2005 (8) TMI 551 - AT - Central Excise

Summary

Issues:
1. Interpretation of exemption Notification No. 76/86 for metallic yarn (Zari) under Central Excise Act, 1985.
2. Application of Supreme Court decision on handicrafts criteria to determine exemption eligibility.
3. Validity of show cause notice and imposition of duty, penalty, and interest.
4. Challenge on the point of limitation regarding availing exemption benefit.
5. Re-quantification of duty and consideration of Modvat credit.

Analysis:

1. The appellants were engaged in manufacturing metallic yarn (Zari) under Chapter Heading 5605.00 of the Central Excise Act, 1985, and were clearing the product at nil rate of duty as handicrafts under Notification No. 76/86. Circulars by the Central Board of Excise and Customs clarified Zari's classification as handicrafts, making it eligible for exemption.

2. The Supreme Court's decision in Collector of Central Excise v. Louis Shoppe set criteria for goods to be considered handicrafts, emphasizing hand-made production and visual appeal with artistic improvement. Subsequent Circular No. 280/114/96 required considering these criteria for Zari classification.

3. A show cause notice was issued to the appellant demanding duty payment for Zari cleared during a specific period, leading to an order by the Commissioner confirming duty, penalty, and interest. The appellant challenged the order on the grounds of limitation, citing the revenue's acceptance of exemption benefit based on Circulars.

4. The appellant argued that the revenue had accepted the exemption benefit after due declaration and registration surrender, questioning the invocation of a longer limitation period. The Tribunal agreed, noting the revenue's delay in acting post the 1996 Circular requiring reevaluation based on the Supreme Court's criteria.

5. The Tribunal found no justification for the longer limitation period, setting aside duty demand beyond six months from the show cause notice issuance. The Commissioner was directed to re-quantify duty considering Modvat credit availability, with the penalty being revoked due to the circumstances. The appeal was disposed of accordingly.