Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2006 Supreme(SC) 366

2006(5) Supreme 105
SUPREME COURT OF INDIA
(From Customs, Excise & Gold (Control) Appellate Tribunal, Chennai)
Ashok Bhan & Lokeshwar Singh Panta, JJ.
M/s H.P.L. Chemicals Ltd. — Appellants
versus
Commissioner of Central Excise, Chandigarh — Respondent
Civil Appeal No. 1836 of 2001
Decided on 20-4-2006
Counsel for the Parties :
For the Appellant : Mr. S.K. Bagaria, Senior Advocate, Rupesh Kumar, Tara Chandra Sharma, Advocates.
For the Respondent : Harish Chander, Senior Advocate, Mohit Choudhary, P. Parmeswaran, Advocates.

Counsel for the Parties :
For the Appellant :Mr. S.K. Bagaria, Senior Advocate, Rupesh Kumar, Tara Chandra Sharma, Advocates.
For the Respondent:Harish Chander, Senior Advocate, Mohit Choudhary, P. Parmeswaran, Advocates.

IMPORTANT POINTS
1. Where the goods are covered by a specific tariff heading, the same cannot be classified under the residuary heading at all.
2. Classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue.

Headnote:Central Excise Tariff Act, 1985 — Chapter Heading 25.01 and 38.23 — Denatured Salt — Classification — Burden of proof on Revenue — Appellant company engaged in the manufacture of Hydrazine falling under the Chapter Heading No. 28.25 of the Tariff Act — During the course of manufacture of final product, appellant produces residuary by-product, i.e. ‘Denatured Salt’ — Appellant filed classification list claiming classification of the said product under the Heading No. 25.01 carrying ‘Nil’ rate of duty — Show cause notice as to why appellant’s product should not be classified under Chapter Heading No. 38.23 against 25.01 as claimed by appellants — Whether the subject product would fall under sub heading 38.34 — (No) — It would fall under the specific Heading 25.01 as has been claimed by the assessee in the classification list filed by it.
       Held : Heading 25.01 is a specific heading covering “Denatured Salt” by name. The fact that the product in question is a “Denatured Salt” is clear from the test report of the Chemical Examiner, CRCL, who has found that the product comprises of 53.6 Sodium Chloride and “is to be taken as Sodium Chloride”. This test report was obtained by the Central Excise authorities themselves from their own Chemical Examiner. Even as per market and trade enquiries conducted by the Central Excise Department itself, it was found that the said goods are being consumed by local soap manufacturers as a filler in the detergent and as a substitute of the common salt; these are purchased and sold as “Denatured Salt” and are known to the local consumers by this name only. Thus, as per the said market and trade enquiries conducted by the Central Excise Department the goods in question are bought and sold as “Denatured Salt”.(Para 15)
       Classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue. If the Department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the Department has to adduce proper evidence and discharge the burden of proof. In the present case the said burden has not been discharged at all by the Revenue. On the one hand, from the trade and market enquiries made by the Department, from the report of the Chemical Examiner, CRCL and from HSN, it is quite clear that the goods are classifiable as “Denatured Salt” falling under Chapter Heading No. 25.01. The Department has not shown that the subject product is not bought or sold or is not known or is dealt with in the market as Denatured Salt. Department’s own Chemical Examiner after examining the chemical composition has not said that it is not denatured salt. On the other hand, after examining the chemical composition has opined that the subject matter is to be treated as Sodium Chloride.(Para 29)
       Looking from any angle it cannot be held that the subject product would fall under the sub-heading 38.34 (now 38.24). It would fall under the specific Heading 25.01 as has been claimed by the assessee/appellant in the classification list filed by it.(Para 34)

JUDGMENT

Bhan, J. — These appeals pertain to the same issue. For the sake of convenience, the facts are taken from Civil Appeal No. 1836 of 2001.

2. The assessee-appellant (for short “the appellant”) being aggrieved by the final order No.526/2000/C dated 7-12-2000 passed by the Central Excise and Gold (Control) Appellate Tribunal, New Delhi (for short “the Tribunal”) in Appeal No. E/2154/2000-C has filed the present appeal under Section 35-L of the Central Excise Act, 1944 (for short “the Act”). The Tribunal by the impugned order has set aside the order of the Commissioner (Appeals) classifying `Denatured Salt’ under the Chapter Heading 25.01 and held that `Denatured Salt’ is classificable under the Chapter Heading No. 38.24 of the Central Excise Tariff Act, 1985 (for short “the Tariff Act”).

FACTS

3. Appellant is a limited company incorporated under the Companies Act, 1956 and is engaged in the manufacture of Hydrazine falling under the Chapter Heading No. 28.25 of the Tariff Act. Appellant, during the course of manufacture of the final product produces residuary by-product, i.e., ‘Denatured Salt’. Appellant filed classification list claiming classification of the said product under the Heading No. 25.01 carrying ‘Nil’ rate of duty.

4. Divisional Preventive Officers of the Central Excise visited the plant of the appellant and observed that the raw materials used by the appellant are Urea, Caustic Soda (Sodium Hydroxide) and Chlorine Gas. The process of manufacture followed by the appellant, as stated in the show cause notice based on the report of the prevent staff is as under: Caustic Soda and Chlorine Gas are reacted in a closed tank and transferred to another tank. In the said other tank Urea is mixed. The mixture is then heated upto 100 centigrade with the help of steam. Chemical reaction starts in the tank and on completion of it. Hydrazine in liquid form gets generated. It is removed to another tank through pumps. From this tank, the materials in limited quantities are taken to evaporator tank where Hydrazine evaporates along with water and passes through a condenser and is collected. The remaining material in the evaporator tank is taken into centrifuge. In the centrifuge, out of the remaining materials, solids and liquids are separated. The liquid form centrifuge is again passed through the evaporator tank and, in turn, through condenser to collect Hydrazine. This process is continued for all remaining liquids and is a continuous process for further retrieval of Hydrazine. The residue solid which remains in the centrifuge is taken out from its bottom and it is in the form of white crystalline powder and which is sold by the appellant as Denatured Salt. It is this product whose classification is in dispute in the present case.

5. On the basis of the report submitted by the Preventive staff, the Deputy Commissioner of Central Excise, Chandigarh issued two show cause notices dated 28.2.1997 and 12.3.1997 requiring the appellant to show cause as to why:

(a)Central Excise Duty amounting to Rs. 12,21,863/- should not be recovered under Rule 9(2) of the Central Excise Rules, 1944.

(b)Interest on the said duty be not recovered under Section 11AB of the Act.

(c)Penalty should not be imposed under Section 11AC, Rules 9(2) and 173Q of the Central Excise Rules, 1944.

(d)The appellant’s product should not be classified under Chapter Heading No. 38.23 against 25.01 as claimed by the Appellants.

6. Appellant in reply to the show cause notices took a number of points, relevant ones of which are:

1.That in the common parlance the product in dispute is described as Denatured Salt.

2.That the end use of the product is also as a replacement of the common salt.

3.That the classification of a mixture is to be decided according to the dominance of the constituent.

4.That Chemical Examiner report supports that the product is a salt in denatured form, i.e., impure and is not usable as edible salt, because it contains sodium carbonate which is not fit for hu

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2006 Supreme(SC) 366

IMPORTANT POINTS1. Where the goods are covered by a specific tariff heading, the same cannot be classified under the residuary heading at all.2. Classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue.

Cases Referred (4)

IMPORTANT POINTS
1. Where the goods are covered by a specific tariff heading, the same cannot be classified under the residuary heading at all.
2. Classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue.