Divya Enterprises Vs. the Commissioner of Central - Court Judgment

Excerpt:
1. both these appeals raise a common question of law and facts and hence they are taken up together for disposal as per law.2. this appeal arises from oia no. 151/2001-ce dated 23.08.2001. the commissioner (appeals), in para 5 of the impugned order, has noted that the assessees were procuring fullers earth lumps, a mineral clay, which is also known as montmorillanite or bentonite. the same is crushed in jaw crusher and pulverized in the pulveriser. this powder is heated to about 200c to 300c in the furnace. then it is treated with sulphuric acid. after screening, it is packed in hdpe bags and cleared. the fullers earth powder, on heating, gets thermally activated and then by adjusting its ph value by the addition of sulphuric acid, gets powerful adsorption properties. the assessees were manufacturing various grades of activated bleaching earths viz. rice bran oil, for cotton seed oil, sf, sc-100, sc-60 rb/special 999, etc. for the purpose of de-coloursation. the commissioner (appeals) has noted that de-colourising agent has to have strong adsorption properties in case of cotton seed oil than that of soya oil for decolorising them. he has noted that this process carried out by the assessee is a process of manufacture and the product, in view of the changes brought out by several processes carried out by the assessee, would go out of chapter 25 and in the end it would be classifiable under ch 38.02 as activated bleaching earth. the commissioner (appeals) has relied on the hsn notes and also the material evidence in the matter.3. the learned counsel submits that there is no process of manufacture.the item remains as such even after the processes carried out by them and it has to be classified only under ch 25.02. he submits that the tribunal ruling, holding similar activity as a process of manufacture and that it goes out of chapter 25 and gets classified under chapter 38.02 as rendered in the case of manek chemicals pvt. ltd. v. cce, ahmedabad - , is clearly distinguishable. he has filed detailed written submission and argued vehemently for taking a different view. alternatively, he also prayed for referring the matter to a larger bench so that a different view is taken in so far as the assessees' case is concerned.4. the learned sdr submitted that there is no distinction in the facts of the assessees' case and that of the tribunal's ruling in manek chemicals pvt. ltd. he pointed out that once the processes or heating and addition of sulphuric acid is done, then structural changes takes place in the activated earth and in terms of the hsn explanatory note in chapter 38, the item goes out of chapter 25 and falls under chapter 38.02. he also points out to the exclusion clause in chapter 38 at pg.521 of hsn which clearly includes naturally active mineral products (e.g. fuller's earth), which have not undergone any treatment modifying their superficial structure. he prays for upholding the order.5. we have carefully considered the submissions in the assessees' case and find that the tribunal, in the manek chemicals case, has examined the issue in great detail and rejected the assessees' contention for classification under chapter 25. the hsn notes under chapter 38.02 clearly lays down at pg. 556 that "carbon and mineral subsistences are said to be activated when their superficial structure has been modified by appropriate treatment (with heat, chemicals, etc.) in order to make them suitable for certain purposes, such as de-clourising, gas or moisture adsorption, catalysts, ion-exchange or filtering". the exclusion clause in pg. 557 under chapter 38.02 also excludes naturally active mineral products, (e.g. fuller's earth), which have not undergone any treatment modifying their superficial structure. in terms of the chemical report, in this case, the admitted fact is that the fuller's earth are containing mineral substance and they have been heated and also added with chemicals and then used for decolourising the oils. therefore, it clearly falls within chapter 38.02.furthermore, what is excluded from chapter 38 and falls under chapter 25 are those naturally active mineral products (e.g. fuller's earth) which have not undergone any treatment modifying their superficial structure. the chemical report of shri v. ramachandra rao, clearly shows that whenever bentonite & montmorrillinite or fullers earth are heated and subjected to chemical treatment, then alumina, iron oxide, calcium oxide and magnesium oxide, will be converted into sulphates and superficial changes also occur after such chemical treatment. the findings recorded in paras 5 to 12 of the tribunal's ruling in the case of manek chemicals pvt. ltd. (supra) are extracted herein below.: 5. we have examined the rival submissions and arguments. the appellants have a grievance that their "final" submissions of 29-12-2000 were not considered by the adjudicating authority. we will be considering them in the appropriate context. the first question to be considered is regarding the classification of the product. the process of manufacture of the product, stated by the appellants in the memorandum of appeal, is as under : fine clay powder (bentonite) is purchased from the open market and the same is mixed with hydrochloric acid (hcl) or sulphuric acid (h[2]so[4]). the clay is then stirred at higher speed in mixer tanks, wherein steam is also applied to accelerate the process. as a result of such stirring, slurry is obtained, which is passed through filter press for filtering. as a result of this process, wet cake is obtained, which is allowed to be dried and thereafter pulverized into clay powder. this washed clay is packed in plastic bags of 25 kgs. each and sold under the trade name of "bleach-9". there is no dispute of the fact that the above process of manufacture was employed by m/s. mcpl. there is, again, no dispute of the fact that the product was sold by them to customers engaged in the activity of decolourising vegetable oils/fats, mineral oils etc. shri d.v. patel, director of the company, categorically admitted in his statement dated 19-11-98 that the clay underwent partial change of structure during the process of manufacture. in the declarations filed by the assessee under rule 174 for 1996-97 and 1997-98, they had described the product as 'activated earth' though they chose to describe it as "washed clay" in their 1998-99 declaration. though shri d.v. patel in his letter dated 23-11-98 sought to deny that there was change of structure of clay during the process of manufacture, significantly, he did not disown the nomenclature 'activated earth' employed in the declarations. on a perusal of the hsn notes on activated natural mineral products under heading 38.02, we find that there is a direct connection between activation and change/modification of superficial structure. according to the hsn notes, mineral substances are said to be "activated" when their superficial structure has been modified by appropriate treatment (with heat, chemicals etc.) in order to make them suitable for decolourising, gas or moisture adsorption, catalysis, ion-exchange or filtering. in other words, there can be no activation without superficial structural modification. the appellants, who declared their product under rule 174 as activated, cannot be heard to argue against this scientific truth recognized under the hsn. the hsn notes further say that chemical treatment of mineral substances like clay in the presence of natural impurities or added foreign matter causes a change in the structure of the basic structure, increase in the specific surface and (in the case of crystalline substances) distortions in the lattice due to the insertion or substitution of atoms with different valencies. the free valencies which result from the crystal lattice distortions render the product active as a chemical adsorbent, a catalyst or an ion-exchanger. where the basic substance used for activation is clay, the product would be called activated clay. the hsn notes further cay that, when the activation of clay is done by treatment with acid, as in the appellants' case, the product is mainly used for decolourising animal/vegetable/mineral oils, fats or waxes. it is pertinent to note in this context that the product cleared by the appellants during the material period was meant to be used for decolourising vegetable/mineral oils, fats, waxes etc. 6. in view of the appellants' declaration that their product was activated earth and in view of the unquestionable scientific fact (as adopted into the hsn and therefrom into our tariff) that activation is the effect of modification/change of superficial structure, the statement dated 23-11-98 given by shri d.v. patel disowning his earlier statement dated 19-11-98 that there was partial change of structure of clay in the process of manufacture appears to be bereft of bona fides, and so does his "final" submission made to the commissioner in letter dated 29-12-2000 which was also in the nature of retracting the statement of 19-11-98. it is shri d.v. patel's statement dated 19-11-98 that is found to be consistent with the description 'activated earth' given in the declarations. it is that statement only which supports the end use of the product as a decolourising agent. the method of manufacture of the product, the chemical examiner's opinion regarding the method of manufacture, the end-use of the product, - all these squarely match the parameters laid down under the hsn for activated clay under heading no. 38.02. that bentonite is a natural mineral product and that it was activated by treatment with acid by m/s. mcpl are established facts now beyond the shadow of doubt. therefore, the description "activated natural mineral product" under cet heading 38.02 is a specific and appropriate description for the product under consideration. 7. ld. counsel's arguments based on other indian and foreign manufacturers' literature on activated clays/bleaching earths have also been considered. he referred to two 'tonsil' branded bleaching earths viz. "tonsil optimum 210 ff" and "tonsil optimum 230 ff" and pointed out that their ph values were less than 7 as per the technical information (available on record) of the foreign manufacturers of these products. he also referred to 'cap-sil' branded activated clay manufactured by m/s. capital chemicals, gondal, rajkot (india) and submitted that the ph value of this product was also less than 7 as per the manufacturers' date as well as analytical report (both available on record). contrasting the above ph values with the ph value (7.54) reported for "bleach-9" by the chemical examiner, ld. advocate has argued that "bleach-9" with a ph higher than 7 cannot be activated earth. we cannot accept this argument for two reasons. firstly, neither the hsn nor any literature or other evidence available on record has indicated that ph value is a determinative factor for the activation of clays or clayey earths. secondly, the ph value of "bleach-9" reported by the chemical examiner is not comparable with the ph values of the "tonsil" and "cap-sil" branded products referred to by the counsel inasmuch as the concentration of the solution/suspension with which the ph was measured has neither been disclosed by the chemical examiner in his cross-examination nor stated in his test report. the ph values of "tonsil" and "cap-sil" are found to have been measured with 10% suspension of the respective samples. 8. cet heading no. 25.05 pertains to mineral substances not elsewhere specified. since activated natural mineral products like activated clay have been specified under cet heading no. 38.02, they cannot fall under cet heading 25.05. the appellants have claimed the classification under cet heading 25.05 on the strength of chapter note 2 of chapter 25 which reads as under: 2. except where their context otherwise requires, heading nos. 25.01, 25.03 and 25.05 cover only products which have been washed (even with chemical substances, eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, or 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 or subheading. the above note says that headings 25.05 etc. cover only those products which have been washed, crushed, ground, powdered, etc. the note, however, lays down an exception, i.e., where the washing is done with chemical substances (like the acid used by the present appellants) for eliminating impurities and where it is accompanied by a change of structure, the heading will not cover the product. the appellants' product squarely attracts this exception provided under chapter note 2, inasmuch as, as we have found, bentonite had undergone change of superficial structure during its activation by treatment with acid. we, therefore, hold that the product under reference is classifiable as activated natural mineral product under cet heading 38.02 and not as "mineral substance not elsewhere specified" under heading 25.05. duty of excise is leviable on the product accordingly. 9. the demand of duty on the product manufactured and cleared by m/s. mcpl during 1995-96 to 17-11-98 has been confirmed by the commissioner by invoking the extended period of limitation under the proviso to section 11a(1) of the ce act. the grounds for invoking the extended period of limitation are the alleged wilful misstatement, misdeclaration and suppression of facts with intent to evade payment of duty. we find that the appellants had declared their product as "activated earth" in their declarations filed under rule 174. however, for 1998-99, they declared the product as "washed clay". in all their declarations, they also represented their process of manufacture as follows: manufacturing is carried out by washing clay with chemical substance to remove impurities and then crushed by mechanical means and is packed in appropriate bags activated clays and activated earths were specifically mentioned as "other activated natural mineral products" in the hsn notes under heading 38.02. the notes further explained that activated clays/earths consisted of selected colloidal clays or clayey earths activated by means of an acid or an alkali; dried and then ground. the department, whose burden it was to classify any excisable goods, should have checked the description and the process of manufacture declared by the party in the light of the hsn notes. in our view, the description "activated earth" read with the process of manufacture disclosed by m/s. mcpl in their declarations was enough indication and information to the department that the product was classifiable as "activated natural mineral product" under cet heading 38.02. the appellants cannot be said to have misstated, misdeclared or suppressed any fact before the department. the department has alleged that m/s. mcpl misclassified their product with intent to evade payment of duty. m/s. mcpl had, of course, claimed classification of their product under cet heading 25.05, which entry carried 'nil' rate of duty. but that was a mere claim and not a case of misclassification, for it was the department's job to classify the goods and only the proper officer of the department could classify or misclassify the goods. to state that claiming classification of excisable goods under a particular tariff entry for avoidance of duty is a case of misclassifying the goods for evasion of duty will itself be a gross misstatement. further, the fact remains that the department did not object to m/s. mcpl's claim for classifying their product under heading 25.05 at any point of time during the material period. therefore the allegation of misclassification against m/s. mcpl would not hold ground. when m/s. mcpl declared their product as "activated earth", they were aware of the classifiability of the product as "activated natural mineral product" under cet heading 38.02. the department was also equally aware of the fact. where both the assessee and the department were aware of the material facts, it cannot be held that there was suppression of facts by the former before the latter with intent to evade payment of duty. the apex court has held that, in a case where both the department and the assessee are equally aware of the material facts, there is no suppression of facts by the assessee and hence the extended period of limitation can not be invoked against them. the case law cited by ld. dr in support of the invocation of extended period of limitation does not seem to be applicable to the present case. that was a case in which the lower authorities had concurrently found that the assessee had consciously withheld information and the apex court refused to interfere with the concurrent finding. therefore, we are not impressed with the reliance placed by ld. dr on the supreme court's decision in madras petro-chem (supra). for the reasons noted above, that part of the demand of duty which is for the period beyond the normal period of six months is barred by limitation. 10. we have also appreciated the arguments put forth by ld. counsel in relation to the penalties imposed on the assessee. no penalty can be imposed under section 11ac in the absence of fraud, collusion, wilful suppression/misstatement etc, which are the grounds for raising demand of duty for any period beyond the normal period of six months prescribed under section 11a(1) of the ce act. we have found that such grounds do not exist in the instant case. the commissioner has confiscated the seized goods under rule 173-q on the ground of non-accountal in rg-1 and has also imposed a penalty on m/s. mcpl under that rule. he has not found that the non-accountal was with intent to evade payment of duty. this tribunal has consistently held vide bhillai conductors (p) ltd. v. cce, raipur 2000 (125) e.l.t. 781 that a mere non-accountal of excisable goods without mens rea would not attract the penal provisions of rule 173q. following this view, we hold that the confiscation and penalty ordered under rule 173q by the adjudicating authority are not sustainable. 11. as regards the penalty imposed under rule 209a on shri d.v. patel, we find that there is no finding in the commissioner's order that shri patel dealt with excisable goods in any manner that rendered the goods liable to confiscation or that he had reason to believe that the goods were liable to confiscation. the necessary ground for imposing penalty under rule 209a has not been established. even otherwise, once the confiscation is set aside, the penalty under rule 209a, which is dependent on the confiscabilily of the goods, will also have to be vacated. 12. in the result, appeal no. 809/2001 is allowed and appeal no. 808/2001 is partly allowed as under : (a) m/s. mcpl's product, cleared under the trade name "bleach-9" during 1995-96 to 17-11-98, is classifiable as activated natural mineral product under cet heading 38.02 and chargeable to duty accordingly. (b) the demand of duty on the above product cleared during the period beyond the normal period of six months preceding the date of the show cause notice is barred by limitation. the commissioner is directed to work out the duty for the said normal period and recover the same from m/s. mcpl in accordance with law. (c) the confiscation of the seized goods is set aside and consequently the redemption fine stands vacated.6. in terms of the above findings, the facts are identical in the present case. by applying the ratio thereto, we find no merit in this appeal and reject the same.7. in this appeal, the commissioner (appeals), in oia no. 648/2002-ce dated 28.10.2002 has clearly noted that the chemical examiner's report is not challenged by the assessee. the chemical examiner's report, which is extracted in the show cause notice, clearly indicates that the sample was (fuller's earth) composing of aluminium silicate (clay/earth) and "the activated fuller's earth" is also composed of aluminium silicate (activated clay/earth). he has noted that the activated fuller's earth has stronger de-colourisation properties than the fuller's earth, the assessee did not challenge the actual finding that the item was heated and treated with water and sulphuric acid and subject the slurry with steam at high temperature. the assessee converted the ingredients and the leached salts which arise in the process was subjected to filtration system. in this system, all the dissolved salts and residual acid is washed free in filter press with water. the washed fuller's earth is dried, grinded as a final product.in view of these processes, both the authorities have clearly held that the item does not remain under chapter 25 in terms of chapter note 1 to chapter 25 of the explanatory notes of hsn which clearly noted that the item is an activated fuller's earth and requires to be classified under chapter 38. it is not disputed that the item is used as decolourising agent in the manufacture of oils.8. the learned counsel, in this case, also distinguished the tribunal ruling and prayed for reference to larger bench on the ground that the process did not bring into a change in the fuller's earth and it remained the same for classification under chapter 25 and that it contained the specified ingredient of chapter 38.9. the learned sdr submitted that both the orders are correct and are required to be upheld in the light of marco chemicals pvt. ltd. case.10. on a careful consideration, we notice that the processes carried out by the assessee on the fuller's earth has brought a change and, therefore, in terms of exclusion note of hsn as in pg. 557, the item cannot be classified under chapter 25. furthermore, the explanatory note under chapter 38.02 as appearing in pg. 556 is fully satisfied.the products are obtained by chemical or heat treatment and they are used for de-colourising the vegetable/mineral oils, fats, waxes, etc.therefore, the finding recorded by the tribunal in the case of manek chemicals pvt. ltd. clearly applies to the facts of the case. it is not possible to take a different view in the light of judicial discipline.following the ratio of the tribunal ruling in the case of manek chemicals pvt. ltd. case, we uphold the impugned orders by dismissing both these appeals.(operative portion of this order was pronounced in open court on conclusion of the hearing)

Judgment:
1. Both these appeals raise a common question of law and facts and hence they are taken up together for disposal as per law.

2. This appeal arises from OIA No. 151/2001-CE dated 23.08.2001. The Commissioner (Appeals), in para 5 of the impugned order, has noted that the assessees were procuring Fullers Earth lumps, a mineral clay, which is also known as Montmorillanite or Bentonite. The same is crushed in jaw crusher and pulverized in the Pulveriser. This powder is heated to about 200C to 300C in the furnace. Then it is treated with Sulphuric Acid. After screening, it is packed in HDPE bags and cleared. The Fullers Earth Powder, on heating, gets thermally activated and then by adjusting its PH value by the addition of Sulphuric Acid, gets powerful adsorption properties. The assessees were manufacturing various grades of Activated Bleaching Earths Viz. Rice Bran Oil, for Cotton Seed Oil, SF, SC-100, SC-60 RB/SPECIAL 999, etc. for the purpose of de-coloursation. The Commissioner (Appeals) has noted that de-colourising agent has to have strong adsorption properties in case of Cotton Seed Oil than that of Soya oil for decolorising them. He has noted that this process carried out by the assessee is a process of manufacture and the product, in view of the changes brought out by several processes carried out by the assessee, would go out of Chapter 25 and in the end it would be classifiable under CH 38.02 as Activated Bleaching Earth. The Commissioner (Appeals) has relied on the HSN Notes and also the material evidence in the matter.

3. The learned Counsel submits that there is no process of manufacture.

The item remains as such even after the processes carried out by them and it has to be classified only under CH 25.02. He submits that the Tribunal ruling, holding similar activity as a process of manufacture and that it goes out of Chapter 25 and gets classified under Chapter 38.02 as rendered in the case of Manek Chemicals Pvt. Ltd. v. CCE, Ahmedabad - , is clearly distinguishable. He has filed detailed written submission and argued vehemently for taking a different view. Alternatively, he also prayed for referring the matter to a Larger Bench so that a different view is taken in so far as the assessees' case is concerned.

4. The learned SDR submitted that there is no distinction in the facts of the assessees' case and that of the Tribunal's ruling in Manek Chemicals Pvt. Ltd. He pointed out that once the processes or heating and addition of Sulphuric Acid is done, then structural changes takes place in the Activated Earth and in terms of the HSN Explanatory Note in Chapter 38, the item goes out of Chapter 25 and falls under Chapter 38.02. He also points out to the exclusion clause in Chapter 38 at pg.

521 of HSN which clearly includes Naturally active mineral products (e.g. fuller's earth), which have not undergone any treatment modifying their superficial structure. He prays for upholding the order.

5. We have carefully considered the submissions in the assessees' case and find that the Tribunal, in the Manek Chemicals case, has examined the issue in great detail and rejected the assessees' contention for classification under Chapter 25. The HSN Notes under Chapter 38.02 clearly lays down at pg. 556 that "Carbon and Mineral subsistences are said to be activated when their superficial structure has been modified by appropriate treatment (with heat, chemicals, etc.) in order to make them suitable for certain purposes, such as de-clourising, gas or moisture adsorption, catalysts, ion-exchange or filtering". The exclusion clause in pg. 557 under Chapter 38.02 also excludes Naturally active mineral products, (e.g. Fuller's earth), which have not undergone any treatment modifying their superficial structure. In terms of the Chemical Report, in this case, the admitted fact is that the Fuller's Earth are containing mineral substance and they have been heated and also added with chemicals and then used for decolourising the oils. Therefore, it clearly falls within Chapter 38.02.

Furthermore, what is excluded from Chapter 38 and falls under Chapter 25 are those Naturally active mineral products (e.g. Fuller's earth) which have not undergone any treatment modifying their superficial structure. The Chemical report of Shri V. Ramachandra Rao, clearly shows that whenever Bentonite & Montmorrillinite or Fullers Earth are heated and subjected to chemical treatment, then Alumina, Iron oxide, Calcium oxide and Magnesium Oxide, will be converted into Sulphates and superficial changes also occur after such chemical treatment. The findings recorded in paras 5 to 12 of the Tribunal's ruling in the case of Manek Chemicals Pvt. Ltd. (supra) are extracted herein below.: 5. We have examined the rival submissions and arguments. The appellants have a grievance that their "final" submissions of 29-12-2000 were not considered by the adjudicating authority. We will be considering them in the appropriate context. The first question to be considered is regarding the classification of the product. The process of manufacture of the product, stated by the appellants in the memorandum of appeal, is as under : Fine clay powder (bentonite) is purchased from the open market and the same is mixed with hydrochloric acid (HCl) or sulphuric acid (H[2]SO[4]). The clay is then stirred at higher speed in mixer tanks, wherein steam is also applied to accelerate the process. As a result of such stirring, slurry is obtained, which is passed through filter press for filtering. As a result of this process, wet cake is obtained, which is allowed to be dried and thereafter pulverized into clay powder. This washed clay is packed in plastic bags of 25 kgs. each and sold under the trade name of "Bleach-9".

There is no dispute of the fact that the above process of manufacture was employed by M/s. MCPL. There is, again, no dispute of the fact that the product was sold by them to customers engaged in the activity of decolourising vegetable oils/fats, mineral oils etc. Shri D.V. Patel, Director of the company, categorically admitted in his statement dated 19-11-98 that the clay underwent partial change of structure during the process of manufacture. In the declarations filed by the assessee under Rule 174 for 1996-97 and 1997-98, they had described the product as 'Activated Earth' though they chose to describe it as "washed clay" in their 1998-99 declaration. Though Shri D.V. Patel in his letter dated 23-11-98 sought to deny that there was change of structure of clay during the process of manufacture, significantly, he did not disown the nomenclature 'Activated Earth' employed in the declarations. On a perusal of the HSN Notes on activated natural mineral products under Heading 38.02, we find that there is a direct connection between activation and change/modification of superficial structure.

According to the HSN Notes, mineral substances are said to be "activated" when their superficial structure has been modified by appropriate treatment (with heat, chemicals etc.) in order to make them suitable for decolourising, gas or moisture adsorption, catalysis, ion-exchange or filtering. In other words, there can be no activation without superficial structural modification. The appellants, who declared their product under Rule 174 as activated, cannot be heard to argue against this scientific truth recognized under the HSN. The HSN notes further say that chemical treatment of mineral substances like clay in the presence of natural impurities or added foreign matter causes a change in the structure of the basic structure, increase in the specific surface and (in the case of crystalline substances) distortions in the lattice due to the insertion or substitution of atoms with different valencies. The free valencies which result from the crystal lattice distortions render the product active as a chemical adsorbent, a catalyst or an ion-exchanger. Where the basic substance used for activation is clay, the product would be called activated clay. The HSN Notes further cay that, when the activation of clay is done by treatment with acid, as in the appellants' case, the product is mainly used for decolourising animal/vegetable/mineral oils, fats or waxes. It is pertinent to note in this context that the product cleared by the appellants during the material period was meant to be used for decolourising vegetable/mineral oils, fats, waxes etc.

6. In view of the appellants' declaration that their product was activated earth and in view of the unquestionable scientific fact (as adopted into the HSN and therefrom into our Tariff) that activation is the effect of modification/change of superficial structure, the statement dated 23-11-98 given by Shri D.V. Patel disowning his earlier statement dated 19-11-98 that there was partial change of structure of clay in the process of manufacture appears to be bereft of bona fides, and so does his "final" submission made to the Commissioner in letter dated 29-12-2000 which was also in the nature of retracting the statement of 19-11-98. It is Shri D.V. Patel's statement dated 19-11-98 that is found to be consistent with the description 'activated earth' given in the declarations. It is that statement only which supports the end use of the product as a decolourising agent. The method of manufacture of the product, the Chemical Examiner's opinion regarding the method of manufacture, the end-use of the product, - all these squarely match the parameters laid down under the HSN for activated clay under Heading No. 38.02. That bentonite is a natural mineral product and that it was activated by treatment with acid by M/s. MCPL are established facts now beyond the shadow of doubt. Therefore, the description "activated natural mineral product" under CET Heading 38.02 is a specific and appropriate description for the product under consideration.

7. Ld. Counsel's arguments based on other Indian and foreign manufacturers' literature on Activated clays/Bleaching Earths have also been considered. He referred to two 'TONSIL' branded bleaching earths viz. "TONSIL OPTIMUM 210 FF" and "TONSIL OPTIMUM 230 FF" and pointed out that their pH values were less than 7 as per the Technical Information (available on record) of the foreign manufacturers of these products. He also referred to 'CAP-SIL' branded activated clay manufactured by M/s. Capital Chemicals, Gondal, Rajkot (India) and submitted that the pH value of this product was also less than 7 as per the manufacturers' date as well as analytical report (both available on record). Contrasting the above pH values with the pH value (7.54) reported for "Bleach-9" by the Chemical Examiner, ld. Advocate has argued that "Bleach-9" with a pH higher than 7 cannot be activated earth. We cannot accept this argument for two reasons. Firstly, neither the HSN nor any literature or other evidence available on record has indicated that pH value is a determinative factor for the activation of clays or clayey earths. Secondly, the pH value of "Bleach-9" reported by the Chemical Examiner is not comparable with the pH values of the "TONSIL" and "CAP-SIL" branded products referred to by the counsel inasmuch as the concentration of the solution/suspension with which the pH was measured has neither been disclosed by the Chemical Examiner in his cross-examination nor stated in his test report. The pH values of "TONSIL" and "CAP-SIL" are found to have been measured with 10% suspension of the respective samples.

8. CET Heading No. 25.05 pertains to mineral substances not elsewhere specified. Since activated natural mineral products like activated clay have been specified under CET Heading No. 38.02, they cannot fall under CET Heading 25.05. The appellants have claimed the classification under CET Heading 25.05 on the strength of Chapter Note 2 of Chapter 25 which reads as under: 2. Except where their context otherwise requires, heading Nos.

25.01, 25.03 and 25.05 cover only products which have been washed (even with chemical substances, eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, or 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 or subheading.

The above Note says that Headings 25.05 etc. cover only those products which have been washed, crushed, ground, powdered, etc. The Note, however, lays down an exception, i.e., where the washing is done with chemical substances (like the acid used by the present appellants) for eliminating impurities and where it is accompanied by a change of structure, the Heading will not cover the product.

The appellants' product squarely attracts this exception provided under Chapter Note 2, inasmuch as, as we have found, bentonite had undergone change of superficial structure during its activation by treatment with acid. We, therefore, hold that the product under reference is classifiable as activated natural mineral product under CET Heading 38.02 and not as "mineral substance not elsewhere specified" under Heading 25.05. Duty of excise is leviable on the product accordingly.

9. The demand of duty on the product manufactured and cleared by M/s. MCPL during 1995-96 to 17-11-98 has been confirmed by the Commissioner by invoking the extended period of limitation under the proviso to Section 11A(1) of the CE Act. The grounds for invoking the extended period of limitation are the alleged wilful misstatement, misdeclaration and suppression of facts with intent to evade payment of duty. We find that the appellants had declared their product as "activated earth" in their declarations filed under Rule 174. However, for 1998-99, they declared the product as "washed clay". In all their declarations, they also represented their process of manufacture as follows: Manufacturing is carried out by washing clay with chemical substance to remove impurities and then crushed by mechanical means and is packed in appropriate bags Activated clays and activated earths were specifically mentioned as "other activated natural mineral products" in the HSN notes under Heading 38.02. The notes further explained that activated clays/earths consisted of selected colloidal clays or clayey earths activated by means of an acid or an alkali; dried and then ground.

The department, whose burden it was to classify any excisable goods, should have checked the description and the process of manufacture declared by the party in the light of the HSN notes. In our view, the description "activated earth" read with the process of manufacture disclosed by M/s. MCPL in their declarations was enough indication and information to the department that the product was classifiable as "activated natural mineral product" under CET Heading 38.02. The appellants cannot be said to have misstated, misdeclared or suppressed any fact before the department. The department has alleged that M/s. MCPL misclassified their product with intent to evade payment of duty. M/s. MCPL had, of course, claimed classification of their product under CET Heading 25.05, which entry carried 'nil' rate of duty. But that was a mere claim and not a case of misclassification, for it was the department's job to classify the goods and only the proper officer of the department could classify or misclassify the goods. To state that claiming classification of excisable goods under a particular Tariff entry for avoidance of duty is a case of misclassifying the goods for evasion of duty will itself be a gross misstatement. Further, the fact remains that the department did not object to M/s. MCPL's claim for classifying their product under Heading 25.05 at any point of time during the material period. Therefore the allegation of misclassification against M/s. MCPL would not hold ground. When M/s.

MCPL declared their product as "activated earth", they were aware of the classifiability of the product as "activated natural mineral product" under CET Heading 38.02. The department was also equally aware of the fact. Where both the assessee and the department were aware of the material facts, it cannot be held that there was suppression of facts by the former before the latter with intent to evade payment of duty. The Apex Court has held that, in a case where both the department and the assessee are equally aware of the material facts, there is no suppression of facts by the assessee and hence the extended period of limitation can not be invoked against them. The case law cited by ld. DR in support of the invocation of extended period of limitation does not seem to be applicable to the present case. That was a case in which the lower authorities had concurrently found that the assessee had consciously withheld information and the Apex Court refused to interfere with the concurrent finding. Therefore, we are not impressed with the reliance placed by ld. DR on the Supreme Court's decision in Madras Petro-Chem (supra). For the reasons noted above, that part of the demand of duty which is for the period beyond the normal period of six months is barred by limitation.

10. We have also appreciated the arguments put forth by ld. Counsel in relation to the penalties imposed on the assessee. No penalty can be imposed under Section 11AC in the absence of fraud, collusion, wilful suppression/misstatement etc, which are the grounds for raising demand of duty for any period beyond the normal period of six months prescribed under Section 11A(1) of the CE Act. We have found that such grounds do not exist in the instant case. The Commissioner has confiscated the seized goods under Rule 173-Q on the ground of non-accountal in RG-1 and has also imposed a penalty on M/s. MCPL under that Rule. He has not found that the non-accountal was with intent to evade payment of duty. This Tribunal has consistently held vide Bhillai Conductors (P) Ltd. v. CCE, Raipur 2000 (125) E.L.T. 781 that a mere non-accountal of excisable goods without mens rea would not attract the penal provisions of Rule 173Q. Following this view, we hold that the confiscation and penalty ordered under Rule 173Q by the adjudicating authority are not sustainable.

11. As regards the penalty imposed under Rule 209A on Shri D.V. Patel, we find that there is no finding in the Commissioner's order that Shri Patel dealt with excisable goods in any manner that rendered the goods liable to confiscation or that he had reason to believe that the goods were liable to confiscation. The necessary ground for imposing penalty under Rule 209A has not been established. Even otherwise, once the confiscation is set aside, the penalty under Rule 209A, which is dependent on the confiscabilily of the goods, will also have to be vacated.

12. In the result, Appeal No. 809/2001 is allowed and Appeal No. 808/2001 is partly allowed as under : (a) M/s. MCPL's product, cleared under the trade name "Bleach-9" during 1995-96 to 17-11-98, is classifiable as activated natural mineral product under CET Heading 38.02 and chargeable to duty accordingly.

(b) The demand of duty on the above product cleared during the period beyond the normal period of six months preceding the date of the show cause notice is barred by limitation. The Commissioner is directed to work out the duty for the said normal period and recover the same from M/s. MCPL in accordance with law.

(c) The confiscation of the seized goods is set aside and consequently the redemption fine stands vacated.

6. In terms of the above findings, the facts are identical in the present case. By applying the ratio thereto, we find no merit in this appeal and reject the same.

7. In this appeal, the commissioner (Appeals), in OIA No. 648/2002-CE dated 28.10.2002 has clearly noted that the Chemical Examiner's Report is not challenged by the assessee. The Chemical Examiner's Report, which is extracted in the Show Cause Notice, clearly indicates that the sample was (Fuller's earth) composing of Aluminium Silicate (Clay/Earth) and "the Activated Fuller's Earth" is also composed of Aluminium Silicate (Activated Clay/Earth). He has noted that the Activated Fuller's Earth has stronger de-colourisation properties than the Fuller's Earth, The assessee did not challenge the actual finding that the item was heated and treated with water and Sulphuric Acid and subject the slurry with steam at high temperature. The assessee converted the ingredients and the leached salts which arise in the process was subjected to filtration system. In this system, all the dissolved salts and residual acid is washed free in filter press with water. The washed Fuller's earth is dried, grinded as a final product.

In view of these processes, both the authorities have clearly held that the item does not remain under Chapter 25 in terms of Chapter Note 1 to Chapter 25 of the Explanatory Notes of HSN which clearly noted that the item is an Activated Fuller's Earth and requires to be classified under Chapter 38. It is not disputed that the item is used as decolourising agent in the manufacture of oils.

8. The learned Counsel, in this case, also distinguished the Tribunal ruling and prayed for reference to Larger Bench on the ground that the process did not bring into a change in the Fuller's Earth and it remained the same for classification under Chapter 25 and that it contained the specified ingredient of Chapter 38.

9. The learned SDR submitted that both the orders are correct and are required to be upheld in the light of Marco Chemicals Pvt. Ltd. Case.

10. On a careful consideration, we notice that the processes carried out by the assessee on the Fuller's Earth has brought a change and, therefore, in terms of exclusion note of HSN as in pg. 557, the item cannot be classified under Chapter 25. Furthermore, the Explanatory Note under Chapter 38.02 as appearing in pg. 556 is fully satisfied.

The products are obtained by chemical or heat treatment and they are used for de-colourising the vegetable/mineral oils, fats, waxes, etc.

Therefore, the finding recorded by the Tribunal in the case of Manek Chemicals Pvt. Ltd. clearly applies to the facts of the case. It is not possible to take a different view in the light of judicial discipline.

Following the ratio of the Tribunal ruling in the case of Manek Chemicals Pvt. Ltd. Case, we uphold the impugned orders by dismissing both these appeals.

(Operative portion of this Order was pronounced in open court on conclusion of the hearing)