2005 (3) TMI 502 - AT - Central Excise

Summary

Issues:
1. Challenge against Order-in-Appeal No. 14/2002 dated 12-7-2003 passed by the Commissioner of Central Excise (Appeals), Trichirapalli.
2. Validity of notional process loss limitation on Polyester Fibre.
3. Allegation of duty demand and penalty imposition.
4. Interpretation of Board's Letter regarding credit denial on inputs.

Analysis:

1. The appeal before the Appellate Tribunal CESTAT, CHENNAI was filed by the Revenue against Order-in-Appeal No. 14/2002 dated 12-7-2003 passed by the Commissioner of Central Excise (Appeals), Trichirapalli, challenging the decision in the case.

2. The core issue revolved around the limitation of notional process loss on Polyester Fibre used by the appellants in manufacturing Polyester Viscose Blended Yarn and Cotton Polyester Yarn. The Revenue contended that the notional process loss should be limited to 2 to 3%, whereas the actual loss in this case exceeded that limit, leading to duty demand and penalty imposition.

3. The Revenue initiated proceedings against the appellants, demanding duty on Polyester Fibres on which Modvat credit was taken, along with imposing a penalty under Rule 173Q. The Commissioner (Appeals) set aside the original authority's order, prompting the Revenue to appeal. The Revenue argued that the loss beyond 3% should not be allowed based on the South India Textile Research Association's notional loss percentage. However, the appellants defended their position stating no evidence of malpractice or clandestine activities existed.

4. The Tribunal carefully reviewed the case records and acknowledged that the loss of Polyester Fibre was higher than normal, attributed by the appellants to poor quality fibre received. Notably, there was no evidence of malpractice by the appellants. Referring to the Board's Letter, the Tribunal highlighted that credit to duty on inputs cannot be denied merely because some inputs are contained in waste or scraps. Consequently, the Tribunal found the Commissioner's order legally sound and dismissed the Revenue's appeal.

In conclusion, the Tribunal upheld the Commissioner's decision, emphasizing the lack of evidence supporting malpractice or clandestine activities by the appellants, and the inability to deny credit based on the quality-related losses incurred during production.