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TMI Blog2009 (4) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts. It is seen that ail these units had been engaged in some of the process relating to manufacture of footwear. In other words, fully assembled footwear had never been manufactured in a single unit. The unit at Vengali was within the Calicut Development Authority. It was registered under the names of three concerns. The factory layout plan showed the apportionment of the areas and machineries between the three concerns. The unit did the mixing for micro-cellular sheets and straps owned by the group at Chinnampalayam, Pollachi. These sheets were brought back to the Vengali unit and the soles for footwear were cut and thereafter sent to the other contract units for assembling. The Chinnampalayam unit was started in the year 1999. Prior to that, the sheeting was done at the Vengali unit itself. All the footwear manufactured by the three concerns carried the brand name 'Premier'. The brand name is owned by Shri Joy Varghese as the Proprietor of M/s. Kerala Rubber Products. The factory at Naduvattom is of M/s. Kerala Rubber Products and engaged in making of straps, insoles out of EVA mixes, sheets and soles which were thereafter sent to other contract units for assembling. The wast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdered by the Tribunal and also the proceedings consequent to the show cause notice dated 30-3-2006. The gist of the order is given below :- "31. In de novo proceedings on Order (Original No. 6/05 dated 15-6-05) (1) I demand an amount of Rs. 56,64,067/- (Rupees Fifty six lakh sixty four thousand and sixty seven only) being duty for the period from 1-4-99 to 30-1-03 from M/s. Kerala Footwear Products under proviso to Section 11A (1) of the Central Excise Act, 1944. (2) I demand an amount of Rs. 26,51,395/- (Rupees Twenty six lakh fifty one thousand three hundred ninety five only) being duty for the period from 1-4-99 to 30-1-03 from M/s. Premier Footwear Products (P) Ltd. under proviso to Section 11A(1) of the Central Excise Act, 1944. (3) I demand an amount of Rs. 39,31,169/- (Rupees Thirty nine lakh thirty one thousand one hundred sixty nine only) being duty for the period from 1-4-99 to 30-1-03 from M/s. Kerala Rubber Products under proviso to Sec. 11A(1) of the Central Excise Act, 1944. The amount may be paid forthwith with interest at the appropriate rate. (4) I impose a penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal proceedings, the assessee objected to combine the clearances of three units together. This stand which is diametrically opposed to the earlier contention of the assessee, was noticed by the Commissioner. This Commissioner has not accepted their contentions regarding captive consumption. He noted in Para 16 of the impugned order that - "Even if products were removed within the factory between three units, it cannot be termed as removal for captive consumption as the three units were in the name of three different entities having separate legal standing. In this instance, what emerged at the various locations were products like mix, sole sheets, straps etc. which, are finished goods in their individual right and to be treated as finished goods on removal from the factory premises. Therefore the question of treating them as inputs being removed for captive consumption to a location different from the factory of manufacture as claimed by the assessee does not arise." The assessee relied on the Supreme Court judgment in the case of Grauer & Weil (India) Ltd. v. Collector of Central Excise, Baroda [1994 (74) E.L.T. 481 (S.C.)], wherein it was held that in terms of Section 2(m) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not necessarily used in the same unit at Vengali to manufacture Rubber Mix. They were generally removed between the units. Since he had stated that the removal between the different units cannot be considered as captive consumption, he was off the view that SRMB cannot be classified under chapter heading 4005.20 as claimed by the assessee. He held that the product SRMB is classifiable under chapter heading 4005.90 and liable to duty @.16% adv. In Para 20 of the order, the Commissioner has dealt with the point raised by the assessee that samples were not sent to Central Revenue Control Laboratory, as required by the Chemical Examiner. The Commissioner has stated that the sample had been tested by Chemical Examiner and the Revenue has relied upon the test report of the Chemical Examiner for classification of the product. He stated that if found necessary, the sample can be re-tested by the Central Revenue Control Laboratory for the purpose of identification of the polymer. 7. In Para 21, the Commissioner has dealt with the classification of the product strap-plaps. The assessee claimed its classification under chapter heading 6401.92 as parts of Hawai chappals chargeable to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the findings of the Commissioner :- (i) Denial of exemption for goods used captively in the factory of manufacture: It was contented that all the concerns should be treated as one for giving the benefit under Notification No. 67/95. Our attention was invited to the Commissioner's observations that it has become necessary to pin point the manufacturer by lifting the corporate veil. The result of such an exercise actually supports the case of the appellants that it is only one factory and registration of the three separate units does not affect the position. In Para 23 of the impugned order, the Commissioner has observed : "The assessee has violated the provisions of Central Excise Act and Rules by the mode in which they have conducted their business. It is evident that even routine activities like distribution of raw Materials and storage of intermediate products could not be distinguished between the units". The show cause notice states that there is no demarcation of the factory premises and the machineries were used commonly by all the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rubber Mix in the same factory and that it was such Rubber Mix that was removed for vulcanization to Pollachi. This was the position stated by three executives of the company. There was no statement, much less an admission, by any one as alleged by the Commissioner in his order. Therefore the demand on SRMB for duty to an extent of Rs. 47,15,019/- should be struck off. This will have its effect on the duty demand for the year 2000-01 as SSI exemption was denied for that year alleging that the total value of clearances of excisable goods in the previous year 1999-2000 exceeded Rs. 300 lakhs. By excluding Rs. 1,09,14,480/-, the value of clearances of this item in 1999-2000 the value of clearances of other items fell below Rs. 300 lakhs and hence SSI exemption was available for the next year 2000-01. (iii) Classification of Colour Master Batch (CMB) : The test report of this item by the Chemical Examiner is inconclusive. The exact nature of the Organic Polymer could not be identified as the "FTIR" instrument was reported to be out of order by the Chemical Examiner who suggested forwarding of the sample to the Director, Central Revenues Control Laboratory for identifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification as PVC cloth and not as Shoe Upper on the ground that the PVC cloth could be transformed into shoe upper only after cutting into pieces and piercing holes therein and putting a flap on it was rejected by the Supreme Court. Apart from this clinching support for the appellants claim for classification of strap-plaps as straps themselves, the Tribunal itself had held in other cases that the fact that a product in the form in which imported was not usable as part of surgical instrument or as battery separator was not bar to its clarification as such part as, by mere cutting, the required product could be obtained. The following are the similar decisions:- (a) Collector of Customs v. South India Surgical Company [2007 (210) E.L.T. 553] (b) Amararaja Batteries [2008 (228) E.L.T. 117] (c) Exide Industries Ltd. v. Collector of Customs, Chennai [2007 (212) E.L.T. 496] Since the Chennai Bench of the Tribunal has, in respect of this very same product, strap plaps, taken a view that it is not strap and part of Hawai chappals, the matter may require a decision by a Larger Bench. (v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the units in these years was well below the exemption limit prescribed in the SSI exemption notification. The total Value of clearances for these three years was Rs. 5;83,239/-, Rs. 65,22,606/- and Rs. 48,62,684/-. No duty demand survives on this score. (vii) Denial of Modvat benefit : The Modvat credit has been denied by the Commissioner that proper documents have not been maintained. The need for Modvat benefit will get considerably whittled down if duty demand goes down on the different products due to grant of exemption and nil-rated assessment. That apart, duty has been demanded from EVA (Ethyl Vinyl Acetate) at various stages. Duty paid granules of EVA give rise successively to EVA Mix, EVA sheets, EVA insoles and EVA waste (crumbs). If duty were to be payable on EVA Mix produced by the appellant, then it will be available as credit for the net stage product and so on. (viii) Penalty : As the extended period of limitation under the proviso to Section 11A (1) of Central Excise Act, 1944, is not applicable, penalty under Section 11AC not to be attracted as held by the Supreme Court in Pahwa Chemicals Pvt. Ltd. v. Commissioner of Central Excise, Delhi [2005 (189) E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the item CMB and EVA Mix was never an issued raised by the appellant in the earlier appeal before CESTAT as well as during the de novo proceedings. As such this ground may not be accepted. (vi) While classifying the product strap-plaps, the Commissioner has only followed the Tribunal decision in the party's own case which is more relevant to this case. (viii) The Commissioner has amply justified the invocation of the longer period. The second notice is not hit by time bar as the assessee intentionally refrained from following the Central Excise law and have thereby attracted the extended period for issue of demand. 12. We have gone through the records of the case carefully. The impugned order has been passed consequent to this Bench's Final Order No. 500 - 503/2007 dated 30-4-2007. While passing the remand order, the Commissioner has also dealt with the issue arising out of the show cause notice dated 30-3-2006 which was issued subsequently. In the Final Order of the Tribunal, certain defects in the first Order-in-Original were pointed out. It appears that the Adjudicating authority has not properly examined the observations of this Bench in the said Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory of production, the same is subject to nil rate of duty. But the Revenue has classified under 4005.90 which carries 16% rate of duty. The Commissioner has just followed the Order-in-Original of his predecessor which has been set aside by the Tribunal. The show cause notice issued to the assessee indicates that there is no demarcation of factory premises and the machinery were used commonly by all the three units. The workers were called upon to do the work of all the three concerns and maintained the accounts of all the factories and contract units. The staff, premises and the instruments are not distinguished between the three concerns. It is only for record purposes that these three concerns are accounted separately. It has also been stated by the appellants that SRMB which is produced in Vengali unit has not been removed as such. It was used to produce Rubber Mix and Rubber Mix was only sent to Pollachi unit for vulcanization. In these circumstances, the classification of SRMB under 4005.20 appears to be correct. Therefore we set aside the Commissioner's order classifying the same under heading 4005.90. Under the classification 4005.20 duty on SRMB will be nil. This will h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in Final Order No. 817-819 dated 31-8-2006 [2007 (207) E.L.T. 149 (Tri. - Chennai)] in the case of Premier Footwear Product's (P) Ltd. v. CCE, Coimbatore, has classified the item under heading 4008.29 as sheet of vulcanized rubber used in the manufacture of straps and not straps themselves to fall under heading 6401.92 carrying nil rate of duty. It was stated that no manufacture is involved in cutting the strap-plaps to obtain straps. The Chennai Bench rejected the plea raised in terms of Rule 2 (a) of the Rules for the Interpretation of the Central Excise Tariff Schedule, that the strap-plaps having acquired essential character of the straps on the ground that sheet as such was not usable as part of Hawai chappal. It would be worth mentioning the findings of the Tribunal's Chennai Bench in respect of the classification of strap-plaps. Para 9 of the said decision in the case of Premier Footwear Products (P) Ltd. (supra) are reproduced herein below :- 9. In respect of Strap plap, it is not in dispute that it is in the form of a sheet of vulcanised rubber other than hard rubber. Unlike the Sole sheets, this-item has a non-cellular structure. Learned Commissioner examined a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled." According to the first part of the above Rule, where an incomplete or unfinished article has the essential character of the complete or finished article, it can be classified under the Tariff Heading covering the latter. In the present case, for classification of the plap as strap under SH 6401.92, it must be shown that it has the essential character of a strap. Even according to the appellants, by cutting/trimming activity, a plap would yield numerous individual straps. Therefore it will be erroneous to hold that a Strap sheet (Plap) has the essential character of a strap, complete and finished. A Strap sheet cannot be classified as individual straps on the "essential character" test. The factual position in the case of Bharat Enterprises (supra) was different. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and embossed PVC cloth yielding three pieces of 'shoe uppers' on cutting is identifiable as part of shoe, classifiable under heading 6406.10. It was observed that the PVC sheet was not a plain sheet, but having regular pattern with grooves for cutting into three pieces and that it had substantial and essential characteristics of shoe uppers. The plea for its classification as PVC cloth and not as shoe upper on the ground that the PVC cloth could be transformed into shoe upper only after cutting into pieces and piercing holes therein and putting a flap on it was rejected by the Supreme Court. Hence we feel that there is much force in the appellant's contention. If we take a decision in favour of the assessee, the same would be in conflict with the decision of the Chennai Bench. In view of this we are of the view that this matter needs to be referred to a Larger Bench for deciding its classification. The issue before the Larger Bench would be as follows :- "Whether the strap-plaps which are loosely joined bunch of 16 individual straps formed as such in the mould, are liable to be classified under heading 4008.29 in terms of Final Order No. 817-819 dated 31-8-2006 in the case of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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