2015 (2) TMI 269 - AT - Central Excise

Invocation of extended period of limitation - Suppression of facts - Clearance of goods without payment of duty - goods were sold without mentioning the description of the fabrics on the invoices but only indicating sort numbers - Imposition of penalty - Held that - Appellants are manufacturers of grey cotton fabrics other than Denim fabrics falling under Chapter Heading 5207.20 attracting Nil rate of duty. Investigation also revealed that the appellants have manufactured and processed Denim Fabrics and cleared the same to M/s.KGDL . It is noticed that the appellants adopted two methods. On the one hand, they have received the yarn from KGDL and manufactured grey denim fabrics on job work basis and returned the same to M/s.KGDL who is the principal manufacturer. They have also manufactured Denim Fabrics on their own account wherein they have purchased the yarn, manufactured the Denim Fabric and sold to KGDL on principal to principal basis. The adjudicating authority has already dropped the demand on denim fabrics manufactured and cleared on job work basis and confirmed the demand in respect of yarn manufactured by the appellants on their own account and sold to KGDL. The veracity of these documents need to be verified along with the original records available with the department so as to arrive at a conclusion whether there is any suppression of facts or extended period can be invoked in this case for demanding duty or whether there is wilful suppression of facts. Therefore, we are of the considered view that the original authority should verify the original documents, including letters as indicated above, and also to take into consideration the directions of the Hon'ble High Court by its order dt. 8.4.2014 and examine the issue in the light of the above directions and pass fresh orders on the duty confirmed by invoking extended period under proviso to Section 11 AC of the Act. Accordingly, we set aside the impugned order in so far as that portion of order confirming the duty demand and imposition of penalty on the appellants No.1 & 2 as well as on Shri M. Thiagarajan, Managing Director of PML (Appellant No.3). - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Limitation and Suppression of Facts.
2. Classification and Duty Liability of Fabrics.
3. Job Work and Principal to Principal Basis Transactions.
4. Verification of Documents and Correspondence.

Issue-wise Detailed Analysis:

1. Limitation and Suppression of Facts:
The appellants contended that the entire show cause notice is hit by the limitation of time as there was no suppression of facts. They argued that the department was fully aware of the manufacture and clearance of the fabrics, and they had followed the prescribed procedure for job work, informing the department at every stage. They relied on various letters and documents to substantiate their claim. The Hon'ble High Court noted that the appellants had produced documents and letters addressed to the department, which were not considered by the Tribunal to give a finding on the extended period of limitation. The Tribunal was directed to verify these documents to determine if there was any suppression of facts or if the extended period could be invoked.

2. Classification and Duty Liability of Fabrics:
The appellants were manufacturing Grey Cotton Fabrics (other than Denim Fabrics) falling under Chapter Heading 5207.20, which attracted a "Nil" rate of duty. However, the investigation revealed that they were also manufacturing Denim Fabrics and clearing them to M/s. KGDL without payment of duty. The adjudicating authority confirmed the demand for duty on the Denim Fabrics manufactured and sold on a principal to principal basis while dropping the demand for fabrics manufactured on a job work basis. The appellants argued that they were only manufacturing grey fabrics, which were not liable for Central Excise duty, and the duty liability, if any, should be on M/s. KGDL.

3. Job Work and Principal to Principal Basis Transactions:
The appellants adopted two methods: manufacturing grey denim fabrics on job work basis and returning them to M/s. KGDL, and manufacturing Denim Fabrics on their own account and selling them to KGDL. The adjudicating authority dropped the demand for fabrics manufactured on a job work basis but confirmed the demand for fabrics manufactured and sold on a principal to principal basis. The appellants argued that they were following the procedure prescribed under the rules as a job worker and had intimated the department at every stage.

4. Verification of Documents and Correspondence:
The Hon'ble High Court directed the Tribunal to verify the original documents and letters submitted by the appellants, which were not considered earlier. The appellants heavily relied on letters dated 23.5.2002, 6.6.2002, 28.6.2001, and 13.7.2002, which indicated that the department was aware of the manufacture of grey denim fabrics out of non-duty paid yarn procured for exports. The Tribunal was instructed to verify the veracity of these documents along with the original records available with the department to determine if there was any suppression of facts or if the extended period could be invoked for demanding duty.

Conclusion:
The Tribunal set aside the impugned order confirming the duty demand and imposition of penalty on the appellants and remanded the matter to the original authority for fresh consideration. The original authority was directed to verify the original documents and letters, consider the directions of the Hon'ble High Court, and pass fresh orders on the duty confirmed by invoking the extended period under the proviso to Section 11 AC of the Act. The original authority was also instructed to provide a reasonable opportunity of hearing to the appellants before passing the orders. The appeals were allowed by way of remand in the specified terms.

← Previous Next →