 effective from 11-1-1990 classifying the goods in question under heading 39.15 and claiming exemption under notification no. 53/88 is yet to be finalised.the department should have taken steps to finalise the matter especially when it is seen that the tribunal has also pronounced upon the classification issued in june, 1994. in this view of the matter what emerges is that the appellants were at fault in taking the credit in pla and rg 23a part ii in this case on their own without any direction or permission from the proper officer. they should have filed a refund claim under section 11b because payment of duty under protest also will not dispense with the necessity of filing refund claim under section 11b but it only saves the claim for being hit by limitation nor is the action of the appellants in this case covered by provisions of rule 173-1 for which a direction by the superintendent in the assessment memorandum for taking of the credit is essential and it is not the case of the appellants that there was such a direction but the fact remains the order dated 2-5-1991 of the commissioner in their favour ultimately upheld by the tribunal had given them a valid ground for a refund claim. however, for their lapse in this respect in taking the credit on their own without filing proper refund claim. but their eligibility to refund on merits, in our view, on the facts and in the circumstances of the case should not suffer. therefore, we hold that the appellants are eligible for the amount in question as referred, and for their failure to follow prescribed procedure of filing a proper refund claim, a penalty, but at a lower level, will be justified. we, accordingly, reduce the penalty to rs. 50,000/-(rupees fifty thousand only). the appeal is disposed of in the above terms.

Judgment:
1. This appeal is directed against the order dated 8-7-1992 passed by the Commissioner of Customs and Central Excise, Meerut. The facts of the case are as follows:- The appellants are manufacturers of Polyurethane Foam falling under Chapter 39 of the Central Excise Tariff Act. In this case the dispute has arisen due to the classification of Waste & Scrap' of the above product. Earlier the appellants had submitted Classification List No. 1/89, dated 10-3-1989 classifying the said 'Waste & Scrap' under Tariff Heading No. 39.15 showing the effective rate of duty at 40% ad valorem in view of Notification No. 54/88, dated 1-3-1988 (Sl. No. 6), which was duly approved and the appellants made clearances after payment of duty accordingly.

In the process of manufacturing the Polyurethane Foam, two types of Waste & Scrap arise, namely, (1) Irregular Cuttings and Trimmings of the Foam Sheets; and (2) Top Skin, Bottom Skin, Side skin and Shreddings (in the form of hard substance generated due to want of proper chemical reaction). Classification of the latter type of Waste & Scrap had been in dispute for some time, but after due consideration by the Department, not only the Ahmedabad Commissionerate vide their Trade Notice No. 67/89 but Meerut Commis-sionerate also, vide their Trade Notice No. 51/89, dated 4-5-1989 clarified that these items, Top Skin, Bottom Skin, Side Skin and Shreddings, would be classifiable as "Waste Parings and Scrap of Plastic falling under Tariff Heading No. 39.15".

Accordingly, the appellants submitted an additional classification List No. 2/90 effective from 11-1-1990 classifying the said Top, Bottom and Side Skins and Shreddings under Tariff Heading 3915.90 as 'Waste Parings and Scrap or Plastic" with effective duty at Nil rate in view of Notification No. 53/88, dated 1-3-1988.

On the basis of the aforesaid Classification List dated 11-1-1990, the appellants started making clearances and cleared 27,905 Kgs. of said Waste Parings and Scrap of Plastic during 12-1-1990 to 7-3-1990 at Nil rate of duty and also submitted regularly the R.T. 12 monthly returns showing the said clearances with Nil rate of duty. However, on receiving a letter on 8-3-1990 from the Range Superintendent directing the appellants for payment of duty provisionally at the effective rate of Rs. 40/- per kg., they started making clearances accordingly, but under protest, and made clearances between 12-3-1990 to 18-4-1991 after payment of duty to the tune of Rs. 4,64,276.51 from their Personal Ledger Account and Rs. 5,41,840.00 through RG 23A Part II. On 21-5-1990, the Assistant Commissioner of the Division issued a Show Cause Notice C : No. V(30)D/52/90/552 demanding duty of Rs. 17,34,574.50 on the clearances made during 12-1-1990 to 7-3-1990 at Nil rate of duty and also proposing to impose a penalty for contravention of the provisions of Central Excise law. After contest by the appellants, the Commissioner of Central Excise, Meerut, passed Adjudication Order No. 59/Collector/90-91, dated 2-5-1991 accepting the appellants' contention about the classification and dropping the demand as well as the proposal for imposing penalty.

The appellants took the credit on 3-7-1991 of the aforesaid two amounts of duty paid by them under protest. Rs. 4,64,276.51 in their Personal Ledger Account (Entry No. 118) and Rs. 5,41,840.00 in their RG 23A Part II (Entry No. 62). Again, the appellants showed these credits in the monthly RT 12 Return submitted for the months of July, 1991. However, in October 1991, the Range Superintendent started raising objection to the said credits and asking the appellants to reverse the two credit entries being not in accordance with the prescribed procedure.

The appellants having not complied with the aforesaid directions of the Range Superintendent, the subject Show Cause Notice C.No. V(15) Off/Adj/7/92/5265, dated 11-3-1992 served on the appellants on 17-3-1992 was issued by the Commissioner of Central Excise, Meerut, invoking the extended period of limitation under the Proviso to Section 11A of the Central Excises and Salt Act, 1944 proposing to disallow the credit and recover the said both amounts of Rs. 4,64,276.51 and Rs. 5,41,840.00 being the irregular credits taken suo moto and also to impose penalty under Rule 173Q(bb) for violation of Rules 57A, 173F and 173G.2. After considering the reply to the show cause notice and hearing them in the matter the Commissioner passed the impugned order confirming the demand of Rs. 4,64,276.51 of the amount taken in the PLA unauthorised and utilised for payment of excise duty by the appellants under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises and Salt Act, 1944. He also confirmed the demand of Rs. 5,41,840.00 of the amount of credit taken in RG 23A Part II under Rule 57(1) of the Central Excise Rules. The' Commissioner further observed that since the classification list, assessment of waste, parings and the scrap has been kept provisional, the duty already paid under protest on waste, parings and scrap would be finalised on the finalisa-tion of classification /assessment of waste, paring and scrap by the jurisdiction-al Assistant Commissioner and the credit taken in this regard in PLA and RG 23A should be reversed. The Commissioner also imposed personal penalty of Rs. 1,000/-.

3. Shri Vinay Garg, the learned Counsel alongwith Shri Bipin Garg, the learned Counsel appeared for the appellants and contended that the department had sought to get the order of the Commissioner on classification in their favour reviewed by an application before the Tribunal but the application has been rejected by the Tribunal upholding the classification on Top Skin, Bottom Skin and Side Skin under Heading 39.15 of the Central Excise Tariff Act, 1985 as waste paring and scrap of plastics eligible for exemption under Notification No. 53/88. The learned Counsel further contended that the credit taken by the appellants in their PLA and RG 23A were rightly taken as consequential refund in terms of the unamended Section 11B(3) of the Central Excises and Salt Act, 1944. There was also the facility given for such adjustment in terms of Section Rule 173B and Rule 173-1. It was further submitted that classification list No. 2/90 is still to be approved by the Assistant Commissioner. It was also argued that the demand for duty was barred by limitation under Section 11A and Rule 57-1 being beyond six months from the date of taking of the credit.

Shri Satnam Singh, the learned Departmental Representative reitrated the reasoning of the adjudicating authority and contended that the appellants ought to have filed a proper refund claim under Section 11B and could not have taken the credit on their own. It was also pointed out by the learned Departmental Representative that even after being told by the jurisdictional Superintendent to reverse the credit, the appellants did no such thing although their Director had assured the Superintendent that they will do so shortly by the end of October, 1991. The learned Departmental Representative also contended that the bar of limitation will not apply as they had been told by the Superintendent within six months of taking the credit to reverse the same.

4. We have carefully considered the submissions. We find that on the issue of the classification of Top Skin, Bottom Skin and Side Skin and about an eligibility of the goods of Notification No. 53/88 the matter now stands settled by the Tribunal decision in which the Tribunal had upheld on classification under Heading 39.15 CETA and held that the goods will be eligible for exemption under the notification as reported in 1996 (85) E.L.T. 157 (Tribunal) in the case of Collector of Central Excise, Meerut v. Maruthi Foam (P) Ltd. The net result will be that the appellants need not have paid duty on these goods being eligible for the exemption on the classification thereof under Heading 39.15 Central Excise Tariff Act. The duty payment made during the period is also seen to be provisional and according to the appellants paid under protest.

On merits, therefore, the refund would be admissible to the appellants.

The only flaw in their action is having taken credit on their own in the PLA and the RG 23A in the Part II. They could not have straightaway done this as they claimed in their endorsement in the RT 12 as a consequential refund flowing out of the Commissioner's order on classification dated 2-5-1991. What they ought they have done properly would have been to come up with a refund application under Section 11B citing the Commissioner's order as a ground for refund. The argument of the appellants that they had chosen this method of taking credit on their own, as nothing was heard from the Assistant Commissioner regarding refund of duty paid under protest during 12-3-1990 to 18-4-1991 does not have any force because the Commissioner's adjudication order on classification was one which was only dropping the demand raised. On the part of the department also, it is submitted before us that the classification List No. 2/90 effective from 11-1-1990 classifying the goods in question under Heading 39.15 and claiming exemption under Notification No. 53/88 is yet to be finalised.

The department should have taken steps to finalise the matter especially when it is seen that the Tribunal has also pronounced upon the classification issued in June, 1994. In this view of the matter what emerges is that the appellants were at fault in taking the credit in PLA and RG 23A Part II in this case on their own without any direction or permission from the proper officer. They should have filed a refund claim under Section 11B because payment of duty under protest also will not dispense with the necessity of filing refund claim under Section 11B but it only saves the claim for being hit by limitation nor is the action of the appellants in this case covered by provisions of Rule 173-1 for which a direction by the Superintendent in the assessment memorandum for taking of the credit is essential and it is not the case of the appellants that there was such a direction but the fact remains the order dated 2-5-1991 of the Commissioner in their favour ultimately upheld by the Tribunal had given them a valid ground for a refund claim. However, for their lapse in this respect in taking the credit on their own without filing proper refund claim. But their eligibility to refund on merits, in our view, on the facts and in the circumstances of the case should not suffer. Therefore, we hold that the appellants are eligible for the amount in question as referred, and for their failure to follow prescribed procedure of filing a proper refund claim, a penalty, but at a lower level, will be justified. We, accordingly, reduce the penalty to Rs. 50,000/-(Rupees fifty thousand only). The appeal is disposed of in the above terms.