2025 (5) TMI 641 - AT - Central Excise

Classification of goods - classifiable under Chapter 15 of the Central Excise Tariff Act 1985 or under Chapter 34 - entitlement of exemption under N/N. 3/2006-C.E. dated 1-3-2006 - extended period of limitation - Penalty on appellant company - Separate penalty imposed on the proprietor. Classification of goods - classifiable under Chapter 15 of the Central Excise Tariff Act 1985 or under Chapter 34 - HELD THAT - From a perusal of the said Tariff Headings under 3403 it is found that Chapter Heading 3403 deals with Lubricating Preparations . It is on record that the goods manufactured by the appellant-company are used as solutions for lubrication of chain conveyors in LPG bottling plants potassium base brown soap anti-adhesive for batch off. conkote equivalent conkote brown soap sodium hypochlorite and detergent powder - Chapter Heading 3403 specifically covers lubricating preparations. As per the interpretative rules for classification of goods when a product is classifiable under more than one Chapter Heading the Chapter Heading which is more specific is to be preferred over the general heading. In the present case the goods manufactured by the appellant viz. lubricating preparations are specifically mentioned under Chapter Heading 3403 and accordingly thus the appropriate classification of the impugned goods is under the Chapter Heading 3403 only. Entitlement of exemption under N/N. 3/2006-C.E. dated 1-3-2006 - appellants contended that they were of the bona fide belief that the said goods would be classifiable under Tariff Item No.1518 0040 of the CETA which was exempted under N/N. 3/2006-C.E. dated 1-3-2006 - HELD THAT - The goods are not classifiable under the Tariff Heading 15180040 and hence the appellant is not eligible for the benefit of the said exemptions. Extended period of limitation - HELD THAT - The appellants have not suppressed any information from the Department and the Department had approved their classification. Thus it is observed that the Department was aware that the appellant had been classifying the said goods under Chapter Heading 1518 and availing the benefit of Notification No. 3/2005-C.E. dated 24.02.2005 as amended by Notification Nos. 10/2006-C.E. dated 01.03.2006 and 12/2012-C.E. dated 17.03.2012. Thus the submission made by the appellants that the Department was well aware of the classification adopted by the appellant and the benefit of the said Notification availed by them agreed upon and hence the allegation of suppression of facts is not established in this case. Under these circumstances the demands confirmed in the impugned order by invoking the extended period of limitation is not sustainable. Accordingly the demand confirmed is restricted to the normal period of limitation. Penalty on appellant company - HELD THAT - Since there is no suppression of facts with intention to evade the duty established in this case it is held that no penalty imposable on the appellant-company. Accordingly the penalty imposed on the appellant-company is set aside. Separate penalty imposed on the proprietor - HELD THAT - It is a settled law that that identity of a proprietor and its proprietorship concern are one and the same and hence separate demands cannot be raised against both the proprietor and the proprietorship concern - a separate demand cannot be raised against the proprietor. As the demand against the proprietor is not sustained no penalty is imposable on the proprietor / appellant no. 2. Conclusion - i) The impugned goods are rightly classifiable under Tariff Item No. 3403 99 00 of the Central Excise Tariff Act 1985. Accordingly the benefit provided under Notification No. 3/2005-C.E. dated 24.02.2005 as amended is not available to the appellants. ii) The demand confirmed in the impugned order by invoking the extended period of limitation is not sustainable. The demand is restricted to the normal period of limitation which is payable along with interest thereon. iii) The penalties imposed on the appellants herein are set aside. Appeal disposed off.

Summary

The core legal questions considered in this appeal pertain primarily to the classification of the goods manufactured by the appellant under the Central Excise Tariff Act, 1985, and the consequent applicability of central excise duty and related penalties. Specifically, the issues are:

1. Whether the goods manufactured by the appellant-company are correctly classifiable under Chapter 15 (Tariff Item 15180040) as animal or vegetable fats and oils and their chemically modified derivatives, or under Chapter 34 (Tariff Item 34039900) as lubricating preparations.

2. Whether the appellant is entitled to exemption notifications applicable to goods classified under Chapter 15.

3. Whether the extended period of limitation for demanding central excise duty can be invoked in the present case.

4. Whether separate demands and penalties can be imposed on the proprietor of the proprietorship concern and the proprietorship concern itself, given the legal identity between the two.

Regarding the classification issue, the relevant legal framework includes the Central Excise Tariff Act, 1985, which provides detailed tariff items and descriptions under various chapters, including Chapter 15 (animal or vegetable fats and oils and their chemically modified derivatives) and Chapter 34 (lubricating preparations). The interpretative rules for classification of goods under the Customs Tariff Act, which are applicable by analogy, mandate that when goods are classifiable under more than one heading, the more specific heading is preferred over the general one.

The appellants contended that their products, which include brown soap, anti-adhesive agents, lubricants for chain conveyors, and similar goods, are derivatives of vegetable oils and thus fall under Chapter 15, specifically Tariff Item 15180040. They argued that the manufacturing process involves sulphonation and chemical modification of vegetable oils and fats, and that the HSN code 15180040 assigned commercially to these products supports this classification. They relied on precedent from the Tribunal at Bangalore, which recognized classification under Chapter 15 for similar products.

The Department, however, reclassified the goods under Chapter 34, asserting that the products are lubricating preparations, which attract a higher rate of duty. The impugned order found that the finished products are not edible-grade vegetable oils or fats but are lubricating solutions used specifically for facilitating the movement of LPG cylinders, thus falling squarely within the scope of Chapter 34. The Court examined the manufacturing process and found that the final products emerge after chemical modifications and addition of additives and defoaming agents, resulting in goods that cannot be considered vegetable oils or fats of edible grade. The Court relied on the statement of the proprietor acknowledging the product as a lubricating soap solution used for movement of LPG cylinders, reinforcing the classification under Chapter 34.

Applying the interpretative rules, the Court held that the more specific classification under Chapter 34 should prevail over the broader Chapter 15 heading. Consequently, the Court concluded that the impugned goods are correctly classifiable under Tariff Item 34039900 of Chapter 34.

On the issue of exemption, the appellants claimed entitlement to benefit under Notification No. 3/2006-C.E. and Notification No. 12/2012-C.E., which exempt goods under Chapter 15 from central excise duty. However, since the goods were held to be classifiable under Chapter 34, these exemption notifications did not apply. The Court thus denied the benefit of these notifications to the appellants.

Regarding the invocation of the extended period of limitation for demanding duty, the Department alleged suppression of facts by the appellants. The appellants contended that there was no suppression as the Department was aware of their classification under Chapter 15 and the benefit of the exemption notifications availed. The Court found that the Department had approved the classification and the benefit availed, and no suppression or intention to evade duty was established. Therefore, the extended period of limitation could not be invoked, and the demand for duty was restricted to the normal limitation period.

On the question of penalties, the impugned order imposed penalties equivalent to the amount of duty demanded on both the appellant-company and its proprietor, Shri Aparesh Chandra Ghosh. The appellants argued that since the proprietor and the proprietorship concern are legally one and the same entity, separate penalties cannot be imposed on both. The Court relied on settled legal principles and precedents, including decisions from the Supreme Court and various Tribunals, which establish that the identity of a proprietor and the proprietorship concern are one and the same for the purpose of tax demands and penalties. Accordingly, the Court held that separate demands and penalties could not be sustained against the proprietor once they were imposed on the proprietorship concern. Consequently, the penalty imposed on the proprietor was set aside.

In conclusion, the Court held:

(a) The impugned goods are rightly classifiable under Tariff Item No. 3403 99 00 of the Central Excise Tariff Act, 1985, and not under Tariff Item 1518 00 40. Therefore, exemption notifications applicable to Chapter 15 goods do not apply.

(b) The demand for central excise duty confirmed by invoking the extended period of limitation is unsustainable, as there was no suppression of facts. The demand is restricted to the normal period of limitation and is payable with interest.

(c) Penalties imposed on the appellant-company and its proprietor are set aside, as no penalty is imposable on the proprietor separately from the proprietorship concern.

Crucial legal reasoning includes the Court's statement: "As per the interpretative rules for classification of goods, when a product is classifiable under more than one Chapter Heading, the Chapter Heading which is more specific is to be preferred over the general heading." This principle guided the classification decision.

Further, the Court emphasized the settled law that "the identity of a proprietor and its proprietorship concern are one and the same and hence, separate demands cannot be raised against both the proprietor and the proprietorship concern."