Senapathy Whiteley Ltd. Vs. Collector of C. Excise - Court Judgment

Excerpt:
1. the appellants are aggrieved with the order- in- original dt.18-1-1988 passed by collector of central excise, bangalore confirming the demand for ced amounting to rs. 52,968.73 on 11551.7 kgs. of craped filter paper falling under sub-heading 4805.90 of cet act, 1985 valued at rs. 3,45,785.95, which is alleged to have been cleared by suppression of true facts without payment of duty, under rule 9(2) of central excise rules, 1944 read with section 11a of the central excises & salt act, 1944. a penalty of rs. 6,000/- has also been imposed under rule 173q(1) of the central excise rules, 1944.the facts of the case are that the appellant (assessee) was clearing some varieties of paper falling under chapter 48 of the cet act, 1985.on a surprise visit to the factory premises on 19-1-1987, the supdt. of central excise noticed that the assessee manufacturing filter paper grade vs 272 among other products and were supplying the same to m/s.mico bangalore. on verification of classification list 4/86 dt.18-11-1986. which had been duly approved by the asstt. collector, it was noticed that the said variety of craped filter paper was declared as base filter paper falling under sub-heading 4805.20 attracting nil rate of duty. on a careful study of the nature, quality of craped filter paper and the process of its manufacture, the officers felt that the said item is not a base filter paper, but would fall under tariff item 4805.90.2. the assessee pointed out in their reply that prior to the amendment of the tariff, the item would fall under tariff item 17 of the erstwhile tariff and the show cause notice claiming to classify also under the heading of 4805.90 for the old tariff period is illegal. they also pointed out that the raw material mix in both the variety of base filter paper craped and base filter paper is the same and so also the process of manufacture. in trade and commercial parlance, the item was understood as base filter paper only and that it merited exemption read with 44/83, dated 1-3-1983. they pointed out that they had furnished the process of manufacture by their letter dt. 30-12-1986 and the same has been annexed with the show cause notice dt. 21-9-1987. it was pointed out that there was no misdeclaration or suppression as the classification list 4/86 had been approved only after due enquiry and verification. thus the demands were time-barred and that the goods were rightly classifiable under sub-heading 4805.20 of the get, 1985.3. the ld. collector has not appreciated their arguments. he has held that the item is classifiable under sub-heading 4805.90, without due application of mind as the period covered both under tariff and under new tariff and as such the order requires to be set aside. it is also pointed out that there is no oppression of facts in the light of the approved classification list and that the department had not placed any facts leading to suppression or misdeclaration. they had written base filter paper grade vs. 272, which according to their bona fide belief is a base paper and that is how the trade also understood it. if the department had any doubt regarding the correctness of the declaration, then they should have called for further particulars and verified the correctness of the declaration by keeping the classification list on provisional approval. as they had approved it, it clearly followed that the department had verified the authenticity and correctness of the declaration. they submitted that the demands were barred by time.4. we have heard shri koshy, ld. advocate for the appellant and shri sharad bhansali, ld. sdr for the revenue.5. the ld. advocate reiterating the pleas made before the ld. collector and in the appeal memo submitted that the department for the later periods has continued to classify the impugned goods under sub-heading 4805.20 as base paper. the department has not placed any evidence for seeking reclassification under sub-heading 4805.90 and that they have not discharged their burden of classification. there was no misdeclaration and thus the demands were barred by time. he pointed out that the ld. collector despite having been pointed [out] that for period [earlier] to march, 1986, duty cannot be confirmed under the new tariff, yet had done this mistake and hence the order suffered from patent illegality. he relied on the rulings rendered in the case of:collector of c. ex., meerut v. muzzaffarnagar steels - 1989 (44) e.l.t. 552s.j. industries v. collector of central excise, rajkot - 1994 (72) e.l.t. 98.6. shri sharad bhansali, ld. sdr vehemently argued and submitted that the item in question is not a base paper and that the ld. collector had given a detailed finding both on the merits as well as on the time bar.as regards confirmation of duty under sub-heading 4805.90 for period earlier to 1986 period, ld. sdr accepted that there is some mistake regarding this portion of the order, but it can be corrected on demand.he pointed out the party had not given full description of the products as required under rule 173b of the central excise rules, 1944. the letter dt. 30-12-1986 annexed with show cause notice, which gave the details of manufacture of the product is not of much consequence.7. we have carefully considered the submissions made by both the sides and have perused the records. the assessee had declared in their classification list 4/86, at item 41, base filter paper and in this had given the details of (xv) grades. the department is not challenging the classification of any of the 41 items or even the 14 other items described in the item 41 of the classification list. it is only sub-item xi described as "grade- vs. 272" which is challenged as not being a base filter paper, on the ground that the description is incomplete. the department having accepted the descriptions of 41 items and in the 41 items, even 14 items are not challenged, only one item is challenged, but unfortunately no evidence has been placed by the department, in the context of the manufacturing process, not having changed and the item remaining same, to allege that it is not a 'base filter paper'. there is no evidence of market enquiry or of trade and commercial understanding placed before us. the ld. advocate has filed before us copies of classification list 4/91-92 effective from 1-3-1992, wherein this item has been described in s. no. 43 as 'base; filter paper' (xix) craped grade cw.272. the department has accepted this description and has approved the classification under sub-heading 4805.20 b: get '85. it follows that the later events also disclose that even the department's! understanding has also continued to be to treat the impugned goods as 'base filter paper'. therefore, the description in classification list 4/86 cannot be said to be not full and complete.the classification list 4/86 has been duly approved and the presumption is that it has been done after 'due enquiry' and verification. in that event of the matter, the assessee can- not be alleged to have suppressed any description to evade the payment of duty. they have described the goods as per their bonafide understanding, as the manufacturing process continued to be same and that they were describing the goods in all their invoices as 'base filter paper'. the department has not placed any evidence to seek change of classification in respect of one variety of 'base filter paper' to sub-heading 4805.90 of get '85. the party has also given the details of the manufacturing process by their letter dt. 30-12-1986. in the light of the approved classification list and in the facts and circumstances of the case, it cannot be said that the appellants have suppressed the facts and that there is misdeclaration in the classification list 4/86. the ld.collector has also not applied his mind. he has confirmed duty for period prior to the introduction of new tariff under sub-heading 4905.90, which is clearly unsustainable. in the final analysis, the department having not proved their case, the impugned order is set aside by allowing this appeal.8. i broadly agree with the observations and findings of hon'ble member (j). however, i would like to clarify that in so far as the merits of the case are concerned the department's case has remained basically unsubstantiated in the absence of any market enquiry report, technical literature and the basis of observations and findings of ld. collector regarding the so-called distinction between base filter paper & craped filter paper. in other words, whether the craped filter paper is a variety of base filter paper or was a distinct commodity known to the trade as such has not been established beyond doubt.therefore, while in the circumstances of this case, the appeal is being accepted for the period to which it relates, it will still remain open to the department to take prospective action in accordance with law.

Judgment:
1. The appellants are aggrieved with the order- in- original dt.

18-1-1988 passed by Collector of Central Excise, Bangalore confirming the demand for CED amounting to Rs. 52,968.73 on 11551.7 kgs. of craped filter paper falling under sub-heading 4805.90 of CET Act, 1985 valued at Rs. 3,45,785.95, which is alleged to have been cleared by suppression of true facts without payment of duty, under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of the Central Excises & Salt Act, 1944. A penalty of Rs. 6,000/- has also been imposed under Rule 173Q(1) of the Central Excise Rules, 1944.

The facts of the case are that the appellant (assessee) was clearing some varieties of paper falling under Chapter 48 of the CET Act, 1985.

On a surprise visit to the factory premises on 19-1-1987, the Supdt. of Central Excise noticed that the assessee manufacturing filter paper grade VS 272 among other products and were supplying the same to M/s.

MICO Bangalore. On verification of classification list 4/86 dt.

18-11-1986. which had been duly approved by the Asstt. Collector, it was noticed that the said variety of craped filter paper was declared as Base filter paper falling under sub-heading 4805.20 attracting nil rate of duty. On a careful study of the nature, quality of craped filter paper and the process of its manufacture, the officers felt that the said item is not a base filter paper, but would fall under Tariff Item 4805.90.

2. The assessee pointed out in their reply that prior to the amendment of the tariff, the item would fall under Tariff Item 17 of the erstwhile tariff and the show cause notice claiming to classify also under the Heading of 4805.90 for the old tariff period is illegal. They also pointed out that the raw material mix in both the variety of base filter paper craped and base filter paper is the same and so also the process of manufacture. In Trade and Commercial parlance, the item was understood as base filter paper only and that it merited exemption read with 44/83, dated 1-3-1983. They pointed out that they had furnished the process of manufacture by their letter dt. 30-12-1986 and the same has been annexed with the show cause notice dt. 21-9-1987. It was pointed out that there was no misdeclaration or suppression as the classification list 4/86 had been approved only after due enquiry and verification. Thus the demands were time-barred and that the goods were rightly classifiable under sub-heading 4805.20 of the GET, 1985.

3. The ld. Collector has not appreciated their arguments. He has held that the item is classifiable under sub-heading 4805.90, without due application of mind as the period covered both under tariff and under new tariff and as such the order requires to be set aside. It is also pointed out that there is no oppression of facts in the light of the approved classification list and that the department had not placed any facts leading to suppression or misdeclaration. They had written base filter paper grade VS. 272, which according to their bona fide belief is a base paper and that is how the trade also understood it. If the department had any doubt regarding the correctness of the declaration, then they should have called for further particulars and verified the correctness of the declaration by keeping the classification list on provisional approval. As they had approved it, it clearly followed that the department had verified the authenticity and correctness of the declaration. They submitted that the demands were barred by time.

4. We have heard Shri Koshy, ld. Advocate for the appellant and Shri Sharad Bhansali, ld. SDR for the Revenue.

5. The ld. Advocate reiterating the pleas made before the ld. Collector and in the appeal memo submitted that the department for the later periods has continued to classify the impugned goods under sub-heading 4805.20 as base paper. The department has not placed any evidence for seeking reclassification under sub-heading 4805.90 and that they have not discharged their burden of classification. There was no misdeclaration and thus the demands were barred by time. He pointed out that the ld. Collector despite having been pointed [out] that for period [earlier] to March, 1986, duty cannot be confirmed under the new tariff, yet had done this mistake and hence the order suffered from patent illegality. He relied on the rulings rendered in the case of:Collector of C. Ex., Meerut v. Muzzaffarnagar Steels - 1989 (44) E.L.T. 552S.J. Industries v. Collector of Central Excise, Rajkot - 1994 (72) E.L.T. 98.

6. Shri Sharad Bhansali, ld. SDR vehemently argued and submitted that the item in question is not a base paper and that the ld. Collector had given a detailed finding both on the merits as well as on the time bar.

As regards confirmation of duty under sub-heading 4805.90 for period earlier to 1986 period, ld. SDR accepted that there is some mistake regarding this portion of the order, but it can be corrected on demand.

He pointed out the party had not given full description of the products as required under Rule 173B of the Central Excise Rules, 1944. The letter dt. 30-12-1986 annexed with show cause notice, which gave the details of manufacture of the product is not of much consequence.

7. We have carefully considered the submissions made by both the sides and have perused the records. The assessee had declared in their classification list 4/86, at item 41, Base filter Paper and in this had given the details of (XV) Grades. The department is not challenging the classification of any of the 41 items or even the 14 other items described in the item 41 of the classification list. It is only sub-item XI described as "grade- VS. 272" which is challenged as not being a base filter paper, on the ground that the description is incomplete. The department having accepted the descriptions of 41 items and in the 41 items, even 14 items are not challenged, only one item is challenged, but unfortunately no evidence has been placed by the department, in the context of the manufacturing process, not having changed and the item remaining same, to allege that it is not a 'base filter paper'. There is no evidence of market enquiry or of trade and commercial understanding placed before us. The ld. Advocate has filed before us copies of classification list 4/91-92 effective from 1-3-1992, wherein this item has been described in S. No. 43 as 'Base; filter paper' (XIX) craped Grade CW.272. The department has accepted this description and has approved the classification under sub-heading 4805.20 b: GET '85. It follows that the later events also disclose that even the department's! understanding has also continued to be to treat the impugned goods as 'Base Filter Paper'. Therefore, the description in classification list 4/86 cannot be said to be not full and complete.

The classification list 4/86 has been duly approved and the presumption is that it has been done after 'due enquiry' and verification. In that event of the matter, the assessee can- not be alleged to have suppressed any description to evade the payment of duty. They have described the goods as per their bonafide understanding, as the manufacturing process continued to be same and that they were describing the goods in all their invoices as 'base filter paper'. The department has not placed any evidence to seek change of classification in respect of one variety of 'base filter paper' to sub-heading 4805.90 of GET '85. The party has also given the details of the manufacturing process by their letter dt. 30-12-1986. In the light of the approved classification list and in the facts and circumstances of the case, it cannot be said that the appellants have suppressed the facts and that there is misdeclaration in the classification list 4/86. The ld.Collector has also not applied his mind. He has confirmed duty for period prior to the introduction of new tariff under sub-heading 4905.90, which is clearly unsustainable. In the final analysis, the department having not proved their case, the impugned order is set aside by allowing this appeal.

8. I broadly agree with the observations and findings of Hon'ble Member (J). However, I would like to clarify that in so far as the merits of the case are concerned the department's case has remained basically unsubstantiated in the absence of any market enquiry report, technical literature and the basis of observations and findings of ld. Collector regarding the so-called distinction between Base filter paper & Craped filter paper. In other words, whether the craped filter paper is a variety of base filter paper or was a distinct commodity known to the trade as such has not been established beyond doubt.

Therefore, while in the circumstances of this case, the appeal is being accepted for the period to which it relates, it will still remain open to the department to take prospective action in accordance with law.