Commissioner of C. Ex. and Customs vs Sarla Polyster Ltd.

Harsh a Devani, J.—In these appeals u/s 35G of the Central Excise Act, 1944 [the Act], the appellant-Commissioner, Central Excise and Customs, Vapi, has challenged the common order dated 29 May, 2009 [2009 (242) E.L.T. 110 (Tribunal)] made by the Customs, Excise and Service Tax Appellate Tribunal [the Tribunal] proposing the following questions:

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law, and has committed the substantial error of law, in holding that the demand raised qua the assessee-M/s. Sarla Polyster Ltd., for the period from 16-9-1999 to 28-2-2002, by way of the issuance of the show cause notice dated 4-9-2002, is barred by limitation?

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law, and has committed the substantial error in law, in holding that the revenue was not justified in invoking the extended period of limitation, by invoking the Proviso to Section -11[A][1] of the Central Excise Act, 1944?

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law in holding that the invocation of the extended period by the Revenue is not sustainable, ignoring the fact that the assessee had earlier classified its goods of Polyster/Nylon covered Yarn under Chapter Sub-Heading: 5402.61/6402.62 of the Central Excise Tariff Act, 1985 however, from July, 2001, the classification was deliberately changed to Chapter Sub-Heading: 56.06 of the said Act, 1985, though the proper classification has to be under Chapter Sub-Heading; 54.02, as was before, and further still continued to describe those goods as intermingled yam rather than the covered yam or the gimped yarn?

Whether in the facts and circumstances of the case, the learned Tribunal is justified in the eye of law in holding that the Department had the knowledge about the technology used by the assessee and hence the extended period could not have been invoked, which runs counter to the Larger Bench decision consisting of five members in the matter of 2003 (89) ECC 873 and followed in the matter of Nazareth Metal v. CCEC, Mumbai-II [ 2006 (205) E.L.T. 998 (Tri-Mumbai)]? [Annexure- "D" & "E"]

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law, in setting aside the penalty of Rs. 44,89,471/- imposed upon the said assessee u/s 11AC of the Central Excise Act, 1944, on the ground that the invocation of the extended period is not sustainable?

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law, in setting aside the penalty of Rs. 44,89,000/- imposed upon Shri Krishna Jhunjhunwala, Director of the said assessee under Rule 209A of the Central Excise Rules, 1944, read with Rule 26 of the Central Excise Rules, 2002, on the ground that the invocation of the extended period is not sustainable?

Whether in the facts and the circumstances of the case, the learned Tribunal is justified in the eye of law, in remanding the matter to reconsider de novo in the light of the Proviso to the Notification No. 02/95-C.E., dated 1-3-1995 and the law as regards to the exact amount of the duty payable, especially while confirming and upholding the classification of the products in the Order-in-Original dated 23-10-2003?

The assessee is, inter alia, engaged in the manufacture of polyester covered yam and nylon covered yam. Prior to July, 2001, the assessee was clearing the yam manufactured by it under Chapter 54 of the Central Excise Tariff Act 1985 (The Tariff Act). However, the assessee noticed that such yam on importation was being cleared by the Customs Department under Chapter 56 of the Tariff Act. It therefore, sought clarification and was advised that the yam manufactured by it being a type of covered yam, merits classification under Chapter 56 of the Tariff Act. Accordingly, the assessee, after intimating the department, started clearing the yarn manufactured by it under Chapter Sub-heading No. 5606.06 as against the Chapter sub-heading No. 5402.62/61 with effect from 2001. Proceedings came to be initiated against the assessee alleging that the polyester/nylon covered yam manufactured by it was not classifiable under Chapter sub-heading No. 5606.06, but under Chapter sub-heading No, 5402.62/61 and accordingly, demand of central excise duty equal to aggregate of customs duty of Rs. 15,96,013/- as well as demand of central excise duty equal to aggregate of customs duty of Rs. 28,96,358/- came to be raised along with interest and penalty. The proceedings culminated into an order dated 23rd October, 2003 made by the adjudicating authority, whereby, the demand of central excise duty came to be confirmed along with penalty and interest. Separate penalty also came to be imposed on the director who is the respondent in Tax Appeal No. 2432 of 2009.

Both the assessee as well as the director challenged the order made by the adjudicating authority by filing separate appeals before the Tribunal. Vide the impugned order, the Tribunal, on merits, held against the assessee upholding the Commissioner''s order as regards classification of the product. However, on the question of limitation, the Tribunal held that the extended period of limitation could not have been invoked and accordingly, set aside the demand beyond the period of limitation. The Tribunal also set aside the penalties imposed on the assessee as well as the Director.

Mr, Gaurang Bhatt, learned Standing Counsel for the appellant invited attention to the findings recorded by the adjudicating authority to submit that a case of suppression and wilful misstatement and misdeclaration on the part of the assessee had been proved beyond doubt and as such, the Tribunal was not justified in holding that the extended period of limitation could not have been invoked.

The Tribunal, in the impugned order, has held thus:

It is quite clear from the above that the appellants had brought all the facts to the notice of the department and the department was aware of the technology being used by the appellants. The appellant did not mis-declare the description or manufacturing process etc. The fact that Customs house had assessed the bill of entry for the same type of the yarn classifying it under heading 56.06 has not been disputed. In view of the above position explained above extended period should not have been invoked and demand consequent to the reclassification is to be limited to the period available to the department i.e., within one year only. In this case show cause notice was issued on 4-9-2002 and therefore, the demand prior to 1-8-2001 would be clearly time-barred.

Thus, from the findings recorded by the Tribunal, it is apparent that the Tribunal, upon appreciation of the evidence on record, has found that, as a matter of fact, the assessee did not mis-declare the description of the manufacturing process etc. The Tribunal, after recording that the Customs House had assessed the bill of entry of the same type of yam classifying it under Sub-Heading: 56.06, observed that the said fact had not been disputed by the Revenue, and was accordingly of the view that the extended period of limitation could not have been invoked.

In the light of the facts noted herein above, it is apparent that the assessee, initially, was classifying the goods under Chapter sub-heading No. 54.02. However, upon noticing that the Customs authorities were clearing such yarn under Chapter 56, the assessee, sought clarification in this regard was advised that the yarn manufactured by it merits classification under Chapter No. 56 of the Tariff Act. Accordingly, the assessee, after giving intimation to the department, started effecting clearances under Chapter 5606.06 of the Tariff Act. In the light of the aforesaid facts it cannot be said that there was any suppression, misstatement or misdeclaration on the part of the assessee. It is not in dispute that the Customs authorities were clearing such goods under Chapter 56 of the Tariff Act. The assessee, therefore, was entitled to entertain a bona fide belief that the product manufactured by it would fall under the said sub-heading. If upon entertaining such a belief the assessee has made a claim that the goods manufactured by it are classifiable under Chapter sub-heading 56 of the Tariff Act, that too after obtaining clarification in this regard, the same cannot be equated with suppression or misdeclaration.

The Tribunal, upon appreciating the evidence on record has found that there is no misdeclaration of the description of manufacturing process. As to whether there is suppression, mis-statement or misdeclaration is basically a question of fact which does not give rise to any question of law. In the circumstances, on facts when the Tribunal has found that there is no misdeclaration, it was fully justified in holding that the extended period of limitation could not have been invoked.

In the light of the aforesaid discussion, it is not possible to state that the Tribunal has committed any legal error in holding that the extended period of limitation could not have been invoked. In the circumstances, in the absence of any question of law, much less, a substantial question of law, the appeals are dismissed.