1. Appeals bearing No. E/576 to 579/2008 have been filed against Order-in-Appeal No. 80-83/2008 dated 30.4.2008 and Appeal No. E/812/2007 has been filed against Order-in-Appeal No. 126/2007 dated 31.7.2007.
2. The appellant-assessee is engaged in the manufacture of FRP Composite Doors and Frames and claimed the benefit of SSI exemption. The departmental officers carried out search at the factory of the appellant as well as other connecting premises, on 5.12.2005 and recovered records and CPUs of computer systems considered relevant for investigation. After completion of investigation and issue of show-cause notice covering the period 1.4.2003 to 5.12.2005, the original authority finalised the classification of the goods manufactured by the appellant under Central Excise Tariff Heading (CETH) 3925.20 as articles of plastics. The claim of the appellant that the goods were rightly classifiable under CETH 4410.19 and 4410.90 as articles of wood was rejected. The adjudicating authority finally demanded Central Excise duty amounting to Rs. 29,39,664/- along with interest and penalties from the appellant. Penalties were also imposed under Rule 26 of the Central Excise Rules, 2002 on Shri Aravind A. Shetty, Shri Balaji Sooda and Shri Jayaraj Hegde, Directors of the appellant-company. When the order was challenged in appeal before the Commissioner (A), he upheld the order of the original authority. Challenging the Order-in-Appeal No. 80-83/2008 dated 30.4.2008 of the Commissioner (A), the present appeals No. E/576 to 579/2008 have been filed by the assessee as well as the three Directors.
2.1 In respect of appeal No. E/812/2007, the issue under dispute is valuation of the goods manufactured and cleared by the appellant. During the period December 2005 to March 2006, the appellant, in addition to the price of the goods, also collected from their customers, certain amounts towards erection of the doors at the customers premises. Department was of the view that such amounts recovered by the appellant is required to be added to the price of the goods and excise duty is required to be paid. Accordingly, the authorities below demanded the differential duty amounting to Rs. 1,33,718/- along with interest and penalties.
3. With the above background, we heard Shri K.S. Ravi Shankar, learned advocate for the appellant and Dr. Ezhilmathi, learned DR for the Revenue.
4. The arguments advanced by Shri K.S. Ravi Shankar, learned advocate is summarised below:
(i) The appellant has manufactured frames and doors which were manufactured having a core of solid sal wood which was coated with fibre reinforced plastic (FRP), which serves to protect the wood from moisture especially since the doors manufactured by the assessee were intended to be used in bathrooms. He submitted that the goods were predominantly made of wood, both in terms of weight as well as in terms of value of the relevant materials. The weight as well as value of plastic is comparatively minor when compared to the wood. Accordingly, the goods are rightly classifiable as products of wood and more specifically under CETH 4410.19 (Wooden doors) as well as under 4410.90 (wooden frames). Such a claim of the appellant has been ignored by the authorities below, by taking a view that the goods manufactured by them are marketed as FRP Composite Doors and Frames. The authorities below have further taken the view that the goods will be classifiable under CETH 3925.20 as builder's were made of plastics. This view was taken by Revenue since the essential characteristics of the goods are on account of plastics and hence, the articles are classifiable under Chapter 39.
(ii) The learned counsel referred to the certificate issued by the Chartered Engineer Shri H.S. Nagaraj dated 17.5.2007 in which it has been certified that the wood predominates over plastic in the goods manufactured by the appellant. He further cited the certificates given by a few persons in the trade to the effect that the goods are generally known as wooden doors with fibre coating.
(iii) The learned counsel submitted that if the goods are classifiable under CETH 4410.19 and 4410.90, then the appellant will be entitled to the benefit of Notification No. 10/2003-CE : dated 1.3.2003 which was available during the period in question. With the benefit of above notification, no duty will be payable by the appellant, hence the question of valuation which is the subject matter of appeal No. E/812/2007 will become a non-issue.
(iv) He further referred to the HSN Explanatory Notes to Chapter 44 in which it is given that building panel used as a structural element in roofing, wall or floor application and consisting of an external layer of particle board and layer of insulating materials of plastics will be classified under CETH 4410 whatever be the thickness of plastic since it is the rigid strong wood portion which allows the panel to be used as a structural element. He cited the Apex Court decision in the Wood Craft Products Ltd. reported in : 1995 (77) EKT 23 (SC), in which the apex court has observed that HSN Explanatory notes will have persuasive value as long as the tariff is aligned with HSN.
(v) He also referred to the CBEC Circular No. 16/88-CX-3 dated 10.8.2008 in which the Board has clarified that the classification of composite articles of plastics made out of combination of plastic and non-plastic materials is to be made depending on the predominance of weight and value of the component materials which have gone into the manufacture of such composite articles of plastic.
(vi) He also relied on the case of Commissioner vs. Sima FRP (P) Ltd.: 2000 (125) ELT 539 (Tribunal) in which classification of similar products came up before the Tribunal. In the above case, flush doors made of wood on which PVC skins were glued were ordered to be classified under CETH 4410.11.
(vii) Finally, he submitted that both the impugned orders may be set aside.
5. The learned DR, Dr. Ezhilmathi, reiterated the impugned orders.
6. After hearing both sides and perusal of the records, we note that the appellant is engaged in the manufacture of FRP Composite Doors and Frames. Such articles are made from solid block of sal wood on which skin of fibre reinforced plastic material is glued, which is said to give the plastic moisture resistance. We have perused the certificate issued by the Chartered Engineer Shri H.S. Nagaraja. The Chartered Engineer has certified that the products are predominantly made of wood and plastic forms a minor part in terms of weight of the material as well as the value of the material.
The classification of composite materials is required to be done in terms of Rule 3(b) of the General Rules for Interpretation of Central Excise Tariff. This Interpretation Rule provides that composite goods made up of more than one material shall be classified as if they consisted of the material which gives them the essential character insofar as this criterion is applicable. The lower authorities have taken a view that out of the two materials - wood as well as plastic the essential character is given by plastics, since the goods are marketed as FRP Composite Doors and Frames. Consequently, the lower authorities have ordered classification under Chapter 39.
6.1 The CBEC has occasion to clarify as to how the classification of composite articles of plastics as well as other materials are to be made. In the Circular dated 10.8.88, the CBEC has clarified as follows:
2. The above mentioned issues have been examined by the Board. As regards the classification of composite articles of plastics made out of combination of plastic and non-plastic materials, the Board is of the view that the classification of such goods as articles of plastics of Chapter 39 of the Schedule to the Central Excise Tariff Act, 1985 would depend on the predominancy of weight and value of the component materials which have gone into the manufacture of such composite articles of plastics, keeping in view the Rules of Interpretations to the Schedule to the Central Excise Tariff Act, 1985. While deciding the classification of such products, due regard should given to the trade identity of the product, i.e. how the same is known in the commercial/trade parlance.
6.2 By appreciating the nature of the present commodity, which is doors and frames, we are of the view that the essential character stems from the wood which forms the core material without which the doors and frames will fail to have any rigidity or shape. No doubt, the plastic gives the door the additional character of moisture resistance but keeping the nature of use of the goods, we are of the view that the essential character is given by the wood and hence, in terms of Rule 3(b) of the Rules for Interpretation, the goods will need to be considered as if they are made entirely of wood. Such a view will decide the classification of the plastic under Chapter 44 i.e., articles of wood. This would also satisfy the guideline issued by the CBEC, since the wood predominates in terms of weight and value of the component materials which have gone into the manufacture of the composite article.
6.3 The view that the goods merit classification under 44 also finds support in the decision of the Tribunal in the case of Simba FRP (P) Ltd. (supra) where the classification of flush doors which are made by gluing PVC skin on the plywood. Such goods have been classified under 4410.11. We note that the item involved i
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n the present dispute is also of a similar type in the sense that such doors are made out of wood coated by FRP skins. Hence, we conclude that the goods in question are rightly classifiable under CETH 4410.19 as articles of wood (door) as well as under CETH 4410.90 as wooden frames. The appellant, during the period under dispute, will be entitled to clearance at nil rate of duty in terms of Notification No. 10/2003 (Sl. No. 12). Consequently, the impugned Order-in-Appeal No. 80-83/2008 dated 30.4.20087 is set aside and the appeal Nos. E/576 to 579/2008 filed by the assessee as well as the Directors are allowed. 7. Now, we turn to valuation dispute. As held by us above, once the goods are classified under Chapter 44, they enjoy the exemption under Notification No. 10/2003 : and no duty becomes payable. Consequently, the impugned order No. 126/2007 dated 31.7.2007 demanding differential duty also merits to be set aside and appeal No. E/812/2007 is allowed. 8. In the result, both impugned orders are set aside and all the appeals are allowed.