2001(05)LCX0007
IN THE CEGAT, SOUTH ZONAL BENCH, BANGALORE
S/Shri G.A. Brahma Deva, Member (J) and S.S. Sekhon, Member (T)
COMMISSIONER OF C. EX., BANGALORE
Final Order No. 859/2001, dated 1-5-2001 in Appeal No. E/2427/97
Advocated By : Shri Narasimha Shetty, Consultant, for the Appellant.
Smt. Radha Arun, SDR, for the Respondent.
[Order per : S.S. Sekhon, Member (T)]. - The appellant is Registered Small Scale Industry. The Registration to manufacture Machinery for Industrial purpose i.e. for manufacture of ‘Rice Husk Boards’ was obtained. Further no declaration for manufacture of ‘Rice Husk Boards’ was made by them as they did not find that this product to be figuring in any of the Chapters of Central Excise Tariff. It was assumed by them as non-excisable. Since they had exceeded turnover of Rs. 30 lakhs vide their letter dated 5-9-94 they sought clarification from the A.C. of Bangalore-III Division regarding the excisability of the said ‘Boards’. The A.C. vide letter dated 29-12-94 informed them that the said ‘Boards’ are classifiable under Ch. Heading 44.06 of the Central Excise Tariff Act, 1985 and are leviable to duty. On 19-8-95, they received a Show Cause Notice dated 26-7-95 demanding duty of Rs. 40,754/- for the clearance affected from 1-4-93 to 31-3-94, under Rule 9(2) of the Central Excise Rules, 1944 read with Proviso to Section 11A of the Central Excises and Salt Act, 1944 and also proposing as to why a penalty under Rule 173Q(1) of the Central Excise Rules should not be imposed on them as it was observed that the sales turnover after considering the turnover of ‘Rice Husk Boards’ during the year 1993-94 was Rs. 41.74 lakhs which had exceeded the exemption limit prescribed in Notification No. 1/93 dated 28-2-93 for Small Scale Units.
2. The assessees were manufacturing different types of Boards viz. (1) Plain Husk Board, (2) Plain Husk Board (Smooth), (3) Veneerd Board, (4) Jute Fabric Natural Board, (5) Jute Fabric Brown & (6) Bamboo Mat Decorative Board. The process of the manufacture is that Rice Husk is winned or wind shifted to remove dust, paddy and grain, if any. The cleaned and dried Husk particles are fed to adhesive applicator where the glue mix is sprayed maintaining a pre-determined weight ratio between glue mix and particles. After the completion of this blending, the material is conveyed to the mat forming area, where it is hot pressed by an automatic process. The ‘Boards’, now emerging after processing, are separated from cauls and then manually removed from the unloader and kept in a vertical position for cooling. After cooling they are sanded and trimmed by simple but efficient double dimension saw. The resin/glue content in the board manufactured by them does not exceed 12% by weight of the Board. The inputs used for different types of Boards are Rice Husk, Cardenol and Phenol. The appellant was also found to be manufacturing the requisite glue/resin within the factory. The main raw material used in the manufacturing the glue/resin are Phenol, Paraformaldehyde, Cardenol and Caustic Soda.
3. The General Manager of the appellant, in a statement recorded on 30-12-94 admitted that the ‘Rice Husk Boards’ to be value added material made from agro waste and a substitute for solid wood used for partition, false ceiling, etc. marketed in the brand name of ‘DURAPAN’ in different sizes and thickness. They also manufactured Bamboo overlay, Jute overlay and Veneer overlay boards. It was also admitted, that ‘Rice Husk Boards’ were being marketed as ‘DURAPAN’ phenol bonded particle board and they had not informed the Department till 5-9-94 and they had obtained Registration from the Tumkur Range I only for the ‘Rice Husk Board Machinery’ as they assumed that their product ‘Rice Husk Boards’ was not excisable.
4. The assessee has declared a turnover of Rs. 41.74 lakhs. However, from the Sales Journal and the invoices it appeared that the turnover was Rs. 43,05,670/- and that the assessee has given discounts on the sales to the extent of Rs. 4,94,186/-. Hence the net sales during the year 1993-94 amounts to Rs. 38,11,484/- and after the eligible initial exemption of Rs. 30 lakhs by virtue of Notification 1/93 dated 28-2-93 as amended the net excisable value of clearances works out to Rs. 8,11,484/- and the excise duty at the rate of 5% on the value of Rs. 8,11,484/ - works out to Rs. 40,574/ -.
5. The Collector after considering the submissions found -
“Para 22 - I have considered the submissions of the learned Consultant. It has been held in a number of judicial pronouncements that recourse should not be made to a Notification for classifying a product. For classifying the product reference should be made to chapter notes, HSN Notes and common parlance test. As per HSN Notes the Rice Husk Board is to be classified under Chapter Heading 44.06. Hence classifying the product under Chapter 68 does not arise. I have also perused Notification No. 37/93-C.E., dated 28-2-1993. This Notification is applicable for Cement bonded particle board. As per Rule 3(b) of the Rules for the Interpretation of the Schedule, Mixtures, Composite goods consisting of different materials or made up of different components and goods put up in sets, which cannot be classified by reference to (a) shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable. In the present case the material that gives the essential character to the particle board is rice husk and not cement, hence the particle board of rice husk has to be classified under Chapter Heading 44.06 and not under Chapter 68.
Para 23 - The learned consultant also submitted that the fact of manufacture of rice husk board was within the knowledge of the Department. In support of this, he has submitted that the Superintendent of Central Excise, Hqrs. Preventive had visited their unit in the year 1992-93 and took the records for their perusal and also the Tumkur Range staff had also visited the factory but no one had advised them about the procedure to be followed.
Para 24 - I have considered the submission of the assessee. They have not disclosed what are all the records taken by the Preventive Staff whether it includes records pertaining to manufacture and clearance of Rice Husk Board. They have also not stated when the Range Staff had visited the unit and whether they have seen the records pertaining to Rice Husk Board. It is only during 1993-94 the assessee has crossed the exemption limit of Rs. 30 lakhs. On the contrary, I find that there was deliberate intention on the part of the assessee in suppressing the fact of manufacture of Rice Husk Board. The Assessee has not filed any declaration under Notification No. 13/92-C.E. (N.T.) dated 14-5-92 which exempts a manufacturer from licensing control till their turnover reach as Rs. 30 lakhs. By not filing the declaration the assessee has suppressed the fact of manufacture of Rice Husk Board. The Department cannot find out what the assessee chose not to disclose.
Para 25 - Lastly, the learned Consultant submitted that no penalty be imposed as there was no wilful intention to evade payment of duty. Mens rea is not the criterion to impose penalty. Penalty flows from breach of rules. In the instant case the assessee has contravened the provisions of Rules 9(i), 49, 52, 52A, 53, 54, 173B, 173F, 173G and 226 of Central Excise Rules, 1944. Hence penalty is imposable.”
and thereafter confirmed the demand of Rs. 40,574/- and imposed a penalty of Rs. 5,000/- under Rule 173Q(1).
6. The appellant has taken the grounds in the appeal -
“1. (i) First and foremost we humbly submit before your Honourable goodself that ‘Rice Husk Boards’ manufactured by us do not fall under Ch. Heading 44.06 as contended by the adjudicating authority. The HSN Note relied upon by the Hon. Adjudicating authority does not include ‘Rice Husk’ for manufacture of Particle.
(ii) In Para 18 of the order (Original) the adjudicating authority has taken the stand “that as per HSN, Particle Boards can also be manufactured out of Bagasses, Bamboo or Cereal straw and the words such as it is only illustrative and not exhaustive. Hence it not only covers the goods mentioned therein but also other similar goods. Therefore if Boards manufactured out of Cereal straw is particle Board it can also be manufactured out of Rice Husk”.
(iii) Assuming but not accepting the words used such as mean only illustrative and not exhaustive, then HSN Note should have contained the word ‘etc.’, after the words “or from flex or hemp shieves” to support the contention of the adjudicating authority. Missing of the word ‘etc.’ only indicates that HSN Notes refers only to that specific four materials viz. Bagasses, Bamboo, Cereal Straw and flex or hemp shieves. The words such as is also used only to mean the said four materials and nothing more. To presume what is not there is only subversion of truth.
(iv) Further the adjudicating authority has tried to bring similarly between ‘Cereal Straw’ and Rice Husk. By common man’s view also cereal straw is not similar to ‘Rice Husk’. As per Oxford Dictionary “Straw” means “Dry Cut stalks of grain” and “Stalks” means “the main stem of a Herbaceous plant, the slender attachment or support of leaf, flower, fruit or seeds”. Thus the view taken by the adjudicating authority is not correct in law as there is no similarity between cereal straw and Rice Husk.
2. Without prejudice to the above, we submit that the demand issued is not maintainable as it is hit by Time bar, and invoking proviso to Section 11A to overcome time bar is unethical for the following reasons.
(i) Invocation of Proviso to Section 11A is only warranted as stated in the Proviso itself, only in cases where there is wilful mis-statement, or suppression of facts or contravention of any of the provisions of the Act or rules made thereunder with intent to evade payment of duty. We humbly submit none of the above acts are existing in our case.
(ii) The Central Excise Officers viz. Hqrs. Prev. Staff and Range Staff of Tumkur Range have visited the factory and they were aware of the activities going on in the factory. The Hqrs. Prev. Staff had also taken the records for their perusal and returned them subsequently. In para 24 of the adjudicating order the Hon. adjudicating authority has been kind enough to accept this contention of ours but stated that we have not disclosed what are all the records taken by the Prev. Staff whether it includes records pertaining to manufacture and clearance of Rice Husk. In this connection we humbly submit before the Appellate authority that the only activity going on in our factory ever since its inception and commencement of production was only manufacture of ‘Rice Husk Boards’. So, anybody who visited the factory naturally could find only the activity of manufacture of Rice Husk Board going on and nothing else. The records maintained therein also speak of production, stock and clearance of Rice Husk Boards and it will be a far fetched imagination to think that the Central Excise Hqrs. Prev. Staff would have taken some other records, other than those relating to manufacture and clearance of Rice Husk Boards and there was no need for us to specifically mention so, the records taken by Hqrs. Prev. Staff were pertaining to manufacture, and clearance of Rice Husk Boards only.
(iii) We humbly submit that the adjudicating authority has not taken into consideration our letter dated 5-9-94 (copy enclosed) addressed to jurisdictional A.C. Bangalore III Dv. Seeking clarification regarding the excisability and classification of “Rice Husk Boards” manufactured by us which was replied by the A.C. only as late as 29-12-94 (copy enclosed). We humbly submit for kind consideration of Appellate authority as to whether even in the event of our voluntary letter dated 5-9-94 to the Department seeking clarification of ‘Rice Husk Boards’ manufactured by us, we are to be charged for suppression of facts. Does it not reflect transparency of our activities? Therefore the charge of suppression of facts is not sustainable and invocation of Proviso to Section 11A is also not sustainable and the demand is time barred on this count also.
(iv) Filing to file declaration as per Notification No. 13/92-C.E.(N.T.) has only happened inadvertently due to lack of guidance of Central Excise Officers who visited our factory and moreover we were also well within the exemption limit of 30 lakhs up to the year 1993-94. As clearance exceeded this exemption limit during the year 1993-94, we ourselves approached the Department seeking clarification to enable us to pay duty if any as per law. The Department itself were not sure about the classification of Rice Husk Boards as there was inordinate delay on their part to reply to our letter dated 5-9-94. There were clear 25 days available to them to issue show cause notice within the time limit of six months after we sought clarification. Invoking proviso to Section 11A to cover up Department delay is bad in law and therefore not sustainable in the interest of equity and justice.
(v) Further, we have also maintained private records reflecting production, stock and clearance of Rice Husk Boards. Being SSI unit the private records maintained are acceptable to the Department as per Trade Notice in vogue and no penalty is also leviable on us on this count also.”
7. We have heard both sides and considered the submissions and find -
(a) HSN Note relating to particle boards prescribed “it may also be produced from other ligneous materials such as fragments obtained from Bagasses, Bamboo, Cereal Straw or from flax or hemp shieves.” We therefore cannot concur with the submission that boards manufactured out of Rice Husk would be excluded from the purview of particle boards following under Chapter Heading 47.06 as HSN Note did not limit the items, but only gives the example. Tariff Entry 44.06 is very clear, it reads as “Particle Board and similar board of wood or other ligneous materials whether or not agglomerated with resins or other organic binding substances.” The word ‘lignin’, as explained in ‘New Websters’ Dictionary of English, indicates the same to mean a product of Botanical origin, it covers an organic substance associated with cellulose in the cell walls specially of tile xylem on wood of many plants. This meaning of ‘lignin’ would indicate that the word ‘ligneous’ used in the Entry 44.06, would cover a particle board, made up by using any part of plant material with Resin. ‘Rice Husk’ is part of Rice Plant being outer cover of the Rice grain, which is used in this case, along with Resin/Glue, Bamboo, Cereal Straw, flax or hemp shieves and the resultant ‘boards’ would be thus covered by heading 44.06.
(b) We find no reason to accept the argument of the Consultant, that Notification No. 5/98-C.E., dated 2-6-1998 vide item 263 did not classify such ‘boards’ under any particular chapter heading and therefore, it should be interpreted that the classification confirmed by the adjudicating authority is not correct. Classification of a product, whether given or not given in the Notification cannot be conclusive evidence for the classification of that item in the Tariff. The item has to be classified as per the rules of interpretation, relevant Tariff Heading and Chapter Notes and Section Notes as applicable and understood by the persons dealing with it. HSN Notes are relevant when the chapters of Central Excise Tariff are aligned. There is no argument or material placed as to why ‘HSN Notes’ in this case should not be applied. The interpretation being placed on the HSN Notes by learned Consultant is not acceptable to us, since it is artificially restricting the meaning of the HSN Notes, which we cannot appreciate. We therefore find no merits in the appeal as regards the challenge to classification under Heading 44.06. The same is confirmed.
(c) We have considered the plea of suppression of facts being advanced before us. We find that the Collector has given a definite finding on the same in Paras 23 & 24 of his impugned order (as extracted here-in-above). The appellants have contested the same points which they took up before the Collector, but before us also they did not produce any details of the records alleged to have been taken by Preventive Staff nor have they produced details of the visit of Range Staff. Therefore, reliance of the case law as made out by the learned Consultant does not help the appellants’ case. Without this evidence being produced, the case law cannot be appreciated and relied.
(d) It is an admitted position that the appellants had made the necessary declaration of the machinery which they are manufacturing for ‘Rice Husk Boards’. They have not explained as to why, they did not file the declaration for the boards also, when this declaration for machinery was filed. The only explanation, forthcoming is regarding their understanding of the item being non-excisable. This reason of understanding about non-excisability of the item, is seriously doubted by the appellant himself. They had sought a clarification from the proper officer of Central Excise regarding the excisability on 5-9-94. No explanation is forthcoming as to what transpired on or before 5-9-94, to have shaken their plea belief/understanding regarding the non-excisability. Therefore, this plea, that they were under a bona fide belief and there is no intention to evade duty or of non-compliance with the provisions of law cannot be accepted. In the order impugned before us, department brought out the specific reasons of the intent. We do not find in this case any reason not to invoke the proviso clause of Section 11A(1). The clause has been correctly invoked. The duty as determined and demanded is therefore confirmed.
(e) We find that the penalty of Rs. 5,000/- has been imposed under Rule 173Q(1), which is neither excessive nor uncalled for in the facts of this case. The same is also therefore, confirmed.
8. In view of our findings, there is no merit in the present appeal. The same is therefore dismissed.
Equivalent 2001 (132) ELT 0036 (Tri. - Bang.)
Equivalent 2001 (044) RLT 0762