2010 (4) TMI 676 - AT - Central Excise

Cotton fabrics Exemption - Appellant, a composite mill, starting from cotton, a non-excisable goods, manufacture cotton yarn, which is woven into fabrics and fabrics is processed and cleared as processed fabrics - full duty exemption availed under Notification No. 22/96-C.E - no question of cotton being duty paid, there is no dispute that full duty exemption has been availed in respect of the cotton yarn from which grey cotton fabrics had been manufactured and as such, the cotton yarn cannot be said to be the goods on which appropriate duty of excise had already been paid and therefore, condition for concessional rate of duty on processed cotton fabrics not be treated as satisfied

Summary

Issues Involved:
1. Rate of duty on processed cotton fabrics cleared during the period from October 2002 to February 2003.
2. Applicability of exemption Notification No. 14/02-C.E. for concessional duty.
3. Interpretation of "appropriate duty of excise" and its implications.
4. Validity and scope of explanations added to exemption notifications.
5. Binding nature of Board's circulars on the Department.

Detailed Analysis:

1. Rate of Duty on Processed Cotton Fabrics:
The appellants, a composite mill, were engaged in manufacturing processed cotton fabrics and were availing full duty exemption on cotton yarn and unprocessed cotton fabrics under Notification No. 22/96-C.E. The dispute was regarding the rate of duty applicable to processed cotton fabrics cleared during the period from October 2002 to February 2003. The tariff rate was 24% (16% basic excise duty plus 8% AED (GSI)), but the appellants claimed a concessional rate of 12% under Notification No. 14/02-C.E.

2. Applicability of Exemption Notification No. 14/02-C.E.:
The concessional rate of 12% under Notification No. 14/02-C.E. was subject to the condition that the processed fabrics were made from textile fabrics on which appropriate duty of excise or additional customs duty had been paid. The Department argued that since the appellants availed full duty exemption on the yarn and grey fabric, the condition for concessional duty was not satisfied, thus making them liable to pay the tariff rate of 24%.

3. Interpretation of "Appropriate Duty of Excise":
The Supreme Court's judgment in CCE, Vadodara v. Dhiren Chemical Industries clarified that "appropriate duty of excise" means the correct or specified rate of excise duty must have been paid. Goods made from raw materials on which no duty or nil duty was paid cannot be considered as having paid the appropriate duty. Applying this, the Tribunal held that since no duty was paid on the cotton yarn and unprocessed fabrics due to full duty exemption, they cannot be considered as duty-paid goods.

4. Validity and Scope of Explanations Added to Exemption Notifications:
Explanation II to Notification No. 14/02-C.E. deemed textile yarn or fabrics as duty-paid even without production of documents. However, Explanation VII, added by Notification No. 37/2002-C.E., clarified that for composite mills, the condition for concessional duty on processed fabrics would be satisfied if appropriate duty was paid on the textile fibre or yarn. The Tribunal held that this explanation does not nullify the condition of actual duty payment and cannot be extended to presume duty payment where none was made.

5. Binding Nature of Board's Circulars:
The appellants cited the Board's Circular No. 680/71/02-CX, which stated that textile fibres, yarn, and fabrics brought from the market are deemed duty-paid, and composite mills would be eligible for concessional duty. However, the Tribunal noted that this circular applied to man-made fibres and yarns, not to cotton, which is non-excisable. Therefore, the circular did not support the appellants' claim for concessional duty on processed cotton fabrics.

Conclusion:
The Tribunal upheld the Commissioner's order, confirming the duty demand at the tariff rate of 24% on processed cotton fabrics, along with interest and a penalty. The appeal was dismissed, affirming that the appellants did not satisfy the conditions for concessional duty under Notification No. 14/02-C.E. due to the full duty exemption availed on the cotton yarn and unprocessed fabrics.