2016 (12) TMI 1316 - AT - Central Excise

Deemed manufacture - demand of tax, Interest and Penalty - Time Limitation - Held that - the Chapter note (1) to Chapter 52, which categorically states that doubling of cotton yarn would amount to manufacture and applicability of this chapter note is not disputed. As regards the penalty, we find that here also the appellant has no case as the Chapter note was there in the statue, which should have been considered by the appellant when they undertook the job working of doubling of yarn - Appeal rejected - decided against the assessee.

Summary

Issues:
- Whether the doubling of yarn amounts to manufacture under Chapter 52 of the CETA 1985?
- Whether the appellant is liable to discharge Central Excise duty on yarn cleared after doubling?
- Whether the penalties imposed under Section 11AC should be set aside due to the appellant's bonafide belief?

Analysis:
1. The appeal challenged an Order-in-Appeal passed by the Commissioner of Central Excise (Appeals), Pune, regarding the appellant's manufacturing activity of converting single yarn into double yarn. The revenue authorities invoked Chapter Note (1) to Chapter 52, deeming the doubling of yarn as manufacture, and issued a show-cause notice for duty, interest, and penalties.

2. The appellant contended that the doubling of yarn does not constitute manufacture, citing judgments of the Supreme Court and a Larger Bench decision. They argued that no new commodity arises from doubling and maintained a bonafide belief, seeking the setting aside of penalties imposed under Section 11AC.

3. Upon review, the Tribunal found that the appellant's case lacked merit as the chapter note clearly stated that doubling of cotton yarn amounts to manufacture. The Tribunal upheld the demand for duty liability and interest, rejecting the appellant's reliance on previous judgments due to the different periods involved.

4. Regarding penalties, the Tribunal held that the appellant should have considered the relevant Chapter note when undertaking the doubling of yarn job work. Consequently, the Tribunal affirmed the correctness and legality of the impugned order, concluding that no interference was required.

5. Ultimately, the Tribunal rejected the appeal, emphasizing that the appellant had failed to establish a case on merits both in terms of duty liability and penalties. The decision was pronounced in court, confirming the rejection of the appeal.