2012 (9) TMI 873 - AT - Central Excise

Duty demand - Benefit of Exemption Notification No. 67/95-C.E. - Violation of Conditions - Held that - In this case none of the conditions of Notification are satisfied as the exempt goods have simply been cleared into Domestic Tariff Area by availing full duty exemption - Another plea of the appellants is that even if the duty is charged on the dyed yarn the same would be admissible as Cenvat credit as dyed yarn was used for manufacture of cotton rugs which had been exported out of India. We do not agree with this plea of the Appellants as this plea would be acceptable only when the exports of final products had been made under bond in terms of the provisions of the Rule 19 of Central Excise Rules 2002. In this case the cotton rugs have been cleared into Domestic Tariff area by availing full duty exemption and it is not the claim of the Appellants that the same had been exported under bond directly from the factory. The goods initially cleared from the factory for home consumption and thereafter exported out of India cannot be equated with the goods exported directly from the factory under bond in terms of provision of Rule 19 of Central Excise Rules. In view of this the Appellant s plea that if the duty is charged on dyed cotton yarn its Cenvat credit would be available to the Appellant which would be refundable to them under Rule 5 of the Cenvat Credit Rules is not acceptable -

Summary

Issues:
Manufacture of cotton handloom rugs from dyed cotton yarn; Duty exemption on cotton handloom rugs; Demand of duty on dyed cotton yarn for captive consumption; Adjudication by Commissioner Central Excise; Appeal against duty demand; Cenvat credit on dyed yarn used for exported rugs; Interpretation of Notification No. 67/95-C.E.; Export under bond vs. domestic tariff area clearance.

Analysis:
The judgment pertains to two appellants manufacturing cotton handloom rugs from dyed cotton yarn, which is an excisable item. The Department issued Show Cause Notices demanding duty on dyed cotton yarn used for captive consumption during a specific period. The duty amounts demanded from both appellants were specified. The case against each appellant was adjudicated separately by different authorities, resulting in duty confirmation, interest imposition, and penalty under the Central Excise Act.

The appellants argued that since the cotton rugs were exported out of India, the dyed yarn should be considered as exported under bond, exempting it from duty under Notification No. 67/95-C.E. They contended that even if duty was paid on dyed yarn, Cenvat credit should be admissible and refundable under Cenvat Credit Rules, citing a Bombay High Court judgment.

The Department defended the duty demand, stating that since the dyed yarn was used in duty-exempt cotton rugs not exported under bond, Cenvat credit and cash refund were not applicable. The authorities upheld the duty demand orders, emphasizing the inapplicability of the exemption provision due to the domestic tariff area clearance of the rugs.

The Tribunal analyzed the exemption proviso of Notification No. 67/95-C.E., clarifying that duty exemption for intermediate products does not apply when the final product is fully duty-exempt. The Tribunal rejected the appellants' argument for Cenvat credit and cash refund, highlighting the necessity of export under bond for such benefits. The Tribunal found no merit in the appeals and dismissed them, affirming the duty demand on dyed cotton yarn for captive consumption.

In conclusion, the judgment addresses the duty implications on dyed cotton yarn used in manufacturing duty-exempt cotton rugs, emphasizing the conditions for duty exemption and Cenvat credit eligibility based on export under bond provisions. The Tribunal's decision upholds the duty demand on dyed yarn for captive consumption, denying the appellants' claim for Cenvat credit and cash refund in the absence of export under bond.