2004 (2) TMI 469 - AT - Central Excise

Summary

Issues Involved:
1. Correctness of the amount of duty paid by the appellants.
2. Method of valuation of processed fabrics.
3. Allegation of suppression of facts and evasion of duty.
4. Justification for adopting yarn consumption data from the weavers' balance sheets.
5. Reliability and acceptability of the formula used for determining the weight of yarn in fabric.
6. Justification for the extended period for demand of duty under Section 11A.

Issue-wise Detailed Analysis:

1. Correctness of the Amount of Duty Paid:
The appellants, M/s. Sangam Processors (Bhilwara) Ltd., M/s. Sangam India Ltd., and M/s. Sangam Suitings, were involved in a dispute regarding the correctness of the amount of central excise duty paid on processed fabrics. The central excise duty was discharged based on the value of the processed fabrics. However, the jurisdictional Central Excise Commissioner issued two Show Cause Notices alleging short levy of duty due to undervaluation, leading to a demand for recovery of over Rs. 83 lakhs and imposition of penalties.

2. Method of Valuation of Processed Fabrics:
The valuation of processed fabrics was based on the full value, including the cost of fabric and processing charges. The appellants filed price declarations and cost sheets with the Central Excise authorities, detailing the cost of yarn, processing charges, and selling price. The formula used for determining the weight of yarn in fabric was consistent with industry norms and confirmed by the Textile Processors Association and the Institute of Cost and Works Accountants of India. The Commissioner, however, rejected this formula and adopted a different method based on the yarn consumption data from the weavers' balance sheets, leading to the duty demand.

3. Allegation of Suppression of Facts and Evasion of Duty:
The Show Cause Notices charged the appellants with suppression of facts to evade duty, invoking the Proviso to Section 11A of the Central Excise Act for an extended recovery period. The appellants contended that the variation in weight was normal and due to factors like moisture absorption, yarn count tolerance, and wastage during weaving. They argued that the full disclosure of their valuation method and cost sheets to the Central Excise authorities negated any intent to evade duty.

4. Justification for Adopting Yarn Consumption Data from the Weavers' Balance Sheets:
The Commissioner adopted the yarn consumption data from the weavers' balance sheets to determine the weight of processed fabrics, allowing only a 3.5% variation for wastage and shortages. The appellants argued that this method was unreliable and arbitrary, as it did not account for other factors like design and development, samples, and damaged fabrics. The Tribunal found the Commissioner's method unjustified and discriminatory, emphasizing the need for adjustments based on industry practices.

5. Reliability and Acceptability of the Formula Used for Determining the Weight of Yarn in Fabric:
The appellants used a formula for determining the weight of yarn in fabric, which was consistent with industry norms and confirmed by relevant authorities. The Tribunal noted that the formula was widely adopted in the textile industry and should be accepted for excise matters. The rejection of this formula by the Commissioner was deemed unreasonable and discriminatory.

6. Justification for the Extended Period for Demand of Duty under Section 11A:
The Tribunal found no justification for invoking the extended period under Section 11A, as the appellants had made full disclosures through price declarations and cost sheets. The variation in weight was attributed to normal factors, and there was no evidence of deliberate understatement to evade duty. The Tribunal concluded that the entire proceedings were misplaced and vexatious.

Conclusion:
The Tribunal allowed the appeals, setting aside the duty demand and penalties. The method adopted by the appellants for valuation was consistent with industry practices, and there was no suppression of facts or intent to evade duty. The extended period for demand under Section 11A was not justified. The proceedings were deemed unnecessary and unjust, leading to the success of the appeals and consequential relief to the appellants.