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2015 (7) TMI 545 - CESTAT MUMBAI

2015 (7) TMI 545 - CESTAT MUMBAI - 2015 (330) E.L.T. 344 (Tri. - Mumbai) - Manufacture of Grain Feeder, En-mass Grain Feeder, Grain Discharger, Bins for grain storage, Loaders & Hoppers - These machines are used for transporting of grains - classification under Heading 8437/8436 or under 8428/8479 - appellants had not taken Central Excise registration and were clearing the said machines without payment of duty - Denial of CENVAT Credit - Penalty u/s 11AC - Held that:- keeping in view the HSN Exp .....

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ive of the fact that such machines are used in a factory or in mines or in construction and the item being handled is cement or minerals or grains.

In view of the above position, we have no hesitation in holding that the machines being manufactured would be correctly classifiable under Heading 8428 and not 8437 as claimed by the appellants and the goods would, therefore, be chargeable to excise duty. - there are few other machines viz. bins, hoppers and Grain Feed Controller which th .....

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lsewhere in Chapter 84.

There can be no doubt that the appellants were aware about the dutiability of the said goods and, therefore, they have intentionally not used the generally understood commercial terminology of the said goods and instead used the words green feeder, en-masse feeder etc. to avoid payment of excise duty. In our view, the conduct of the appellants would support the invocation of the extended period of limitation as also imposition of penalty.

There can b .....

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ey were not eligible for availment of cenvat credit. Now since the goods are held to be dutiable, they are eligible for taking the cenvat credit. The appellants, therefore, must be given a chance to provide the copies of various documents like invoices etc. and other records as required to prove that the said inputs or input services were used in the manufacture of the goods and if the appellants are able to satisfy from the documentary evidence then the cenvat credit should be extended to the a .....

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a, CA For the Respondent : Shri Hitesh Shah, Commissioner (AR) ORDER Per: P K Jain: Brief facts of the case are that the appellants are engaged in the manufacture of machines described by them as Grain Feeder, En-mass Grain Feeder, Grain Discharger, Bins for grain storage, Loaders & Hoppers. These machines are used for transporting of grains from one point to the other point in the factory or storage or for feeding into other machines. The appellants had not taken Central Excise registration .....

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in technical consultants, buyers etc. On completion of the investigation, a show cause notice dated 24.12.2012 was issued to the appellants proposing to classify grain feeders, en-mass grain feeders, grain discharger, screw feeder, sieving belt, grain mover etc. manufactured by them under Heading 8428 and bins, hoppers, Grain feed controller under Heading 8479. The notice further proposed recovery of duty of an amount of ₹ 10,66,36,263/- as detailed in annexure to the show cause notice cov .....

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ed down. However, the appellants' plea to extend the benefit of cum-duty was allowed. Vide the impugned order, a duty amount of ₹ 9,59,81,498/- was confirmed and equal amount of penalty under Section 11AC was imposed. Recovery of interest was also confirmed. A penalty of ₹ 1,00,00,000/- was imposed on Shri Makarand S. Savagaonkar, managing director of the appellant company and the second appellant in this case. Aggrieved by the said order, the appellants are before us. 2. This Tr .....

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or processing of seed, grains etc. or for working of cereals etc. or for milling and the machines in question are not for such purposes but are for handling/transporting of such items and such machineries are covered under Heading 8428 of the First Schedule to the Customs Tariff Act, 1975. 4. The learned senior counsel for the appellants submitted that the functions of the machines are as under;- Grain feeders are designed to ensure a regular and even flow of grain to the milling machines. En-ma .....

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tic & manual grain feed controllers are essential part of the mill. They help to control the continuous streamline flow of grain during the milling process. Grain bag stacker are designed and developed to stack grain bags. Grain Silo has been designed, developed and installed systems for loading and unloading of grain in the Silos. Sieving belt or grain mover consist of series of rolls operating an endless belt running under a feeding hopper. Grain movers are running under bins/feeding hoppe .....

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or counsel's submission was that the machines manufactured by the appellants are exclusively designed for use in milling industry only. In other words, the machines manufactured by the appellants are not built to handle any product other than grains. These machines form integral part of milling machinery, without such machines milling operations cannot function. Learned senior counsel submitted that Heading 8428 broadly covers machines which are usually fit to use in mines and quarry, constr .....

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ird part covers machinery used for the working of cereals or dried vegetables other than farm-type machinery. The learned senior counsel submitted that the machinery manufactured by them would be covered by the second part. The learned senior counsel submitted that their machines are used in the rice mill machinery, flour mill machinery, seed plant machinery, animal feed plant etc. and, therefore, would fall under the second component. The learned senior counsel also submitted that Technical Han .....

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idered as machines in milling industry. The learned senior counsel relied upon the following judgments:- (i) Thermax vs. CCE reported in 1996 (81) ELT 417 (T); (ii) Moped Assembly vs. CCE reported in 2001 (129) ELT 195 (T); (iii) CCE vs. Bhawani Roller Flour Mill reported in 2003 (156) ELT 133; (iv) Dunlop India Ltd. & MRF Ltd. vs. UOI reported in 1983 (13) ELT 1566 (SC) (v) Maa Durga Flour Mill P. Ltd. vs. CC reported in 2008 (227) ELT 0301. (vi) SKF Boilers & Driers P. Ltd. vs. CCE rep .....

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e squarely covered under Heading 8437. It was submitted that all the machines manufactured by them are for transporting the grains from place to another and lifting from one level to another, though the similar function is performed by chain conveyor and bucket elevator classifiable under Heading 8428 but the similar functions performed by their machines will not take away these from the heading 8437. 4.4 It was also submitted that the Explanatory Notes to HSN are not applicable in the present c .....

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misconstrued and the department has not taken the overall view of such statements. 4.7 It was also submitted that only a very insignificant part of the machinery manufactured by the appellants was supplied to distilleries, breweries and animal feed plants and at the most, the department can restrict the demand to the machines supplied to the said industry and in that event, the excise demand will get reduced to ₹ 38,94,503/-. 4.8 The learned senior counsel also submitted that the demand b .....

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nder a bona fide belief that they are not liable to excise duty on the goods manufactured by them and relied upon the judgment of the Hon'ble Supreme Court in the case of Continental Foundation vs. CCE reported in 2007 (216) ELT 177 (SC). IT was also submitted that the issue involved is purely interpretational in nature and, therefore, extended period of limitation cannot be invoked as held by the Hon'ble Supreme Court in the case of Padmini Products vs. CCE reported in 1989 (43) ELT 195 .....

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interpretation of law. 5. The learned Commissioner (AR), on the other hand, submitted that a perusal of the HSN Explanatory Notes for Heading 8437 would indicate that what is proposed to be covered under the said heading are the machines which are required for processing of grains which may include cleaning, sorting or grading seed, grain or dried leguminous vegetables. Further, the HSN Explanatory Notes clarify certain machines which are used prior to milling like machines for mixing grains in .....

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n types) (heading 84.28)." The learned Commissioner (AR) submitted that the said Explanatory Notes very clearly state that the conveyors and elevators (e.g., of the bucket, belt or pneumatic suction types) are not covered by the said heading and are covered by heading 8428. The learned Commissioner (AR) submitted that when there is such a specific exclusion given in the HSN Explanatory Notes, there cannot be any doubt whatsoever that the machines cleared by the appellants are classifiable u .....

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and this cannot be considered as the integral part of the milling process. In a very small milling mill, these can be manually handled. Keeping in view the volume and weight of the grains being handled, such machines may be necessary and therefore such machines may be installed in a milling industry, but that itself will not make the machinery as machinery for milling industry. It was further submitted that Central Excise Tariff is fully aligned with the HSN classification system as far Heading .....

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n conveyor or bucket elevator. They started calling by different names by grain feeder, grain discharger etc. Even though the model number given by them itself indicates in brief that the said machine is a screw conveyor or chain conveyor or bucket elevator. In various models the word used SC indicates screw conveyor, the word used CC indicates chain conveyor and the word used BE indicates bucket elevator. There was no reason for the appellants to use other terminology. They could have called th .....

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ill indicate the wilful intention on their part. It was also submitted that the appellants have very cleverly filed the declaration with the department. In the declaration form, instead of indicating that these are bucket elevators or chain conveyors, they indicated different description and also stated that these are classifiable under heading 8437. It was further submitted that the purpose of the said declaration is not to examine the classification of the goods but just to keep track by the j .....

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duty is nil because these are falling under Heading 8437. Appellants also did not take any registration or filed any returns. Thus the department was kept in dark. 5.2 The learned Commissioner (AR) further submitted that at the time of export, the examination is limited to certify that the goods being stocked in the container or package are as per the invoice and nothing beyond that and in fact the function being done by the Central Excise officer is on custom's behalf so that the appellants .....

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ention to evade payment of duty and, therefore, both are imposable. The learned AR submitted the following case laws in support of his contention:- (i) Samsung India Electronics Ltd. vs. CC, New Delhi reported in 2014 (307) ELT 160 (Tri.-Del.); (ii) Godrej Consumer Products Ltd. vs. CCE, Indore reported in 2014 (308) ELT 61 (Tri.-Mum.); (iii) DCL Polyester Ltd. vs. CCE, Nagpur reported in 2005 (181) ELT 190 (SC); (iv) CC, Kandla vs. Essar Oil Ltd. reported in 2004 (172) ELT 433 (SC) (v) R.G. Nag .....

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ome other manufacturer is also clearing the same goods under Heading 8437. Learned Commissioner (AR) submitted that as on today, the concept is of self-assessment and self-payment of duty and under these circumstances, the department cannot be held responsible for mis-clasification by some other manufacturer. In any case it is possible that these manufacturers may be within the SSI limit and may be clearing because of that at nil rate of duty. It was also submitted that the Hon'ble Supreme C .....

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a reported in 2007 (217) ELT 330 (SC) - Para 9, 13, 14, 15, 30, 31 & 32 (ii) Kores India Ltd. vs. CCE, Chennai reported in 2004 (174) ELT 7 (SC) - Para 16 (iii) Tamil Nadu Petroproducts Ltd. vs. CCE, Chennai reported in 2004 (176) ELT (Tri.-Chennai) - Para 18, 23,28 & 29. 6. We have considered the rival submissions and given considerable thought over the dispute. At the outset, we observe that none of the machines being manufactured by the appellants are for processing of grains. All the .....

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.28 Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics). 8428.10 - Lifts and skip hoists 8428.20 - Pneumatic elevators and conveyors - Other continuous action elevators and conveyors, for goods or materials 8428.31 - Specially designed for underground use 8428.32 - Other, bucket type 8428.33 - other, belt type 8428.39 - Other 8428.40 - Escalators and moving walkways 8428.60 - Teleferics, chair-lifts, ski-draglines, traction mechanisms f .....

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machinery for liquids or gases. But the heading excludes liquid elevators or of the type falling in heading 84.13, and floating docks, coffer-dams and similar marine lifting and re-floating appliances operating solely by hydrostatic buoyancy (heading 89.05 or 89.07) .................. .................." From the above description, it is very clear that the said heading does not get limited to any particular type of goods but is applicable to all types of goods or materials etc. and in fac .....

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cleaning, sorting or grading seed, Nil Grain or dried leguminous vegetables 8437 80 - Other machinery; Nil 8437 80 10 - Flour mill machinery Nil 8437 80 20 - Rice mill machinery Nil 8437 80 90 - Other Nil 8437 90 - Parts; 8437 90 10 - Of flour mill machinery kg. Nil 8437 90 20 - Of rice mill machinery kg. Nil 8437 90 90 - Other kg. Nil" 6.1 The appellants' main contention is that the said Heading 8437 covers three types of machineries. First one, machines for cleaning, sorting or gradi .....

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INDUSTRY In addition to machinery for cleaning, sorting or grading grain prior to milling (see Part (I) above), the following are included as machinery used in the milling industry: (A) Certain machines for mixing or preparing grain prior to milling, e.g.: (1) Machines for mixing grain in pre-determined quantities. (2) Grain scouring machines consisting of spiked drums turning against rubber cylinders and thus eliminating the softer grains. However, the heading does not cover: (a) Plant operati .....

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ich crush the grain into middlings, semolina and flour. (3) Reducing rolls or mills with smoother rollers, specially designed to convert middlings, semolina etc., into flour. (4) Disintegrators or impact grinders used to grind down into flour, the meal, etc., which adheres to the mill or converted rollers in the preceding processes. (5) Feeders, machines designed to ensure a regular and even flow of grain to teh crushing rollers. The heading does not include small farm type grinding mills (headi .....

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ter bars and covered externally with gauze of various mesh sizes. Oscillating sifters or plansifters consist of nests of free-swinging superimposed sieves and collecting trays. (2) Sieving machines or "purifiers". These grade the middlings, etc., and also blow off the bran by means of vibrating sieves through which a current of air is drawn. (3) Bran cleaners. (4) Blending machines for flour, bran, etc.; also machines for adding vitamins to flour. However, the heading does not cover: ( .....

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ains or for sorting or separation of flour from sharps or middlings. It will thus be seen that the scope is limited to the machines which are in some way or the other working on the grains. It is undisputed fact that the machines manufactured by the appellants are not for working on the grains and do not in any way clean, sorts, grinds, crushes etc. The machines are only for transporting from one place to the other or for lifting the grains. In fact the said Explanatory Notes in the first catego .....

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orrectly classifiable under Heading 8428 and not under 8437. Handling machines designed for any goods are covered under Heading 8428 irrespective of the fact that such machines are used in a factory or in mines or in construction and the item being handled is cement or minerals or grains. In view of the above position, we have no hesitation in holding that the machines being manufactured would be correctly classifiable under Heading 8428 and not 8437 as claimed by the appellants and the goods wo .....

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ses were different and also the disputes were relating to heading other than 8428. In the present case, heading 8437 specifically excludes the goods in question and 8428 specifically includes the goods. In view of the said position, the said judgments are not applicable in the facts and circumstances of the present case and we do not consider it necessary to discuss each of these case laws. 7. The appellants have also submitted that only 5% of such machines have been used in the breweries, anima .....

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tiability is not dependent upon the end-use. 8. In addition to these three main machines, there are few other machines viz. bins, hoppers and Grain Feed Controller which the Revenue has proposed under Heading 8479 and the appellants claim the same would be classifiable under Heading 8437. Again, these goods are not meant for processing of the grains etc. but are machines for storage of grains or their parts. We agree with the Revenue that such machines would fall under the residuary heading of 8 .....

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s and it is on the request of the appellants that these were changed to grain discharger or grain feeders. We also note that Shri Narpinder Kumar Gupta, Managing Director of M/s. Dr. Ing. N.K. Gupta Technical Consultants Pvt. Ltd., New Delhi, who acts as a consulting firm to the appellants and helps them in procuring orders, has admitted that the appellants are manufacturing elevators and conveyors. We also note that one of their business associate, Shri Shripad M. Salumke, Director of M/s. Elin .....

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is reason that they described their machines as Grain Feeder, En-mass Feeder, Grain discharger etc. and insisted for such description in the purchase orders from other customers. We have also gone through the declaration made by them. The said declaration is required to be furnished by the manufacturing units who are not paying duty either due to the fact that their turnover is within the small scale exemption limit or they are manufacturing the goods which are exempt from payment of duty. Purpo .....

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are commercially understood as conveyors and elevators. Meaning of BC, CC, SC should have been elaborated in the declaration and catalogue should have been submitted. Instead of indicating that these are conveyer and elevator, the appellants very cleverly described the goods as "Grain handling equipments for rice, flour, dal mills/storage silo system accessories/ storage bins for rice/grain feed controller Job work." They did not indicate the classification of the goods manufactured, .....

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e chargeable to excise duty, would nullify any declaration or intimation given by them until and unless they raise and very specifically ask the question relating to Heading 8428 versus 8437 with Revenue. We also note that the appellants have not taken registration or filed any returns. From the show cause notice, it is clear that the department started investigation only due to a receipt of information. Keeping in view these facts, we are of the considered view that this is a case of fraud and .....

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ppellant did not disclose the entire facts and did not reflect the situation in its proper perspective. The Department was not informed about the actual activity undertaken by the appellant. It was not disclosed as to whether a new name has been given and the applicability and functions of the products were not clearly stated. That new and distinctive product came into existence which was sold and known in the commercial world under a separate name having different and distinct qualities. Commis .....

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beyond the period of limitation. It was admitted by him that no classification list was filed by the appellant. He has drawn our attention to a letter dated 8th March, 1994 written by the appellant to the Assistant Collector of Central Excise, Calcutta disclosing the activity undertaken by the appellant and requesting the Revenue to let the appellant know about the Central Excise formalities required to be observed. That the writing of the letter well in advance shows the bona fides of the appe .....

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n specific names and the same were used for specific purpose for which the raw material cannot be used. The impugned goods were specially packed in the cardboard packages and are known differently in the commercial as well as common circles. That the appellant's products are cleansing products and deserved to be classified under Chapter 34 and the adjudicating authority has rightly classified them under heading 3402.90. 15. As regards limitation, it was submitted on behalf of the Revenue tha .....

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ndence between T. Paul & Sons and M/s. Philips India Ltd. clearly indicates that there was a doubt as to whether the products would invite the Central Excise duty. To overcome this, they obtained the opinion of an Advocate and the Advocate advised them that instead of solvent, the word thinner should be printed on the carton to avoid the Central Excise Rules. 30. On the question of limitation, the submission made by the counsel for the appellant that the letter dated 8th March, 1994 disclose .....

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. The new and distinct product which had come into existence was sold and known in the commercial world under a separate name having different and distinct qualities. The appellant had not produced sample of the subject goods along with the letter. For the aforestated reasons, it cannot be held that the authorities had full knowledge about the activities undertaken by the appellant. 31. It appears that duty liability under the Central Excise Act & Rules was well known to the appellant as is .....

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39; instead of solvent on the outer pack. The direction of M/s. Philips India Ltd. was actually executed by the appellant by printing thinner instead of solvent on the cartons. Shri Arun Kanti Paul during examination, when asked to throw some light on the correspondence with M/s. Philips India Ltd., stated that he had some doubt about the excise liability of these products and accordingly he obtained legal opinion regarding the same and persuaded M/s. Philips India Ltd., to allow them to print t .....

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n was raised by the Revenue. Hence the department itself has accepted the classification. We do not see any force in this argument. The goods exported from India are not charged to excise duty. If the goods are exempted, no duty is chargeable. Even if the goods are chargeable duty, either goods are exported under bond where not duty is levied or duty paid at the time of export is refunded in the form of rebate, thus overall no duty is collected by Revenue for export goods. Thus, in connection wi .....

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ase of their competitors, the goods are being cleared without payment of duty and Revenue has not raised any objection in their case. In support of their contention, the learned counsel also submitted the Hon'ble Bombay High Court judgment in the case of Galaxy Plastics (Bombay) Pvt. Ltd. vs. UOI in Writ Petition No. 298 of 2006. We have gone through various documents and leaflets submitted by the appellant. From the documents submitted by the appellant, it cannot be concluded that the goods .....

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the Revenue. In respect of non-duty paying units, no action is taken until and unless any information is received about the evasion of duty. In the overall factual matrix of the case, we are not in a position to say that the competitors are being allowed clearance duty free by the Revenue. 9.4 The learned Commissioner (AR), on the other hand, has submitted the Hon'ble Supreme Court's decision in the case of Faridabad CT Scan Centre vs. DG Health Services reported in 1997 (95) ELT 161 (SC .....

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ilway Board) & ors. v. J.V. Subhaiah and Ors. [1996 (2) SCC 258], the same learned Judge in his judgment has observed in para 21 that the principle of equality enshrined under Article 14 does not apply when the order relied upon is unsustainable in law and is illegal. Such an order cannot form the basis for holding that other employees are discriminated against under Article 14. The benefit of the exemption notification, in the present case, cannot, therefore, be extended to the petitioner o .....

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order to avoid excise duty, they used different description of the goods and generally known commercial description was written in the abbreviated form viz. BC, CC, SC etc. The appellants were insisting from the buyers to indicate the description as per their requirement. Even one of their main customers has stated in the statement that initially when they started the business with the appellant, they were informed that if they don't use the said description, excise duty will become payable .....

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he goods in order to avoid duty. 9.7 We also note that in somewhat similar situation in the case of Tamilnadu Petroproducts Ltd. vs. CCE, Chennai reported in 2004 (176) ELT 116, the Tribunal has observed as under:- 28. As regards the invocation of the proviso to Section 11(A) of the C.E. Act 1944, I find that suppression of facts from the department is very clear from the evidence available on record as the appellants, to suit the requirement of their customers, and to derive the consequential b .....

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of Transformer oil Grade II. Copy of the same is enclosed for ready reference. They want to know whether we can invoice the product as Transformer Oil Base Stock (TOBS) under Tariff heading 27.10 attracting 10% Excise duty. Presently Transformer oil Grade II comes under Tariff heading 3817, attracting 20% Excise duty. If Reclassification of the product as Transformer Oil base Stock under Tariff heading 2710 with 10% Excise Duty is not possible, they wanted to know whether we can supply TO Grade .....

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tg, Devt) TPL HQ a copy of which is filed on page 116 of the paper book is reproduced below :- URGENT Dt. 16-11-95 FAX = MESSAGE S. RAMAMOORTHI, DM FROM (EXCISE) TPL-SITE. MR. S. KARTHIKEYAN, TO: DM (MKTG.DEVT.) TPL-H.O. PLEASE REF. YOUR FAX MSG. DT. 15-11-95. IN THIS REGARD WE HAVE ALREADY EXPLAINED OUR DIFFICULTY IN REGISTERING TOBS UNDER TARIFF 2710. THIS IS MAINLY DUE TO THE REASON THAT OUR MFG. PROCESS OF TOBS IS ENTIRELY DIFFERING FROM THE OTHER TOBS AVAILABLE IN THE MARKET. HOWEVER, WE CA .....

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ure of the item as "Spindle Oil" and they did so clearly with a view to evade payment of duty. They have intentionally changed the nomenclature of the goods and the tariff heading thereto, is established by the above correspondence exchanged between the Senior Officers of the appellants Company. Therefore, mens rea on their part is established by evidence on record. In the background of the evidence as discussed above, the charge against the appellants that they have suppressed the fac .....

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in regard to demand of interest. 39. Ld. counsel now refers to the department's allegation that the appellants had suppressed material facts rendering themselves liable to penalty under Section 11AC of the Central Excise Act. He submits that, as far back as on 8-2-1996, the appellants had filed a fresh classification list in respect of the subject products. Had the department had any doubt in the matter, they would have called for necessary clarification from the appellants and would have m .....

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are also opposed. Ld. Jt. CDR submits that the classification list dated 8-2-96 was purportedly a "revised classification" from which it would not appear to the department that it had been filed in respect of any new product. It is also submitted that the declaration in the classification list was vague as it contained no specific details of the products or of the process of manufacture thereof. I have considered and appreciated these submissions. Having agreed, on the merits of the c .....

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their classification list and price-list on 20-11-1991 [including the purchase orders of the buyers]; that no inspection, audit or investigation was carried out before approving the classification list and the price-list and, therefore, the department was not entitled to invoke the extended period of limitation. 26. We do not find any merit in these arguments. Firstly, no such arguments were advanced before the Tribunal. The only argument advanced before the Tribunal was on excisability and nil .....

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". However, no such details have been mentioned in the classification list particularly when it urged that "wastes" had emerged at different stages of production. In the circumstances, we are not inclined to interfere with the impugned judgment of the Tribunal." 9.9 Further, in the case of Essar Oil Ltd. (supra), the Hon'ble Supreme Court in para 29 to 36 has elaborately discussed the concept of fraud. The Hon'ble Supreme Court has observed that fraud is an intention .....

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concerned, again there can be no doubt as even after knowing that their goods are chargeable to excise duty, the appellants instead of paying the excise duty, chose to describe their goods with different nomenclature. We, therefore, uphold the imposition of penalty under Section 11AC. 11. Coming to the appellants' request of permitting cenvat credit, we are not in agreement with the reasoning given by the Commissioner in the impugned order. It is true that the cenvat credit can be taken as p .....

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input services were used in the manufacture of the goods and if the appellants are able to satisfy from the documentary evidence then the cenvat credit should be extended to the appellants and the net duty should thereafter be worked out. Penalty will also change accordingly. We, therefore, remand the matter to the Commissioner for the limited purpose of examining the documents to be submitted by the appellants (within a period of three months from the date of receipt of this order) and the Com .....

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