2014 (4) TMI 415 - AT - Central Excise

Waiver of predeposit of duty - manufacturers of Kraft Paper (plain uncoated) - Benefit of Exemption Notification No.6/2002-CE dt. 1.3.2002 and another Notification No.4/06-CE dt. 1.3.2006 - Stage of manufacturing - Held that - in view of the Board circular, exemption benefit would not be denied on the ground that the pulp itself is manufactured in the same factory. The learned advocate on behalf of the applicant submits that the Commissioner denied the exemption benefit on different reason which is beyond the scope of the SCN. In this context, we have perused para-13 of the impugned order wherein it has been alleged that the applicant had not made any test either on their own or through other sources to test the content/quantity of the pulp which is a major requisite to the avail concession irrespective of the fact that pulp is manufactured in the same factory or not. It appears that the finding of the Commissioner in the impugned order in respect of the content of weight of pulp is beyond the scope of show cause notice. Prima face, we find that the applicant has made out a case for waiver of predeposit of entire amount of duty and penalty. Accordingly, predeposit of duty and penalty is waived and recovery thereof is stayed till pendency of the appeal - Stay granted.

Issues:
1. Waiver of predeposit of duty and penalty.
2. Interpretation of exemption notifications regarding the manufacturing process.
3. Scope of show cause notice and findings of the Commissioner.

Waiver of Predeposit of Duty and Penalty:
The applicant filed applications seeking waiver of predeposit of duty and penalty amounting to Rs. 3,87,51,634/- each, as two show cause notices were decided for Unit I and Unit II of the company. The company, a manufacturer of Kraft Paper, claimed the benefit of Exemption Notifications No. 6/2002-CE dated 1.3.2002 and No. 4/06-CE dated 1.3.2006 for the period from June 2004 to June 2008. The issue revolved around whether the company was entitled to the exemption as they were not manufacturing finished goods directly from the stage of pulp. The Circular No. 40/92-TRu clarified that the concessional rates would be available as long as the processes converting pulp to paper and paperboard occurred in the same factory, irrespective of whether the pulp was manufactured in the same factory or not. The Tribunal, after considering the circular, held that the exemption benefit should not be denied based on where the pulp was manufactured. The Commissioner's denial of the exemption benefit on different grounds beyond the scope of the show cause notice was found to be impermissible. Consequently, the Tribunal granted waiver of the predeposit of duty and penalty, staying the recovery pending the appeal.

Interpretation of Exemption Notifications:
The dispute centered around the interpretation of the exemption notifications concerning the manufacturing process of the company. The notifications required that the manufacturing of paper and paperboard should start from the stage of pulp, with specific composition requirements. The contention was whether the company, which manufactured from waste paper to pulp and then to paper and paperboard, fulfilled the conditions of the notifications. The Tribunal referred to the Board circular clarifying that the crucial aspect was that the processes from pulp to paper and paperboard must occur in the same factory from where the goods are cleared. The notifications did not mandate that units start from raw materials to make pulp with specified compositions. The focus was on establishing that the goods were manufactured in the factory from pulp meeting the required specifications. Independent converters of paper and paperboard not processing pulp were deemed outside the purview of the notifications. The Tribunal's analysis of the manufacturing process vis-a-vis the circular led to the conclusion that the company was eligible for the exemption benefit.

Scope of Show Cause Notice and Commissioner's Findings:
The scope of the show cause notice and the Commissioner's findings were scrutinized by the Tribunal. The Commissioner's denial of the exemption benefit based on factors beyond the notice's scope, such as the content/quantity of pulp, was deemed inappropriate. The Tribunal observed that the Commissioner's findings regarding the weight of pulp content went beyond the show cause notice's purview. As a result, the Tribunal held that the applicant had sufficiently demonstrated a case for the waiver of predeposit of duty and penalty. The decision to waive the predeposit and stay the recovery during the appeal process was made in favor of the applicant, emphasizing the impermissibility of the Commissioner's findings outside the show cause notice's ambit.

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