2007 (2) TMI 459 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of Notification No. 43/2001-C.E. (N.T.) for duty-free clearance of processed fabrics.
2. Interpretation of "procurement" under Rule 19 of the Central Excise (No. 2) Rules, 2001.
3. Eligibility for exemption under Notification No. 214/86-C.E.
4. Imposition of penalty on the assessee.

Issue-Wise Detailed Analysis:

1. Applicability of Notification No. 43/2001-C.E. (N.T.) for Duty-Free Clearance:
The primary issue was whether the assessee could clear processed fabrics to M/s. LTML without payment of duty under Notification No. 43/2001-C.E. (N.T.). The department issued eight show-cause notices alleging that since M/s. LTML "manufactured" and did not "procure" the grey fabrics, the benefit of the notification was not applicable. The Commissioner confirmed the demand for duty but dropped the penalty proposal, leading to appeals from both the department and the assessee.

2. Interpretation of "Procurement" Under Rule 19:
The assessee argued that the term "procurement" should include captive removal of goods for further processing, supported by the Board's Circulars No. 303/19/97-CX and No. 229/63/96-CX. The Commissioner, however, interpreted "procurement" as requiring the goods to be sourced externally, not manufactured internally. The Tribunal disagreed with the Commissioner, stating that Rule 19(2) permits removal of goods by the manufacturer to a job worker without payment of duty, and the notification cannot abrogate this benefit.

3. Eligibility for Exemption Under Notification No. 214/86-C.E.:
The assessee also challenged the denial of exemption under Notification No. 214/86-C.E. The Tribunal cited the case of M. Tex & D.K Processors (P) Ltd. v. Commissioner, where it was held that job workers returning processed goods to the principal manufacturer were not required to pay duty. This decision, affirmed by the Supreme Court, supported the assessee's claim for exemption.

4. Imposition of Penalty on the Assessee:
The department appealed against the Commissioner's decision to drop the penalty. However, since the Tribunal found that the assessee was entitled to duty-free clearance under Rule 19 read with Notification No. 43/2001-C.E. (N.T.), the appeal for imposing a penalty was dismissed.

Conclusion:
The Tribunal concluded that the assessee was entitled to remove processed fabrics without payment of duty to M/s. LTML under Rule 19 of the Central Excise Rules, 2001 read with Notification No. 43/2001-C.E. (N.T.). Consequently, the assessee's appeals were allowed, and the department's appeal for imposing a penalty was dismissed.

(Operative part of the order was pronounced in open Court on 12-2-2007)