2016 (1) TMI 194 - AT - Central Excise

Duty demand - Duty on the basis of annual capacity of production - Compounded Levy Scheme - benefit of duty on the basis of capacity of production was available only to those independent processors who do not have proprietory interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics, in terms of Explanation-1 under Rule 96ZNA - Revenue contends that appellant did not qualify for the benefit available to an independent processor as they were having proprietory interest in other manufacturing facilities of weaving/knitting - Held that - Documents did not reveal that the assets of the partners became the property of the appellant by bringing them into its stock. It does not seem to be established that the partnership firm had proprietory interest in another firm when a legal distinct deed of partnership firm is separate from its partner as an arguable point under Central Excise. Without going into the merits of the case, we find that the department for a long period had not communicated any objection to the information provided by the appellant in June, 2001. There does not appear to be any fact which could not have been verified by the department from the information given by the appellant in June, 01. The information supplied to the Defence Deptt. was for purposes of facilitating overall assessment and registration based on facility/services of vendors. Merely because it was informed to Defence Deptt. that they had weaving and knitting facilities owned by partners does not necessarily lead to the conclusion that they had, under Central Excise Law, proprietory interest in them. - it was open to department to verify all the assets of the partners and the facilities the partnership firm intended to use. Thus, a show-cause notice issued under extended time period is unsustainable. There is no evidence that inquiries were made from the appellants which were not replied to. Whatever information was sought by the department, the same was given by the appellant. Still the show-cause notice was issued after 4 years. In these circumstances, it cannot be held that there was a deliberate fraud or mis-statement on the part of the appellant. The conclusion that the appellant had proprietary interest in some other concern has been arrived at on the basis of legal interpretation of various aspects of the terms such as letter of partnership, proprietary interest, connected undertakings etc. There is no justification for invoking the extended period merely on the grounds of such interpretation - impugned order is set aside - Decided in favour of assessee.

Summary

Issues:
1. Whether the appellant qualifies as an independent processor for availing benefits under the Compounded Levy Scheme.
2. Whether the extended time period for demand of duty and penalty under Section 11A(1) and Section 11AC is applicable in this case.
3. Whether the appellant had concealed vital information regarding their proprietary interest in another firm.
4. Whether the appellant's partnership deed was a colorable device to avoid tax.
5. Whether the appellant's process of drying dyeing exclusively in a Hot Air Stenter was proven.
6. Whether the show-cause notice issued after 4 years was justified.

Analysis:

1. The appellant, a partnership firm, applied for benefits under the Compounded Levy Scheme but was denied by the Commissioner due to having proprietory interest in another manufacturing facility. The Commissioner concluded that the appellant did not qualify as an independent processor as they had a partnership with a firm engaged in weaving and knitting, thus not meeting the criteria for the benefit.

2. The appellant contested the applicability of the extended time period for demand of duty and penalty. The Tribunal examined the documents and found that the appellant had provided necessary information to the Central Excise authorities, including details of plant and machinery and the partnership deed. It was held that the extended time period was not justified as the appellant had not concealed any facts, and the show-cause notice issued after several years was unsustainable.

3. The show-cause notice alleged that the appellant concealed vital information regarding their proprietary interest in another firm. However, the Tribunal found that the partnership deed clearly stated the separation of assets between the partners and the firm, and there was no evidence of concealment. The conclusion that the appellant had proprietary interest in another concern was based on legal interpretation and not on factual evidence.

4. The Tribunal analyzed the partnership deed and found that it was not a colorable device to avoid tax. The deed clearly outlined the separation of assets between the partners and the firm, and there was no violation of the Indian Partnership Act. The Tribunal held that the partnership deed did not lead to any concealment of facts or tax avoidance.

5. The allegation that the appellant did not exclusively carry out the process of drying dyeing in a Hot Air Stenter was not proven with sufficient evidence. The Tribunal noted that there was no concrete proof to support this claim, except for a statement, and the de-sealing of one stenter was declared to the department.

6. The show-cause notice issued after 4 years was deemed unjustified by the Tribunal. Despite providing all necessary information to the department in 2001, the notice was issued much later without any new facts or information. The Tribunal concluded that there was no deliberate fraud or misstatement by the appellant, and the extended period was not justified based on legal interpretations alone.