2005 (2) TMI 698 - AT - Central Excise

Summary

Issues:
1. Duty demand and penalty imposed on a cotton yarn manufacturer for not paying duty on yarn despatched to another party.
2. Interpretation of Rule 96E of the Central Excise Rules regarding the removal of cotton yarn without payment of duty.

Analysis:
1. The appeal before the Appellate Tribunal CESTAT, CHENNAI, involved a duty demand of approximately Rs. 6.00 lakhs and a penalty of Rs. 1,000 imposed on a cotton yarn manufacturer. The manufacturer received fiber from another party, converted it into yarn, and returned the manufactured yarn to the sender on a job charge basis. The impugned order held the manufacturer liable to pay duty on the yarn despatched without showing how the duty liability was discharged. However, the Tribunal noted that Rule 96E of the Central Excise Rules permits the removal of yarn without payment of duty from one factory to another. As per the Rule, the duty demand on the yarn despatched was deemed contrary to the Rule's provisions. Therefore, the duty demand and penalty were deemed illegal and set aside by the Tribunal, granting consequential relief to the appellant.

2. The key contention raised by the appellant's counsel was the interpretation of Rule 96E in relation to the duty liability on yarn despatched to another person for various purposes, including manufacturing cotton fabrics. The counsel argued that Rule 96E exempts the yarn manufacturer from paying duty on the despatched yarn. Upon examining the Rule and considering the title "Procedure for removal of cotton yarn from one factory to another without payment of duty," the Tribunal concurred with the appellant's interpretation. The Tribunal emphasized that the Rule explicitly allows for the removal of yarn without duty payment between factories. Consequently, the duty demand imposed on the appellant was found to be in direct contradiction to the provisions of Rule 96E. Hence, the Tribunal ruled in favor of the appellant, setting aside the duty demand and penalty while providing any necessary consequential relief.