2010 (12) TMI 729 - AT - Central Excise

SSI exemption - Brand name / trade name - Period of limitation - Book-Binding Cloth - In this case, there is no denial that Book-Binding Cloth was affixed with the monogram and name of the merchant-manufacturer or logo as the case may be, but only claim made is that the department has not shown the name of the brand/name of the manufacturer and to whom such brand name or logo belongs - in the absence of any specific evidence from the investigation to show that the appellants had deliberately mis-declared or suppressed the facts, invocation of extended period cannot be sustained - There is nothing to show that the appellants were asked to show that whether the padding undertaken by them was as per the definition in the notification or not - Demand sustained. Regarding classification - It was submitted by the learned advocate that delivery challan issued by the merchant manufacturers specified classification of the fabric under Chapter 52 and therefore the department cannot revise the classification in the hands of M/s. Vijay being a receiver and job worker without first reclassifying the goods at the end of the suppliers - in view of the fact that several processes padding, bleaching, dyeing etc in the case of fabrics amount to manufacture, each time a manufacturing process is completed, goods have to be classified afresh. Therefore, the contention of the learned advocate that the department cannot attempt to classify the goods afresh, has no force and has to be rejected Regarding penalty - They failed to declare what was received by them for undertaking processes like padding, calendaring etc was in fact leno/gauze fabrics and this led to availment of ineligible exemption - Held that the total demand of duty is Rs. 20,51,369/- and penalty imposed is equal to the duty. In this case, penalty under Section 11AC has not been imposed and penalty has been imposed under Rule 173Q of Central Excise Rules, 1944 - Penalty is reduced to the extent of Rs. 5 lakhs - Appeal is disposed of

Summary

Issues Involved:
1. Confiscation and penalty related to seized Book-Binding Cloth.
2. Duty demand on Book-Binding Cloth and penalty on M/s. Vijeta.
3. Exemption eligibility for Interlining Cloth under Notification No. 3/01-C.E.
4. Classification and duty liability of Mosquito Net fabrics as gauze fabric.
5. Imposition of penalty on M/s. Vijay and its partners.

Issue-wise Detailed Analysis:

1. Confiscation and Penalty Related to Seized Book-Binding Cloth:
The factory premises of M/s. Vijay Textiles were searched, and 13,440 LMtrs of Book-Binding Cloth was found. The Commissioner concluded that the fabrics were liable for confiscation due to lack of satisfactory explanation for their presence. The penalty of Rs. 50,000/- imposed on M/s. Vijay was reduced to Rs. 20,000/- considering the duty liability of approximately Rs. 30,000/-. The fine in lieu of confiscation was also reduced to Rs. 20,000/-.

2. Duty Demand on Book-Binding Cloth and Penalty on M/s. Vijeta:
M/s. Vijeta was found to be manufacturing Book-Binding Cloth and clearing it after affixing brand names or logos of other manufacturers, which disqualified them from exemption under Notification No. 8/2001-C.E. The demand of Rs. 1,54,870/- was upheld, along with the penalty under Section 11AC of the Central Excise Act, 1944. The Tribunal provided an option to pay 25% of the duty and interest within 30 days to discharge the penalty obligation fully.

3. Exemption Eligibility for Interlining Cloth under Notification No. 3/01-C.E.:
The Commissioner initially vacated the demand of Rs. 50,48,330/- on Interlining Cloth, relying on the Supreme Court decision in CCE, AHD. v. Susma Textile Pvt. Ltd. However, the Tribunal found that the process undertaken by M/s. Vijay did not qualify as "padding" under the notification, as it involved additional chemicals and fillers. The Tribunal concluded that the exemption was not applicable and remanded the issue to the Commissioner for re-quantification of duty within the normal limitation period, setting aside the penalty due to the interpretative nature of the issue.

4. Classification and Duty Liability of Mosquito Net Fabrics as Gauze Fabric:
The Commissioner classified Mosquito Net fabrics under Heading 58.03 as gauze fabric, based on test reports confirming the characteristics of gauze. The Tribunal upheld this classification, rejecting the argument that the end-use for mosquito nets should affect the classification. The demand of Rs. 20,51,369/- was upheld, but the penalty was reduced to Rs. 5 lakhs, considering the appellant's role as a job worker and the factual circumstances.

5. Imposition of Penalty on M/s. Vijay and its Partners:
The Tribunal found that the penalty imposed on M/s. Vijay under Rule 173Q of the Central Excise Rules, 1944, was high and reduced it to Rs. 5 lakhs. The Tribunal also remanded the issue of penalties on the partners of M/s. Vijay to the Commissioner for fresh consideration, as the specific roles of the partners were not adequately examined.

Conclusion:
(a) Duty demand of Rs. 1,54,870/- with interest from M/s. Vijeta is upheld, and penalty under Section 11AC is also upheld.
(b) Fine and penalty on M/s. Vijay for seized Book-Binding Cloth are reduced to Rs. 20,000/- each.
(c) Duty demand on Gauze fabric amounting to Rs. 20,51,369/- is upheld, and penalty on M/s. Vijay is reduced to Rs. 5 lakhs.
(d) M/s. Vijay is held ineligible for exemption on Interlining fabrics; seizure is vacated due to interpretative nature.
(e) Issue remanded to Commissioner for re-quantification of duty within the normal period.
(f) Order on penalties for partners set aside and remanded for fresh consideration.

Disposition:
All appeals are disposed of in the above terms.