2002 (11) TMI 642 - AT - Central Excise

Summary

Issues:
Interpretation of Notification No. 214/86-C.E. regarding duty exemption for intermediate products; Classification of dyed yarn as an intermediate or final product under the Notification; Appellants' eligibility for exemption under the Notification; Applicability of Rule 57J/57AC in the case; Jurisdiction of the Addl. Commissioner in confirming duty demand and imposing penalty; Comparison with the decision in Maruti Udyog case.

Analysis:
The case involved the interpretation of Notification No. 214/86-C.E. regarding duty exemption for intermediate products and the classification of dyed yarn as an intermediate or final product under the Notification. The appellants, engaged in manufacturing grey textured yarn and dyed man-made filament yarn, claimed exemption under the Notification for clearing dyed yarn to manufacturers of final products without payment of duty. The department objected, contending that the dyed yarn was a final product chargeable to excise duty, not an intermediate product. The Addl. Commissioner confirmed duty demand and imposed a penalty, leading to the appeal.

The Tribunal analyzed the provisions of Rule 57J/57AC, noting that a manufacturer could supply inputs to a job worker for processing and receive the processed product without duty payment. In this case, the appellants acted as both input manufacturers and job workers. They supplied grey textured yarn to the principal manufacturer, then used it to manufacture dyed yarn for the same manufacturer. The Tribunal found that the appellants fulfilled the conditions of the Notification by supplying duty-paid inputs and using them for the intermediate product, dyed yarn.

Further, the Tribunal examined the Notification's requirement for the principal manufacturer to undertake using the goods in the final product's manufacture and discharging duty liability. The appellants' actions, including the transmission of invoices and delivery challans, satisfied these requirements. The Tribunal found no prohibition on the principal manufacturer acting as a deemed supplier or the appellants acting as input suppliers and job workers. The substantive requirements of the Notification were met by the appellants, allowing them to clear dyed yarn without duty payment.

The Tribunal referred to the decision in the Maruti Udyog case, where a similar scenario was considered, and M/s. BSL was allowed to act as a job worker and raw material supplier. Drawing parallels, the Tribunal held that the appellants were entitled to the benefit of exemption under the Notification. Considering the revenue neutrality of the entire transaction, the Tribunal set aside the duty demand and penalty, allowing the appeal in favor of the appellants.

In conclusion, the Tribunal ruled that the appellants were eligible for duty exemption under Notification No. 214/86-C.E., considering their compliance with the Notification's requirements and the applicability of Rule 57J/57AC. The decision in the Maruti Udyog case supported the appellants' position, leading to the dismissal of the duty demand and penalty imposed by the Addl. Commissioner.