2006 (8) TMI 365 - AT - Central Excise

Summary

Issues:
1. Denial of benefit of exemption under Notification No. 8/97 for DTA clearance of cotton yarn and polyester cotton yarn.
2. Imposition of penalty for failure to comply with Rule 4(5)(a) and Rule 13 of the Cenvat Credit Rules, 2001.

Analysis:
1. The case involved an application for waiver of pre-deposit of duty amounting to Rs. 1,39,30,620/- on DTA clearance of cotton yarn and polyester cotton yarn, along with a penalty of equal amount. The dispute arose from the denial of exemption benefits under Notification No. 8/97, which exempts finished products manufactured in a 100% EOU wholly from raw materials produced in India. The denial was based on the use of waste from imported cotton in the manufacturing process, which was considered a violation of the exemption conditions. Additionally, a penalty of Rs. 5,000/- was imposed for non-compliance with Rule 4(5)(a) and Rule 13 of the Cenvat Credit Rules, 2001 related to the receipt of Turbo Chargers beyond the prescribed time limit.

2. After hearing both parties, the tribunal found merit in the argument that the cotton waste obtained from imported cotton and used in yarn manufacturing should not be classified as imported raw material since the waste was generated during the domestic manufacturing process. Consequently, the tribunal held that a strong case existed for waiving the pre-deposit of duty and penalty equivalent to the duty amount. Moreover, it was acknowledged that the Turbo Chargers had been returned to the factory premises within the stipulated time frame, leading to the conclusion that the penalty of Rs. 5,000/- was not justified. As a result, the tribunal decided to waive the pre-deposit of duty and penalties, staying the recovery process pending the appeal.

This detailed analysis of the judgment highlights the key issues of exemption denial and penalty imposition, along with the tribunal's reasoning for waiving the pre-deposit and penalties in the case.