2005 (4) TMI 414 - AT - Central Excise

Testing - Chemical testing - Reliance on - Exemption - Demand - Abatement on equitable principle - Appellate Tribunal - Powers - Valuation

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 8/96-C.E.
2. Reliability and applicability of chemical test reports.
3. Abatement of duty for exported yarn.
4. Abatement of duty from sale price.
5. Modvat credit on inputs.
6. Alleged duplication of duty demand.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Notification No. 8/96-C.E.:
The appellants manufactured nylon filament yarn of 210 denier, which was initially exempt under Notification No. 27/95-C.E. This exemption was withdrawn in 1996, and only yarn of 210 +/- 4% denier with low tenacity was exempt under Notification No. 8/96-C.E. The appellants claimed exemption under the new notification, but chemical tests revealed the denierage exceeded the specified limit. Consequently, the original authority denied the exemption and demanded duty.

2. Reliability and Applicability of Chemical Test Reports:
The appellants contested the chemical test results, arguing they were unreliable. They cited cross-examination statements of the Chemical Examiner and relied on previous Tribunal decisions. However, the Chief Chemist and National Test House confirmed the initial test results. The Tribunal upheld the reliability of these results, noting the appellants' failure to prove any change in process parameters that would affect denierage. The Tribunal followed the precedent set by the Madras High Court in Ramalinga Choodambikai Mills Ltd., allowing duty demands based on periodic test results.

3. Abatement of Duty for Exported Yarn:
The appellants argued for excluding yarn exported directly or converted into fish net twine for export from duty. The original authority allowed abatement for directly exported yarn but not for yarn sent to job workers. The Tribunal noted the appellants' inability to correlate exported twine with yarn cleared during the disputed period and rejected the claim for additional abatements based on the principle in the TELCO case.

4. Abatement of Duty from Sale Price:
The appellants claimed that the lower authorities did not allow abatement of duty from the sale price, contrary to the Tribunal's decision in Srichakra Tyres and the Supreme Court's affirmation in Maruti Udyog Ltd. The Tribunal agreed with the appellants, granting abatement of duty from the sale price in determining the assessable value of the yarn.

5. Modvat Credit on Inputs:
The appellants sought Modvat credit for duty paid on nylon chips used in manufacturing the yarn. The original authority rejected a substantial part of this claim, and the Commissioner (Appeals) upheld this without reasoning. The Tribunal noted the pending adjudication on the dutiability of chips and allowed Modvat credit subject to the resolution of this issue.

6. Alleged Duplication of Duty Demand:
The appellants pointed out a duplication in the duty demand, where duty was demanded on the opening stock of yarn as of 23-7-96, which was also included in the current demand. The Tribunal instructed the original authority to verify and address this duplication during the re-quantification of duty.

Conclusion:
The appeal was partly allowed, granting abatement of duty from the sale price and Modvat credit on nylon chips, subject to conditions. The Tribunal upheld the original order in all other respects and directed the original authority to re-quantify the duty, considering the appellants' complaint of duplication.