2010 (4) TMI 663 - AT - Central Excise

Fabrics Exemption Notification No. 14/2002-C.E Condition - show cause notice seeks to deny the concessional rate of duty on processed knitted fabrics of man made yarn/fibre under Sl. No. 16 of the table annexed to the Notification No. 14/02-C.E. only on the ground that the unprocessed knitted fabrics is fully exempt from duty under Sl. No. 14 of the table annexed to the same notification For independent processors condition of duty having been paid on unprocessed fabrics to be satisfied Presumption of duty paid nature as per Explanation-II, rebuttable - presumption and if there is clear evidence indicating that the unprocessed fabrics is fully exempt, the same cannot be treated as duty paid matter remanded to the original adjudicating authority

Issues Involved:
1. Applicability of concessional rate of duty on processed knitted fabrics of man-made yarn/fibre.
2. Interpretation of exemption Notification No. 14/02-C.E.
3. Imposition of penalty under Rule 25(1) of the Central Excise Rules, 2002.

Detailed Analysis:

1. Applicability of Concessional Rate of Duty:
The primary issue revolves around whether the processed knitted fabrics of man-made yarn/fibre manufactured by the appellant are eligible for a concessional rate of duty of 12% ad valorem under Sl. No. 16 of the table annexed to Notification No. 14/02-C.E. The Department contends that the concessional rate is not applicable because the processed fabrics were made from unprocessed fabrics on which the appropriate central excise duty and AED (GSI) had not been paid, as these unprocessed fabrics were fully exempt from duty under Sl. No. 14 of the same notification. The appellant argues that according to Explanation-II of the notification, the textile yarn or fabrics shall be deemed to have been duty-paid without the need for producing documents evidencing payment of duty.

2. Interpretation of Exemption Notification No. 14/02-C.E.:
The appellant contends that the CCE (Appeals) ignored Explanation-II of the exemption notification, which deems textile yarn or fabrics to be duty-paid without requiring evidence of duty payment. They also reference Explanation-VII added by Notification No. 37/02-C.E., which clarifies that for composite mills or processors engaged in both processing and manufacturing of fabrics, the condition for exemption is deemed satisfied if the processed fabrics are made from duty-paid textile fibres or yarn. The Department, however, maintains that the concessional rate is not applicable as the unprocessed fabrics were fully exempt from duty. The Tribunal noted that neither the show cause notice nor the orders-in-original or appeal clarified whether the appellant is an independent processor or a composite mill, which is crucial for determining the applicability of the exemption.

3. Imposition of Penalty:
The appellant argues that since the dispute pertains to the interpretation of the exemption notification, there is no justification for imposing a penalty. The Department had imposed a penalty under Rule 25(1) of the Central Excise Rules, 2002, read with Section 11AC of the Central Excise Act, on the grounds that the appellant had not fulfilled the conditions for the concessional rate of duty.

Tribunal's Decision:
The Tribunal concluded that the case must be remanded to the original adjudicating authority for a de novo adjudication. The authority must ascertain whether the appellant is a composite mill or an independent processor. If the appellant is a composite mill or a processor engaged in both processing and manufacturing within the same factory, they would be entitled to the benefit of Explanation-VII. If the appellant is an independent processor, the presumption regarding the duty-paid nature of unprocessed fabrics will be rebuttable, and the Department must provide evidence if the unprocessed fabrics are fully exempt.

Conclusion:
The impugned order was set aside, and the matter was remanded for de novo adjudication to determine the factual position of the appellant's manufacturing process and the applicability of the exemption notification. This detailed analysis ensures that the conditions for the concessional rate of duty are correctly interpreted and applied.

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