2011 (5) TMI 554 - AT - Central Excise

Inadequate duty payment - As duty liability had not been discharged on yarn by assessee the Department alleged that the payment of 12% was not payment of appropriate duty and that the assessees were required to discharge duty @ 24% thus proposing recovery of differential duty on the end-bits of fabrics and also proposing penalty - Held that - As agreeing with the SDR that Condition No. 5 which is required to be satisfied for the purpose of claim of concessional rate of duty under Sl. No. 4 of the Table thereto, has not been satisfied by the assessees as admittedly the yarn procured by the assessees under bond was not duty paid. Therefore the assessee has no case on merits and therefore that the benefit of concessional rate of duty is not available to the assessees. As regards the plea of limitation, in the absence of disclosure by the assesses of the exact quantity of yarn procured without payment of duty for the manufacture of fabrics, in order to enable the Department to determine as to whether the benefit of concessional rate of duty under the notification was admissible or not, it is agreeable with the authorities below that the extended period of limitation is available to the Department and that the demand is not time-barred. Against assessee.

Issues:
1. Interpretation of Notification No. 14/2002-CE dated 1.3.2002 regarding concessional rate of duty.
2. Applicability of Condition No. 5 for claiming concessional rate of duty.
3. Assessment of duty liability on end-bits of fabrics cleared to the local market.
4. Consideration of extended period of limitation for raising demand.

Interpretation of Notification No. 14/2002-CE dated 1.3.2002:
The case involved the appellants engaged in manufacturing textile articles who purchased duty-free materials but cleared end-bits of fabrics to the local market. The dispute arose regarding the appropriate duty payment on the yarn used in manufacturing. The Department alleged that the appellants were required to discharge duty at 24% instead of the paid 12%. The Notification provided for exemptions subject to certain conditions, including Condition No. 5, which needed to be satisfied for claiming the concessional rate of duty.

Applicability of Condition No. 5 for claiming concessional rate of duty:
The appellants argued that the yarn procured for manufacturing fabrics should be deemed duty paid as they were procured under a bond for export. They relied on Explanation II of the Notification, citing a Tribunal decision. However, the Department contended that Condition No. 5 was not satisfied as the yarn was procured without duty payment. The Tribunal agreed with the Department, emphasizing that the benefit of concessional duty was not available to the appellants due to non-payment of duty on the yarn, thus upholding the demand for differential duty.

Assessment of duty liability on end-bits of fabrics cleared to the local market:
The Tribunal held that the appellants failed to meet Condition No. 5 for claiming the concessional rate of duty, as the yarn procured under bond was not duty paid. The Department's demand for differential duty at 24% on the end-bits of fabrics cleared to the local market was upheld. The Tribunal also noted that the extended period of limitation was applicable, as the appellants did not disclose the exact quantity of yarn procured without duty payment, allowing the Department to determine the admissibility of the concessional rate of duty.

Consideration of extended period of limitation for raising demand:
In a separate opinion, it was highlighted that the appellants did not disclose the use of non-duty paid yarn in manufacturing fabrics cleared at a concessional rate. The Department was unaware of the inadmissible exemption availed by the appellants. The opinion supported the application of the extended time limit for raising demands due to suppression of facts. It clarified that the concessional rate of 12% applied only when processed fabrics were made from duty-paid yarn or fabrics, which was not the case for the appellants, justifying the demand for full duty payment.

In conclusion, the Tribunal upheld the demand for differential duty and penalty, rejecting the appeal and emphasizing the importance of complying with duty payment conditions outlined in the Notification for availing concessional rates.

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