2007 (3) TMI 578 - AT - Central Excise

Issues Involved:
1. Alleged clearance of cheese yarn as hank yarn by EASM.
2. Demand of Central Excise duty and penalties.
3. Admissibility of exemptions and procedural lapses.
4. Evidentiary value of statements and documents.
5. Time-barred nature of the demand.

Issue-wise Detailed Analysis:

1. Alleged Clearance of Cheese Yarn as Hank Yarn by EASM:
The case revolves around the allegation that EASM cleared cheese yarn under the guise of hank yarn to evade excise duty. The officers of DGCEI, during their visits to various manufacturers, obtained documents and statements suggesting that EASM supplied 10s cotton yarn on cheese described as plain reel hank yarn in invoices. The Commissioner confirmed the allegations based on statements from buyers and documents like "in-passes" and trip sheets, which indicated receipt of cheese yarn, not hank yarn.

2. Demand of Central Excise Duty and Penalties:
A show cause notice was issued demanding Rs. 81,74,779/- as duty for the period from 1-2-99 to 28-2-2002, along with equivalent penalties under Section 11AC of the CE Act, 1944, and interest under Section 11AB. The Commissioner confirmed the demand, imposing penalties on EASM and its Managing Director, P.K. Duraiswamy, and Manager, M.K. Kailasam. The appellants contested the demand, arguing that they did not supply cheese yarn as hank yarn and that their records were periodically inspected without any irregularities being noticed.

3. Admissibility of Exemptions and Procedural Lapses:
The appellants argued that the yarn supplied was for export consumption, which is exempt from duty under various notifications. They contended that procedural lapses in following the prescribed procedure for duty-free clearances should not disentitle them to the exemption. They cited case law supporting the view that substantive compliance should not be negated by procedural lapses.

4. Evidentiary Value of Statements and Documents:
The appellants challenged the reliance on statements from buyers like S/Shri C. Saravanan and J. Lakshmanan, who were not produced for cross-examination. The adjudicating authority justified reliance on these statements, citing corroborative documents. However, the appellants argued that these documents were not furnished to them for scrutiny, and the statements lacked evidentiary value without corroboration. The Tribunal found that the reliance on uncorroborated statements and documents not provided to the appellants was unjustified.

5. Time-barred Nature of the Demand:
The appellants claimed that the demand was time-barred as their records were periodically inspected without any discrepancies being noticed. The Commissioner invoked the extended period of limitation, alleging fraud by EASM. The Tribunal found that the evidence was insufficient to sustain the charge of evasion, thus questioning the justification for invoking the extended period.

Conclusion:
The Tribunal concluded that the department failed to prove the charge that EASM cleared cheese yarn in the guise of hank yarn. The reliance on uncorroborated statements and documents not provided to the appellants was found to be unjustified. The procedural lapses did not negate the substantive compliance with exemption notifications. Consequently, the Tribunal set aside the impugned order, allowing the appeals with consequential relief. The demand for duty and penalties was not sustained, and the value of yarn clearances was to be excluded from the computation for SSI benefit.

Order Pronounced:
(Order pronounced in the open Court on 5th March, 2007)

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