2005 (2) TMI 721 - AT - Central Excise

Summary

Issues Involved:
1. Non-payment of duty on base fabrics received under bond for export but not exported.
2. Non-payment of duty on finished made-ups diverted for local clearance without following the prescribed procedure.
3. Valuation of goods removed for export but diverted into the domestic market due to damage.

Issue-wise Detailed Analysis:

1. Non-payment of duty on base fabrics received under bond for export but not exported:
The Commissioner demanded Rs. 1,29,59,531/- as duty on base fabrics from M/s. Bombay Dyeing and Mfg. Co. Ltd., arguing that they jointly executed a bond with M/s. Asmita Enterprises. However, the tribunal found that M/s. Asmita Enterprises, being the assessees permitted to obtain base fabrics under Chapter X for manufacturing made-ups for export, should bear the duty liability. Rule 196 of Chapter X stipulates that duty on such fabrics should be paid by the recipient (M/s. Asmita Enterprises) if the conditions for duty-free receipt are not met. The tribunal concluded that the demand for duty on base fabrics from M/s. Bombay Dyeing and Mfg. Co. Ltd. is not sustainable.

2. Non-payment of duty on finished made-ups diverted for local clearance without following the prescribed procedure:
The Commissioner demanded Rs. 12,80,453/- as duty on made-ups from M/s. Bombay Dyeing and Mfg. Co. Ltd., minus the duty paid on the damaged goods. The tribunal noted that M/s. Bombay Dyeing and Mfg. Co. Ltd. paid duty on the damaged goods while clearing them into the domestic market. The tribunal referenced Board Circular 87/87/94-CX. 6, which clarifies that the assessable value for diverted goods should be determined under Section 4 of the Central Excise Act. The tribunal found that the appellants informed the department of their intention to sell the damaged goods locally and sought permission, which was not explicitly denied by the department. Thus, the tribunal held that the value for the damaged goods should be based on the sale price in the domestic market, not the AR4 value.

3. Valuation of goods removed for export but diverted into the domestic market due to damage:
The tribunal discussed the valuation of deteriorated goods, referencing the case of J.K. Papers Limited, which held that the assessable value should be the price at the time of removal from the factory. However, the tribunal noted that in the case of Rajasthan Spinning Mills, the value should be determined under Section 4 of the Central Excise Act. The tribunal concluded that the price at which the damaged goods were sold in the domestic market is the appropriate value for assessment. The tribunal found that the department did not challenge the authenticity of the sale price provided by the appellants. Therefore, the demand for differential duty on the made-ups was set aside.

Conclusion:
The tribunal allowed all the appeals, setting aside the impugned orders of the Commissioner. It held that the duty on base fabrics should be borne by M/s. Asmita Enterprises, not M/s. Bombay Dyeing and Mfg. Co. Ltd. The tribunal also determined that the correct value for the damaged goods diverted to the domestic market should be based on the sale price, not the AR4 value. No penalties were imposed on the appellants.