2006 (2) TMI 544 - AT - Central Excise

Summary

Issues: Duty demand for the period prior to production under compounded levy scheme.

In this case, the appellant, a processor of man-made fabrics, took over a manufacturing unit previously owned by another entity. The appellant started production under a compounded levy scheme after being issued a license following the opening of the excise seal by Central Excise Officers. The duty demand was raised for the period before the appellant commenced production, specifically on 3-5-99, based on the contention that duty was payable from the date of de-sealing of the unit.

The appellant argued that as a new manufacturer, no duty could be demanded before the commencement of production under the compounded levy scheme as per Section 3 of the Central Excise Act, 1944. Reference was made to a judgment of the Madras High Court in a similar case, where it was held that certain rules were ultra vires the Act. The appellant contended that duty liability should only commence from the date of actual production, not the date of obtaining the license.

The Departmental Representative, on the other hand, argued that since the appellant had chosen the compounded rate, duty payment was required for the entire period, emphasizing the relevance of the date of obtaining the license rather than the date of production. However, the Tribunal found that the duty demand for the period before the appellant started production was unsustainable. It was established that the appellant took over the unit after the excise seal was broken on 3-5-99 and commenced production on 4-5-1999, discharging duty liability from that day onwards. Consequently, the duty demand for the prior period was set aside, leading to the dismissal of the penalty as well. The appeal was allowed in favor of the appellant, with the Tribunal pronouncing the decision in court.