2016 (8) TMI 979 - AT - Central Excise

Exemption Notification 8/97 dated 1.3.1997 - eligibility for benefit - imported paper cones used for winding of yarn - Held that - it is found that the Revenue has no case for more than one reason. Firstly, it is evidenced by the respondent that imported paper cones are packing materials by producing letter No. SEEPZ/Gov/187/96/02-03/305 dated 13.5.2003 that the paper cones are packing materials. When the Ministry of Commerce, another Ministry of Government of India, treats the paper cones as packing material explicitly, it cannot be said that they are raw materials as envisaged in Notification No.8/97. Secondly, as correctly held by the first appellate authority, expression raw materials is a material used in manufacture of goods; in the case in hand wherein cotton yarn is manufactured paper cone cannot be held as raw material as it is undisputed that cotton yarn on completion of manufacture is wound on the paper cones. Thirdly, the respondent as well as a Ministry of the Government of India has understood that paper cones are packing materials, and were permitted to import the same as such without payment of duty. - Decided against Revenue

Summary

Issues involved: Eligibility for availing benefit of Notification 8/97 dated 1.3.1997 based on the usage of imported paper cones for winding cotton yarn.

Analysis:
1. Issue of Eligibility for Notification 8/97 Benefit: The central issue in this case revolves around determining whether the respondent is entitled to the benefit of Notification 8/97 dated 1.3.1997. The Revenue contends that the respondent, a 100% EOU manufacturing cotton yarn, utilized imported paper cones for winding yarn, rendering them ineligible for the exemption under Notification No. 8/97. The Revenue argues that the imported paper cones qualify as raw materials, disqualifying the respondent from the exemption.

2. Adjudication and Appeal: Initially, the adjudicating authority ruled against the assessee, but the first appellate authority overturned this decision. The appellate authority reasoned that since paper cones were utilized as packing materials, the benefits of Notification 8/97 should be extended to the assessee, thereby allowing the appeal.

3. Argument and Counter-argument: The learned AR representing the Revenue argued that the marketability aspect of products due to the usage of imported paper cones should be considered for determining eligibility under Notification 8/97. The AR contended that the classification of paper cones as packing materials by the respondent was irrelevant. Conversely, the respondent's advocate argued that Notification 8/97 specifically restricts the use of raw materials, and since paper cones are classified as packing materials, they should not be considered raw materials.

4. Analysis of Evidence: Upon scrutiny of the records, it was established that the imported paper cones were recognized as packing materials by the Ministry of Commerce through a formal letter. The first appellate authority correctly interpreted that raw materials are materials used in the manufacturing process, which does not include paper cones used for winding cotton yarn. Moreover, the Ministry of the Government of India also acknowledged paper cones as packing materials distinct from raw materials, allowing their duty-free import.

5. Judicial Findings: The first appellate authority's findings emphasized that various government departments treated paper cones as packing materials separate from raw materials, making the respondent eligible for the Notification 8/97 benefit. The Revenue failed to refute these findings effectively with supporting evidence. Consequently, the appeal filed by the Revenue was rejected, and the impugned order was upheld, declaring the demand, interest, and penalty as unsustainable.

In conclusion, the judgment delves into the nuanced interpretation of the term "raw materials" under Notification 8/97, highlighting the significance of proper classification and recognition of materials used in manufacturing processes. The decision underscores the importance of aligning with established governmental classifications and notifications to determine eligibility for specific exemptions and benefits.