By TIOL News Service

MUMBAI, JUNE 26, 2015: 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 and were clearing the said machines without payment of duty treating the same as classifiable under Heading 8437 [ Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables; machinery used in the milling industry or for the working of cereals or dried leguminous vegetables, other than farm-type machinery - Tariff Rate Nil ]. On the basis of information collected that the Grain Feeder, En-mass grain feeder and grain dischargers are in reality the conveyors and elevators which are classifiable under Heading 8428 [ Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics) ] and liable to excise duty, investigations were taken up and during the investigation, searches were conducted as also statements of various persons which include officials of appellant, certain technical consultants, buyers etc.

SCN came to be issued for recovery of CE duty of Rs.10.66 crores covering the period April 2008 to October 2012 by proposing classification of grain feeders, en-mass grain feeders, grain discharger, screw feeder, sieving belt, grain mover etc. under Heading 8428 and bins, hoppers, Grain feed controller under Heading 8479.

The CCE, Pune-I upheld the allegations and while confirming the duty demand extended the benefit of cum-duty thus reducing the CE duty to Rs.9.60 crores . Equivalent penalty was imposed along with interest. The plea of limitation was also turned down and so also the claim for benefit of CENVAT credit. A penalty of Rs.1.0 crores was imposed on the Managing Director.

The assessee and the MD are before the Tribunal.

Extensive submissions were made by the appellant sprinkled with case laws and the AR countered each of them forcefully.

The Bench after considering the rival submissions made the following primary observation -

Merits:

At the outset, we observe that none of the machines being manufactured by the appellants are for processing of grains. All the machines are meant for handling of grains i.e. transporting the grains within the factory premises or lifting the grains within the factory premises or for storing or feeding into certain machines. It is also not under dispute that the main three machines i.e. grain feeder, en-mass grain feeder and grain discharger are working using chain conveyor system or screw conveyor system or bucket elevator system.

Classification:

After extracting the Headings 8428, 8437 and the related Explanatory Notes to HSN the CESTAT observed -

++ An examination of the scope of machinery used in the milling industry would indicate that these are the machines which are used for mixing or preparing grain, grinding or crushing the grains 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 category very clearly say that conveyors and elevators would get classified under heading 84.28. In our considered view, keeping in view the HSN Explanatory Notes as also the fact that the machines manufactured by the appellants in no way process the grains or even do not do any auxiliary function before processing of grains but are limited to conveying or lifting or storing grains. (The nomenclature feeder used by the appellants is a misleading one). There can be no doubt that the machines would be correctly 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 would, therefore, be chargeable to excise duty.

The CESTAT also rejected the reliance placed by the appellant on various decisions by stating that they are not applicable in the facts and circumstances of the present case. In response to the submission of the appellant that since only 5% of such machines have been used in the breweries, animal feed and industries other than milling industry and, therefore, the demand may be confined to that, the Bench observed that since it had reached the conclusion that the machines being manufactured are classifiable under Heading 8428 irrespective of the fact that these are being used in a rice mill industry or a dal mill industry or a flour mill industry or brewery or animal feed industry, the demand cannot be limited to the machines supplied to a particular end-user as the classification and dutiability is not dependent upon the end-use.

In respect of other machines viz. bins, hoppers and Grain Feed Controller which the Revenue had proposed under Heading 8479 and the appellants claimed classification under Heading 8437, the CESTAT held that since these were not meant for processing of the grains etc. but are machines for storage of grains or their parts, the classification proposed by the Revenue under the residuary heading of 8479 was correct.

Limitation - Fraud, suppression, mis-declaration:

+ In this particular case various customers of the appellants have stated in their respective statements that in their initial enquiries they asked for supply of elevators and conveyors and it is on the request of the appellants that these were changed to grain discharger or grain feeders. We also note that one of their business associate, … has stated in the statement dated 7.5.2012 that the appellants have informed them that if they use the description ‘bucket elevator' or ‘conveyor', they would be required to pay the excise duty and, therefore, the goods should be purchased under the description given by them. This clearly indicates the appellants were aware that if they describe the goods as elevators or conveyors, the same are chargeable to excise duty under Heading 8428. It is for this 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.

+ 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.”

+ By the said declaration, nobody can make out that the exact nature and description of the goods manufactured by them particularly that these are conveyors and elevators. In any case, the very fact that they were aware that if they describe the goods as conveyor and elevator, the same would be 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 there was suppression of facts and extended period of limitation under proviso to Section 11A is invokable and, therefore, the demand raised for the five years is correct and the same is upheld.

Limitation - Plea of Export of same goods

+ The appellants have submitted that they have exported certain consignments of the goods in question and even in the export consignments they have declared the same classification and rate of duty and no objection 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 to duty, either goods are exported under bond where no 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 with export, the leviability of the duty is of no consequence. Moreover, the Central Excise officer at the time of export does the function of Customs officer and the examination is only to check that the goods being stuffed in the container or packages are as per the packing list, invoice etc. The officers are not expected to examine the issues raised in the present show cause notice. The appellant's contention is therefore rejected.

Limitation - competitors clearing without payment of duty

+ From the documents submitted by the appellant, it cannot be concluded that the goods are exactly similar and the classification and duty leviable/levied. …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.

Limitation - Bonafide belief

+ We fail to understand this plea. Evidences on record clearly indicate that they were aware that the goods are chargeable to duty and it is for this reason that they were insisting particular description. Statement recorded during the investigation indicates that they were fully aware about of their duty liability and it was a well planned tactic to have particular description of the goods in order to avoid duty.

Penalty on company:

+ 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. Penalty imposed under Section 11AC upheld.

Claim of CENVAT credit:

+ The appellants did not pay the duty treating their goods as non-dutiable and hence they 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 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...

Penalty on Managing Director:

+ It is clear that he was aware that the goods manufactured by them are elevator and conveyor as popularly understood in commercial parlance and with that description the goods would be chargeable to excise duty, but he instead of paying the excise duty changed the description of the goods and not only that while interacting with his customers, insisted that the description in the purchase order etc. should be as per his requirement. We have no hesitation in holding that the penalty should be imposed on the said appellant. However, keeping in view the fact that the duty liability after extending the benefit of cenvat credit would be substantially reduced as also the fact that the appellant is an individual, we reduce the penalty imposed on him from Rs.1,00,00,000/- to Rs.10,00,000/- (Rupees ten lakhs only).

The appeals were disposed of.

(See 2015-TIOL-1255-CESTAT-MUM )