2002 (4) TMI 493 - AT - Central Excise

Summary

Issues:
1. Disallowance of shrinkage claimed by the respondents under Rule 173B.
2. Interpretation of duty payment on length and number of pieces at the time of clearance.
3. Comparison of shrinkage with discounts like cash discount, quantity discount, and trade discount.
4. Application of quantity discount concept to the case.
5. Misinterpretation of shrinkage and its impact on duty payment.

Issue 1: Disallowance of shrinkage claimed by the respondents under Rule 173B
The case involved the disallowance of shrinkage claimed by the respondents under Rule 173B for PVC Sheeting and Films. The Central Excise Authorities issued show cause notices questioning the admissibility of the shrinkage claim, leading to the Deputy Commissioner confirming the demand of duty, interest, and imposing a penalty. The Commissioner (Appeals) held the impugned orders suffered from legal infirmity, setting them aside and allowing the appeals.

Issue 2: Interpretation of duty payment on length and number of pieces at the time of clearance
The Revenue argued that duty should be paid based on the length and number of pieces at the time of clearance from the factory, irrespective of any subsequent changes to the goods. The Commissioner (Appeals) cited the Apex Court decision in Ujagar Prints, emphasizing that shrinkage value should be included in the fabric at the time of clearance. The Tribunal noted that in the present case, shrinkage occurred after clearance, making any further allowance for shrinkage unjustified.

Issue 3: Comparison of shrinkage with discounts like cash discount, quantity discount, and trade discount
The Revenue contended that shrinkage should not be equated with discounts like cash discount, quantity discount, or trade discount. The Tribunal agreed, stating that shrinkage after clearance cannot be treated as a discount applicable at the time of clearance. The Commissioner (Appeals) erred in considering shrinkage as equivalent to permissible discounts, leading to the decision to set aside the impugned order and allow the appeals.

Issue 4: Application of quantity discount concept to the case
The Tribunal disagreed with the Commissioner (Appeals) regarding the application of the quantity discount concept. It clarified that quantity discount is applicable when a large number is ordered, not when a larger number is cleared but duty is paid for a smaller quantity. The misinterpretation of quantity discount led to the decision to overturn the Commissioner's findings and allow the appeals.

Issue 5: Misinterpretation of shrinkage and its impact on duty payment
The Tribunal highlighted that duty must be paid based on the physical form of goods at the time of clearance, either in length or number. Any subsequent changes to the goods, such as shrinkage, cannot be considered for duty calculation. The misinterpretation of shrinkage and its impact on duty payment led to the Tribunal setting aside the impugned order and allowing the appeals.