2001 (3) TMI 776 - AT - Central Excise

Summary

Issues Involved:
1. Classification of the coated cotton fabrics under the Central Excise Tariff.
2. Alleged clandestine removal of coated cotton fabrics without payment of duty.
3. Assessment of duty liability and imposition of penalty.
4. Valuation of the coated cotton fabrics for duty calculation.
5. Applicability of exemption notification.
6. Procedural fairness and adequacy of evidence.

Issue-wise Detailed Analysis:

1. Classification of the Coated Cotton Fabrics:
The appellants contended that their products did not fall under Tariff Item 19(III) as the cotton content in the finished product was less than 25%. They argued that the test reports indicated cotton content by weight varied from 10.21% to 20.42%. However, the judgment referenced the Supreme Court's decision in CCE Hyderabad v. M/s. Fenoplast (P) Ltd., which clarified that the classification should be based on the base fabric's constitution. Since the base fabric was 100% cotton, the coated fabrics were rightly classified under Tariff Item 19(III).

2. Alleged Clandestine Removal:
The department alleged that the appellants received 2,62,691.5 meters of cotton fabric, which was not accounted for in their Form IV register and was used to manufacture coated cotton fabrics that were removed without payment of duty. The Collector observed discrepancies in the entries of the Form IV register and rejected the appellants' claims of defective goods being disposed of through a Dalal. However, the Tribunal noted that the Collector's order lacked direct or indirect evidence proving the clandestine removal of the finished products.

3. Assessment of Duty Liability and Imposition of Penalty:
The initial order by the Principal Collector confirmed a duty demand of Rs. 10,27,225/- and imposed a penalty of Rs. 1 lakh. Upon remand, the Collector confirmed a reduced duty of Rs. 4,50,835.57 and a penalty of Rs. 50,000/-. The appellants argued that the department failed to prove clandestine removal and that the Collector should have considered the cum-duty price for duty calculation.

4. Valuation of the Coated Cotton Fabrics:
The department initially valued the coated cotton fabrics at Rs. 10/- per meter. However, the Collector revised this to an average price of Rs. 4.85 per meter, considering the product was generally of a cheap variety. The Revenue appealed against this reduction. The Tribunal found the Collector's valuation method artificial and not fully justified.

5. Applicability of Exemption Notification:
The appellants claimed exemption under Notification No. 128/85-C.E., dated 24-5-1985. The Collector rejected this claim, stating that the alleged suppression of production and clandestine removal occurred before the notification date.

6. Procedural Fairness and Adequacy of Evidence:
The Tribunal emphasized the need for a speaking order that addresses all points raised by the appellants. It noted the lack of evidence in the Collector's order to substantiate the clandestine removal allegations and the arbitrary valuation method used. Consequently, the Tribunal set aside the Collector's order and remanded the matter for a fresh decision, ensuring all submissions by the appellants are considered and a reasonable opportunity for hearing is provided.

Conclusion:
The appeals by both the appellants and the Revenue were disposed of by remanding the case to the Commissioner for a de novo order within four months, addressing all issues comprehensively and ensuring procedural fairness.