1984 (3) TMI 377 - AT - Central Excise

Issues Involved:
1. Whether Central excise duty was payable on jute pack sheets and jute twine used for packing jute manufactures exported under bond.
2. Classification and exemption status of jute pack sheets and jute twine under the Central Excise Tariff and relevant notifications.
3. Legality of the demand for duty on packing materials used for export goods.
4. Applicability of the Trade Notice issued on 29-11-1979 and subsequent notifications.
5. Whether the show cause notice issued by the Central Government was time-barred.

Detailed Analysis:

1. Central Excise Duty on Jute Pack Sheets and Jute Twine:
The primary issue in this appeal was the liability of Central excise duty on jute pack sheets and jute twine used in the factory for packing jute manufactures exported under bond. The respondents argued that these materials were covered under a B-1 Bond executed for export without payment of duty, and the jute twine was exempt under Notification No. 56/72-C.E., dated 17-3-1972.

2. Classification and Exemption Status:
The jute manufactures were classifiable under Item 22A, and the stitching twine under Item 18D of the Central Excise Tariff. Notification No. 56/72-C.E. exempted jute twine used within the factory for the manufacture of jute manufactures falling under Item 22A. The respondents used jute pack sheets and twine for packing both exported and home-consumed jute goods without paying duty, leading to a demand of Rs. 36,952.02 by the Department, which was partially sustained by the Appellate Collector.

3. Legality of the Duty Demand:
The Appellate Collector held that since the goods were exported under bond, no duty could be realized on the packing material. The Central Government contested this, stating the packing materials were not covered by the bond under Rule 13. However, the respondents provided evidence of a B-1 Bond executed for export, arguing that the pack sheets were jute manufactures and the twine was exempt under the relevant notification and Explanation 2(ii) to Rule 13.

4. Applicability of Trade Notice and Notifications:
The respondents argued that the Trade Notice issued on 29-11-1979, which required duty payment on jute packing materials, should apply prospectively, as upheld by the Central Board of Excise & Customs in the case of M/s. Megna Mills Company Ltd. The Department's representative suggested that the correct procedure was under Rules 191A and 191B, which were not applicable to jute manufactures at the material time. The respondents contended that the Department's established practice until November 1979 did not demand duty on such materials used for export packing.

5. Time-Bar Issue:
The Department's representative introduced a new point, stating that the show cause notice issued on 18-11-1981 was time-barred based on the Tribunal's view in the Modella Mills case, relying on the Delhi High Court judgment. The respondents requested the benefit of this time-bar issue.

Tribunal's Decision:
The Tribunal emphasized the principle that export goods should be relieved of home taxes and noted the established practice of not demanding duty on packing materials used for export goods. It was observed that the pack sheets were jute manufactures, and the respondents had executed a B-1 Bond. The Tribunal held that the normal, minimum packing necessary for delivering goods should be considered part of the goods themselves and not as separate entities. The process of baling jute manufactures was deemed incidental or ancillary to their completion as marketable goods, satisfying the requirements of Explanation 2(ii) to Rule 13 and Notification No. 56/72-C.E.

Additionally, the Tribunal considered an alternative view that the pack sheets, when stitched, formed a bag-like contraption, which could be treated as a jute manufacture exported under bond, further negating duty liability.

Conclusion:
The Tribunal rejected the Department's appeal, discharging the show cause notice issued by the Central Government, and did not address the time-bar issue, as the substantive grounds were sufficient to dismiss the demand.

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