2013 (8) TMI 645 - AT - Central Excise

Processing of Cotton Fabrics without the aid of power or steam - Benefit of Exemption Notification No. 111/87 - Whether the exemption Notification No. 111/87-CE would be available to assesse whose clearances for home consumption of the cotton fabrics processed without aid of power or steam in a financial year exceed 50 lakh Sq. mtr. - Revenue was of the view that the exemption would not be available to an assesse from day one Held that - The interpretation to the notification given by the Commissioner was incorrect and as such even if the clearances of the processed cotton fabric during a financial year exceed the threshold limit prescribed in the notification, it was only the clearances in excess of this limit which would attract duty, and crossing the threshold limit would not result in total denial of the exemption - There was no provision in the notification to the effect that the exemption would not be applicable if the aggregate quantity of clearances of processed fabrics for home consumption for one or more factories of the manufacturer during the financial year exceed the prescribed threshold limit. Unaccounted Processing of Goods - Processing of cotton fabrics without accounted on the records - Held that - There was no reason to disbelieve the records of the other contractors - the department s allegation that in addition to the quantity of 43,31,361 L. Mtrs. of fabrics as shown in Central Excise records of the appellant firm another quantity of 3,63,213.55 L. Mtrs of fabrics was also been processed and cleared - For determination of duty on the quantity of fabrics processed and cleared in excess, the matter would had to be remanded. Goods Cleared Without Payment of Duty - Held that - No duty was chargeable on fabrics - There was gain in the quantity due to elongation of the fabrics during stentering - Since the increase in the length of fabrics had taken place during stentering which was fully exempted process. Limitation Period u/s 11A(1) - Held that - The fabric was processed without aid of power or steam and clearance was not reflected in the Central Excise records and was cleared without payment of duty the same had to be treated as clandestine removal and accordingly the longer limitation period under proviso to section 11A (1) would be available to the department and for the same reason penalty under Rule 173Q(1)(d) of the Central Excise Rules, 1944 would be imposable on the appellant firm - There was nothing wrong in simultaneous imposition of penalty on the Appellant firm and its partner as the two penalties are under different rules and for different contraventions - Order set aside Matter Remanded back for re-quantification of the duty demand and also for redetermination of the quantum of penalty on the appellant firm and on partners.

Summary

Issues Involved:

1. Applicability of Exemption Notification No. 111/87-CE.
2. Allegation of unaccounted processing of cotton fabrics.
3. Duty demand on elongation of fabrics during stentering.
4. Invocation of extended limitation period under Section 11A(1).
5. Imposition of penalties under Rule 173Q(1) and Rule 209A of Central Excise Rules, 1944.

Issue-wise Detailed Analysis:

1. Applicability of Exemption Notification No. 111/87-CE:

The primary dispute revolves around whether the exemption under Notification No. 111/87-CE is applicable if the clearances for home consumption of cotton fabrics processed without aid of power or steam exceed 50 lakh Sq. mtrs in a financial year. The department contends that the exemption is not available from the beginning if the clearances exceed the threshold, whereas the appellant argues that the exemption applies to the first 50 lakh Sq. mtrs and duty is chargeable only on the excess quantity.

Judgment:
Upon reviewing both Notification No. 54/87-CE and Notification No. 111/87-CE, it was observed that the latter provides quantitative limits for duty-free clearances. The Tribunal concluded that exceeding the threshold limit results in duty being chargeable only on the excess quantity, not on the entire clearance from the beginning. Thus, the Commissioner's interpretation was deemed incorrect.

2. Allegation of Unaccounted Processing of Cotton Fabrics:

The department alleged that the appellant processed and cleared an additional 3,63,213.55 L. mtrs of cotton fabrics without accounting for them, based on records from contractors.

Judgment:
The Tribunal upheld the department's allegation, noting that the statements from two contractors and the administrative manager corroborated the unaccounted processing. Therefore, the total processed quantity exceeded 50 lakh Sq. mtrs, making the excess quantity liable for duty. The matter was remanded for re-quantification of duty on the excess processed fabrics.

3. Duty Demand on Elongation of Fabrics During Stentering:

The department included 35,111 L. mtrs of fabric, attributed to elongation during stentering, in the duty demand.

Judgment:
The Tribunal ruled that since stentering is a fully exempted process, the elongation resulting from it should not attract duty. Consequently, no duty was chargeable on the 35,111 L. mtrs of fabric.

4. Invocation of Extended Limitation Period under Section 11A(1):

The department invoked the extended limitation period under Section 11A(1) due to the alleged clandestine removal of unaccounted fabrics.

Judgment:
The Tribunal agreed with the department, stating that the unaccounted processing and clearance constituted clandestine removal, justifying the extended limitation period. Penalty under Rule 173Q(1)(d) was also deemed appropriate.

5. Imposition of Penalties under Rule 173Q(1) and Rule 209A:

Penalties were imposed on the appellant firm under Rule 173Q(1) and on its partner under Rule 209A for dealing with goods liable for confiscation.

Judgment:
The Tribunal upheld the imposition of penalties, noting that the conditions for penalties under both rules were satisfied. However, the quantum of penalties needed to be proportionate to the re-quantified duty demand. The matter was remanded for re-determination of the penalties in line with the revised duty demand.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter to the Jurisdictional Commissioner for re-quantification of the duty demand and re-determination of penalties, ensuring they are proportionate to the confirmed duty demand.