2011 (2) TMI 991 - AT - Central Excise

Classification - The respondents are engaged in the weaving of cotton grey fabrics and were not registered with the Central Excise Department and were not paying any duty of excise - ow cause notice dated 28.08.03 raising demand of duty for the period 1998-2003 on the ground that the fabrics manufactured by the respondent were in fact leno gauze fabrics, which were properly classifiable under Heading 58.03 - The classification dispute stands decided against the respondents, in the case of CCE Ahmedabad Vs. Neptune Textile Mills Ltd. 2009 (2) TMI 290 - CESTAT, AHMEDABAD - As such allow the Revenue s appeal on merits. Extended period of limitation invoked - Held that - As decided in Padmini Products Vs. CCE 1989 (8) TMI 80 - SUPREME COURT OF INDIA has observed that mere failure or negligence on the part of the manufacturer either not to take out a licence or not to pay duty in case where there was scope for doubt, does not attract the extended limitation, unless there is evidence that the manufacturer knew that goods were liable to duty or he was required to take out a licence - Therefore, find that no ground has been made out for invoking the suppression and extended period in the show cause notice and neither the adjudicating authority nor the appellate authority has considered the issue at all - All seem to think violation of provision of rules, if cited, is sufficient to invoke extended period and thereby penalty under Section 11AC of Central Excise Act, 1944 - the demand beyond the period of limitation is barred - the respondents submits that while quantifying the demand within the limitation period, the benefit of cum duty price is required to be extended - Direct the authorities below to do so, while quantifying the demand within the limitation period.

Issues:
1. Classification dispute regarding cotton grey fabrics.
2. Appeal against dropping of demand of duty by Commissioner.
3. Plea of demand being barred by limitation.
4. Consideration of bonafide belief and malafide intention.
5. Expert opinion on classification and bonafide belief.
6. Observations and findings supporting respondent's plea.
7. Decision on limitation period and quantification of demand.

Classification Dispute:
The respondents were engaged in weaving cotton grey fabrics, not registered with Central Excise Department, treating fabrics as falling under Chapter 52 with nil duty. However, investigation revealed the fabrics were leno gauze fabrics under Chapter 58.03, attracting duty. The Commissioner dropped the demand, which was appealed by the Revenue.

Appeal Against Dropping of Demand:
The Tribunal allowed the Revenue's appeal on merits due to the classification dispute being decided against the respondents previously. However, a significant part of the demand for 1998-2003 was barred by limitation, as the show cause notice was issued on 28.08.03.

Plea of Demand Barred by Limitation:
The respondent argued the demand was time-barred, not raised before the adjudicating authority. The Tribunal found the plea of limitation could be raised at any point, even if not previously raised, as it is a mixed question of law and fact.

Consideration of Bonafide Belief and Malafide Intention:
The Commissioner observed a bonafide impression by the respondents that their fabrics were not dutiable, supported by industry practices. The Tribunal noted that failure to pay duty without malafide intention does not attract extended limitation.

Expert Opinion and Bonafide Belief:
Considering the Commissioner's excise expertise and dropped demand on merits, the Tribunal supported the respondent's bonafide belief. The appeal in a similar case by the Revenue and orders dropping demand further indicated bonafide belief.

Observations and Findings Supporting Respondent's Plea:
The Commissioner's observations highlighted the industry's bonafide impression and lack of malafide intention by the respondents, supporting the plea that non-registration and non-payment did not reflect malafide intent.

Decision on Limitation Period and Quantification of Demand:
The Tribunal found a part of the demand within the limitation period and directed quantification. The benefit of cum duty price was to be extended while quantifying the demand within the limitation period.

In conclusion, the Tribunal allowed the Revenue's appeal on merits due to the classification dispute, but found a significant part of the demand barred by limitation. The Tribunal considered the bonafide belief of the respondents and directed quantification of the demand within the limitation period with the benefit of cum duty price.

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