TMI Blog2002 (5) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals (P) Ltd. (for short, "M/s. MCPL") were engaged in the manufacture and clearance of what they called "Washed Clay" and "Bleach - 9", which they classified under CET Heading 25.05 which carried 'nil' rate of duty. Apprehending that M/s. MCPL were misclassifying their product with intent to evade duty, a team of officers of Central Excise visited their factory and recorded a statement of Shri D.V. Patel on the process of manufacture of the product and on allied matters. Representative samples of the product and its major raw material viz. fine clay powder (Bentonite) were drawn for chemical test. A stock of 23,450 kgs. of the final product found in the factory was seized under Panchnama under the belief that the goods were correctly classifiable under Heading 38.02 and had been misclassified under Heading 25.05 for evading duty and was, therefore, liable to confiscation. Copies of the declarations filed by the party under Rule 174 of the Central Excise Rules 1944 for the periods 1996-97, 1997-98 and 1998-99 were resumed from the appellants and verified, which disclosed that they claimed full exemption from duty for their product under Heading 25.05 read with Note 2 to Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de name "Bleach - 9". The product was also described as "washed clay" on each pack. Counsel submitted that "washed clay" answered the description under CET Heading 25.05 read with Note 2 to Chapter 25. He submitted that, in the process of washing with acid, there did not occur any change of structure of the clay, for which reason Chapter Note-2 was squarely attracted. As a matter of fact, the appellants had classified their product under Chapter 25 in all their declarations filed under Rule 174 from 1996 and the department had not raised any objection whatsoever. The Counsel referred to the Chemical Examiner's report, wherein pH value of the product was given as 7.54, which indicated that the product was alkaline. According to ld. Counsel, the pH value of activated earth was always less than 7, which showed that activated earth was acidic. He sought to draw support to this submission from various foreign and Indian manufacturers' literature on Activated Clays. The appellants' alkaline product would not be the same as activated earth falling under Heading 38.02, which was acidic. Referring to the bulk density of the product, which was reported to be 762.5 gms./litre by the Chemical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the appellants were manufacturing and clearing activated earth. Therefore, it was not open to the department to allege suppression of facts against the appellants. In any case, ld. Counsel submitted, the department has not been able to establish that the appellants suppressed facts or misdeclared their products or withheld information from the department with intent to evade payment of duty. The extended period of limitation was not invocable in the appellants' case. Counsel, therefore, urged for holding that the demand of duty raised in the show cause notice dated 16-4-99 for the past period beyond six months is barred by limitation. With reference to the penalties imposed on M/s. MCPL, under Section 11AC and Rule 173Q, ld. Counsel contended that law did not permit imposition of penalties twice for the very same offence. With particular reference to the penalty equal to duty imposed under Section 11AC, ld. Advocate submitted that the provision of penalty equal to the amount of duty, under Section 11AC, did not take away the discretion of the adjudicating authority for imposing a lesser amount of penalty. He contended that the Commissioner did not properly exercise this discretio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by Shri D.V. Patel on 19-11-98 that the complete process of manufacture was disclosed. In all the declarations filed by them under Rule 174 during the material period, they invoked Note 2 of Chapter 25 of the CETA and classified the goods under Heading 25.05 thereby representing that the clay did not undergo any change of structure during the process of manufacture. It was for the first time on 19-11-98 that the Director of the Company admitted change of structure in the process of manufacture. Thus, according to DR, the appellants withheld relevant information from, or suppressed material facts before, the department with intent to evade payment of duty. In such circumstances, the extended period of limitation was rightly invoked for demanding duty. DR relied on the Supreme Court's decision in Madras Petro-Chem Ltd. vs. CCE [1999 (108) E.L.T. 611 (S.C.)], wherein conscious withholding of information was found against the assessee and the demand of duty raised by invoking the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act was affirmed by the Apex Court. The DR also sought to justify the penalties. 5.We have examined the rival s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, there can be no activation without superficial structural modification. The appellants, who declared their product under Rule 174 as activated, cannot be heard to argue against this scientific truth recognized under the HSN. The HSN notes further say that chemical treatment of mineral substances like clay in the presence of natural impurities or added foreign matter causes a change in the structure of the basic structure, increase in the specific surface and (in the case of crystalline substances) distortions in the lattice due to the insertion or substitution of atoms with different valencies. The free valencies which result from the crystal lattice distortions render the product active as a chemical adsorbent, a catalyst or an ion-exchanger. Where the basic substance used for activation is clay, the product would be called activated clay. The HSN Notes further say that, when the activation of clay is done by treatment with acid, as in the appellants' case, the product is mainly used for decolourising animal/vegetable/mineral oils, fats or waxes. It is pertinent to note in this context that the product cleared by the appellants during the material period was meant to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted earth. We cannot accept this argument for two reasons. Firstly, neither the HSN nor any literature or other evidence available on record has indicated that pH value is a determinative factor for the activation of clays or clayey earths. Secondly, the pH value of "Bleach-9" reported by the Chemical Examiner is not comparable with the pH values of the "TONSIL" and "CAP-SIL" branded products referred to by the counsel inasmuch as the concentration of the solution/suspension with which the pH was measured has neither been disclosed by the Chemical Examiner in his cross-examination nor stated in his test report. The pH values of "TONSIL" and "CAP-SIL" are found to have been measured with 10% suspension of the respective samples. 8.CET Heading No. 25.05 pertains to mineral substances not elsewhere specified. Since activated natural mineral products like activated clay have been specified under CET Heading No. 38.02, they cannot fall under CET Heading 25.05. The appellants have claimed the classification under CET Heading 25.05 on the strength of Chapter Note 2 of Chapter 25 which reads as under:- Except where their"2. context otherwise requires, heading Nos. 25.01, 25.03 and 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivated clays/earths consisted of selected colloidal clays or clayey earths activated by means of an acid or an alkali; dried and then ground. The department, whose burden it was to classify any excisable goods, should have checked the description and the process of manufacture declared by the party in the light of the HSN notes. In our view, the description "activated earth" read with the process of manufacture disclosed by M/s. MCPL in their declarations was enough indication and information to the department that the product was classifiable as "activated natural mineral product" under CET Heading 38.02. The appellants cannot be said to have misstated, misdeclared or suppressed any fact before the department. The department has alleged that M/s. MCPL misclassified their product with intent to evade payment of duty. M/s. MCPL had, of course, claimed classification of their product under CET Heading 25.05, which entry carried 'nil' rate of duty. But that was a mere claim and not a case of misclassification, for it was the department's job to classify the goods and only the proper officer of the department could classify or misclassify the goods. To state that claiming classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was with intent to evade payment of duty. This Tribunal has consistently held vide Bhillai Conductors (P) Ltd. v. CCE, Raipur [2000 (125) E.L.T. 781] that a mere non-accountal of excisable goods without mens rea would not attract the penal provisions of Rule 173Q. Following this view, we hold that the confiscation and penalty ordered under Rule 173Q by the adjudicating authority are not sustainable. 11.As regards the penalty imposed under Rule 209A on Shri D.V. Patel, we find that there is no finding in the Commissioner's order that Shri Patel dealt with excisable goods in any manner that rendered the goods liable to confiscation or that he had reason to believe that the goods were liable to confiscation. The necessary ground for imposing penalty under Rule 209A has not been established. Even otherwise, once the confiscation is set aside, the penalty under Rule 209A, which is dependent on the confiscabilily of the goods, will also have to be vacated. 12.In the result, Appeal No. 809/2001 is allowed and Appeal No. 808/2001 is partly allowed as under :- (a) M/s. MCPL's product, cleared under the trade name "Bleach-9" during 1995-96 to 17-11-98, is classifiable as activat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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