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CASE NO.: Appeal (civil)  3632 of 2006

PETITIONER: Commissioner of Central Excise, Chandigarh

RESPONDENT: M/s. Punjab Laminates Pvt. Ltd.

DATE OF JUDGMENT: 24/08/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (C) No. 15180 of 2004]

S.B. SINHA, J :

       Leave granted.

       Whether extended period of limitation envisaged under the proviso  appended to Section 11A of the Central Excise Act, 1944 (for short "the  Act") would apply to the facts and circumstances of the present case is  the question involved in this appeal.

       Before adverting to the said question, however, we may notice the  basic fact of the matter which is not in dispute.

       The Respondent herein manufactures paper based decorative  laminated sheets.  The goods manufactured by the Respondent were  classified under Chapter 39 of the Custom Excise Tariff Act whereas  according to the Appellant it should have been classified as sub-heading  No. 4823.90.  The classification for the year 1993 was approved by the  Revenue.  By a letter dated 6.12.1994, it requested Respondent to  intimate the manufacturing process of the product, to which a reply was  sent by it in terms of its letter dated 7.12.1994 discloseing the  manufacturing process stating:

"Brief Manufacturing Process of Paper Based  Laminated Sheets

The process of manufacture of the above  products involving in three major stages is as  under:

1.      Preparation of Reactive Mixtures like (i)  Melamine formaldehyde and (ii) Phenol  formaldehyde.  The reactive mixture process  involves mixing of Melamine Powder with  Formaldehyde and Phenol with Formaldehyde  in separate chemical reaction vessels, separately  under high steam pressure and continuous  sterling.  The reactive mixture are used for  treatment of various papers, used for the  manufacture of paper based laminated sheets.

2.      Paper treating process:  

Under the process absorbent Kraft paper is

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treated with Phenol Formaldehyde reactive  mixture and Overlay Tissue paper and design  prints or colour base papers are treated with  Melamine formaldehyde reactive mixture under  stream through chemical treating and drying  machine.

3.      Hydraulic pressing process

This process is the last and final one which  involves hydraulic pressing of various layers  chemical mixture treated papers under high  hydraulic pressure and steam temperature.   During the process the reactive mixtures treated  papers are turning into a homogeneous  substance, which is called "PAPER BASED  LAMINATED SHEETS".

The raw materials used as under:

1.      Unbleached Absorbent Kraft paper 2.      Plain coloured and design printed base  paper 3.      Barrier paper 4.      Tissue paper 5.      Polly-Propelone Filins 6.      Melamine Powder 7.      Phenol 8.      Formaldehyde 9.      Methanol (Mehtyl Alcohol) 10.     Denatured spirit 11.     Urea  12.     Printing Inks for printing designs &  base paper

BRIEF PROCESS OF MANUFACTURE

Number of layers of unbleached Absorbent  Kraft paper treated with Phenol formaldehyde  Reactive mixtures are laid on a carrier steel  plate, on which one layer of each Melamine  formaldehyde reactive mixture treated base  paper and overlay tissue paper are laid with and  further high gloss mirror finished stainless steel  press mould is placed on the treated paper.   Similarly number of sets of reactive mixture  papers duly treated are made by using  polypropylene films for separating the sheets.   The above sets are then put into the flat bed of  hydraulic press for final pressing High pressure  temperature upto 1800 to 3200 per sq. inch and  temperature at 145 to 150 C is given.  Thus the  sheets are prepared into a homogeneous mass is  called paper based laminated sheets.

End used

The end use of paper based laminated sheets are  mainly as follows:

i)      Making furnitures ii)     Panelling purpose iii)    Interior furnishing of Rail coaches &  passenger buses etc. etc."

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       Yet again, a query was raised in regard to the use of plastic as an  input for the manufacture of primal product, i.e., laminated sheets falling  under sub-heading No. 4823.90.  A reply thereto was also sent by the  Respondent by a letter dated 22.12.1994 stating:

"It is intimated that we are using Phenol,  Melamine and Formaldehyde falling under  Chapter 29 of Central Excise Tariff.  Further, it  is clarified that a gluing solution is obtained by  mixing of phenol and formaldehyde and  melamine and formaldehyde.  At no stage any  product known as plastic or marketable as  plastic comes into existence.  We are as such  not using plastic as an input in the manufacture  of paper based laminated sheets."

       The question as to whether the product manufactured by the  Respondent would fall under Chapter 39 or Chapter 48 of the Central  Excise Tariff Act came up for consideration before this Court in Collector  of Central Excise, Hyderabad v. Bakelite Hylam Ltd. [(1997) 10 SCC  350] wherein it was held that in respect of such products classification as  provided for in Entry 39.20 would be applicable, stating:

"Note (d) clearly provides that products  consisting of glass fibres or sheets of paper  impregnated with plastics and compressed  together as in the present case, if they have a  hard and rigid character, would fall under  Chapter 39. If they have more the character of  paper or of articles of glass fibres, they would  be classified under Chapter 48 or Chapter 70, as  the case may be. The decorative laminated  sheets which have a hard and rigid character  are, therefore, classifiable under Chapter 39 and  not under Chapter 48. The appropriate entry is  3920.31/3920.37 which deals, inter alia, with  sheets of other plastics, rigid, laminated.  Decorative laminated sheets, therefore, cannot  be classified under Tariff Entry  4818.90/4823.90. CEGAT is not right in  classifying these under Entry 4818.90/4823.90."

       The said view was reiterated by this Court in Decent Laminates  Private Limited v. Collector of Central Excise and Customs [2002 (146)  ELT 487]

       A notice was issued on 9.12.1997 to the Respondent to show cause  as to why:

"(i)    central excise duty amounting to Rs.  36,37,338.00 short paid on the goods cleared  during 08.01.1993 to 31.03.1994 should not be  recovered from them under Section 11A of the  Act by invoking the extended period of  limitation available under the proviso to said  Section 11A as the benefit of Notification No.  135/89-CE was willfully availed by them by  making mis-statement regarding the description  of the product manufactured by them in the  classification list effective from 08.01.1993.

(ii)    Interest as leviable should not be  recovered from them under Section 11AB of the

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Act; and

(iii)   penal action should not be taken against  them under Rule 173Q of the Rules read with  Section 11AC of the Act for the aforesaid  contraventions."

       Pursuant thereto or in furtherance thereof, cause was shown by  Respondent herein bringing to the Commissioner’s notice that the  classification list was approved by the Divisional Assistant Commissioner  on 8.1.1993 and again for the year 1994.  It was contended that as and  when called upon to do so, Respondent had categorically stated about the  detailed manufacturing process involved and, thus, the authorities  concerned were at all material times aware thereof.  It had been pointed  out that the authorities have cleared 1385494 sheets between 8.1.1993  and 31.3.1994 upon giving the benefit of the notification dated 12.5.1989  and in that view of the matter the extended period of five years available  under proviso to Section 11A of the Act was not applicable.

       It was stated:

"The noticees strongly contend that they had  correctly availed the concessional rate of duty.   The noticees did not bonafide feel, at any stage  that they are using any plastic product for the  impregnation of the papersheets.  They had  been using phenol for formal dehyd. and other  additives for preparation of a solution with  which the paper was being treated to obtain  paper based laminated sheets.  The Hon’ble  Tribunal in the case of Meghdoot Laminates  P.Ltd. Vs. C.C.E. 1990 (49) ELT 75 had held  that the products are classifiable under Chapter  48 and not Chapter 39 and accordingly entire  industry had classified products under chapter  heading 4823.90 and availed the benefit of  Notfn. 135/89 dt. 12.5.89, which also referred to  the products to be falling under sub-heading  4823.90.  Since the duty had been paid by  availing the benefit of Notfn. No. 135/89 as per  practice being followed in the industry and as  per approval of classification list granted by the  competent authority it cannot be said that  exemption has incorrectly been availed."

                                               [Emphasis supplied]

       It was further stated:

"\005The solution of Phenol Formal dehyd. and  Melamine was being prepared in house and it  was being considered in the industry as Resin  and was honestly described as such in the  classification list."                   The Commissioner of Excise rejected the said contention of the  Respondent.  Aggrieved thereby and dissatisfied therewith Respondent  preferred an appeal before the Custom Excise and Service Tax Appellate  Tribunal.  By reason of the impugned judgment, the same has been  allowed opining that although the benefit of the said notification was not  available if the manufactured goods were coated with plastic but held:

"\005Therefore, the proper officer before

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approving the classification list extending the  benefit of notification, should have satisfied  himself that the product is not coated with  plastic.  The onus of proving the classification  list correctly is on the department as held by the  Tribunal in the case of Muzafarnagar Steel.   The Assistant Collector is, indeed, required to  make such inquiry and summon such  information as may be called for in order to  arrive at the correct decision\005"

       It was opined that the entire demand pertaining to the period  8.1.1993 to 31.3.1994 was hit by the time limit specified under Section  11A(1) of the Act.   

       A proceeding under Section 11A of the Act indisputably could be  initiated within a period of six months, as the law thence stood.  The  period of six months has been extended to one year in year 2000.  The  proviso appended to Section 11A of the Act extending the period of  limitation is required to be applied if the conditions precedent therefor are  satisfied.  The manufacturing process indisputably was disclosed by  Respondent.  It is not in dispute that the question as regards classification  of the decorative laminated sheets being falling under Chapter 39 of the  Central Excise Tariff and not under Chapter Heading 48 had been  operating in the field.  It is also not in dispute that the issue as regards  applicability of the exemption in terms of notification No. 135/89 was  incidental to the basic classification of the product.   

       It is difficult to believe that although the Respondent, prior to  8.1.1993, had been paying duty at the rate of 35% ad valorem, the benefit  of notification No. 135/89 dated 12.5.1989 had been accorded to it  without any verification and only on the basis of the statements made by  the Respondent.

       At no point of time, the Revenue doubted the correctness or  otherwise of the manufacturing process or the ingredients disclosed by  the Respondent.  The stand of the Respondent that the Industry as such  had adopted the same manufacturing process and had been extended the  benefit of the Exemption Notification of 1989 has not been called in  question.  If the stand of the manufacturer is correct, there was no reason  as to why it should be singled out.

       This Court decided Bakelite Hylam Ltd. (supra) on 10th March,  1997.  The impugned notice was issued only on 9.12.1997 evidently  relying on or on the basis thereof.   

       It is not a case where the Respondents had not disclosed the  activities of manufacturing products carried out by them by declaration or  otherwise.  They responded to each and every query of the Appellant, as  and when called upon to do so.  The authorities of the Appellant must  have verified the said disclosures.  At least they are expected to do so.   The disclosure made by the Respondent was acceptable to them.  Their  bona fide was never questioned.   

       The applicability of the extended period of limitation is, therefore,  required to be considered in the aforementioned context.  Proviso, it is  trite, provides for an exception.  It is not the rule.  A case, therefore, has  to be made out for attracting the same.

       In Primella Sanitary Products Pvt. Ltd. v. Collector of C.Ex., Goa  [2005 (184) ELT 117] a Three-Judge Bench of this Court was dealing  with a case where a concession was made by a counsel appearing on  behalf of the Revenue.  The court opined that although the item was put  under right classification list but they had not been permitted to take a

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different stand stating:

"\005As the matter of classification has proceeded  on a matter of concession of facts we do not  allow the Appellants to withdraw from that  concession.  They are now not permitted to  argue on the question of classification\005"

       In Pahwa Chemicals Private Limited v. Commissioner of C.Ex.,  Delhi [2005 (189) ELT 257], this Court held:

"The Appellants have all along claimed that  merely because they were affixing the label of a  foreign party, they did not lose the benefit of  Notification No. 175/86-C.E. as amended by  Notification No. 1/93 \026 C.E.  The view taken by  the Appellants had, in some cases, been  approved by the Tribunal which had held that  mere use of the name of a foreign party did not  dis-entitle a party from getting benefit of the  Notifications.  It is only after Larger Bench held  in Namtech Systems Limited v. Commissioner  of Central Excise, New Delhi reported in 2000  (115) E.L.T. 238 (Tribunal) that the position has  become clear.  It is settled law that mere failure  to declare does not amount to willful mis- declaration or willful suppression.  There must  be some positive act on the part of the party to  establish either willful mis-declaration or  willful suppression.  When all facts are before  the Department and a party in the belief that  affixing of a label makes no difference does not  make a declaration, then there would be no  willful mis-declaration or willful suppression.   If the Department felt that the party was not  entitled to the benefit of the Notification, it was  for the Department to immediately take up the  contention that the benefit of the Notification  was lost."

       Keeping in view the peculiar facts and circumstances of this case,  we are of the opinion that it is not a fit case where this Court should  interfere.  The appeal is, therefore, dismissed.  The parties shall, however,  pay and bear their own costs.