2010 (3) TMI 716 - AT - Central Excise

Demand limitation - goods wrongly availing benefit of Notification No. 15/2002-C.E using exempted fabrics violating conditions of Notification non-declaration of exempted goods Held that - authority does not indicate as to which legal provision requires the assessee to indicate such information to the authorities - authorities were aware of the nature of transactions engaged in by the appellants non-submission does not amount to willfull suppression - demand could not have been confirmed against the appellants owing to limitation appeal allowed

Summary

Issues:
1. Applicability of Notification No. 15/2002-C.E. to the manufacture of garments.
2. Validity of invoking the extended period for demanding duty.
3. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002.

Analysis:

Issue 1: Applicability of Notification No. 15/2002-C.E. to the manufacture of garments:
The case involved M/s. Personality Ltd., a manufacturer of ready-made garments made of knitted or crocheted textile fabrics. The authorities alleged that between 26-9-2002 to 5-1-2003, the appellants cleared finished goods wrongly availing the benefit of Notification No. 15/2002-C.E. The exemption under this notification was subject to conditions, including that the fabrics used in production had suffered appropriate duty and no Cenvat credit was taken on the inputs. It was found that the appellants procured fabrics from suppliers enjoying the notification's benefit without paying duty. The appellants argued the case of limitation, stating that the authorities were aware of the facts earlier, and misinterpreted statements to allege duty evasion. The appellants relied on a Supreme Court decision to argue against the demand, stating that the department failed to prove ineligibility for exemption due to duty non-payment.

Issue 2: Validity of invoking the extended period for demanding duty:
The Original Authority upheld a demand of Rs. 12,10,224/- with interest and an equal penalty under Rule 25 of the Central Excise Rules, 2002. The Authority justified invoking the extended period based on the appellants' failure to declare non-payment of duty on fabrics, which they argued amounted to suppression. However, the appellants contended that this did not constitute willful suppression, citing legal provisions and previous judgments. The Tribunal agreed with the appellants, noting that the department was aware of the transactions and failed to establish the necessity for the appellants to disclose such information. The Tribunal also highlighted the vacating of a previous Tribunal judgment relied upon by the Original Authority and emphasized the Apex Court's decision in a similar case to rule in favor of the appellants due to limitation constraints.

Issue 3: Imposition of penalty under Rule 25 of the Central Excise Rules, 2002:
The penalty was imposed based on the alleged suppression of information regarding non-payment of duty on fabrics. The Original Authority justified the penalty invoking the extended period for demand. However, the Tribunal found that the failure to declare such information did not amount to willful suppression, as no legal provision mandated the disclosure. The Tribunal further emphasized that the department's awareness of the transactions and the vacating of a previous Tribunal judgment supported the appellants' argument against the penalty. Consequently, the Tribunal vacated the impugned order, allowing the appeal against the demand and penalties.

In conclusion, the Tribunal's decision was based on the lack of evidence proving ineligibility for exemption under Notification No. 15/2002-C.E., the absence of willful suppression in not declaring duty non-payment, and the constraints of the extended period for demanding duty and imposing penalties.