2017 (3) TMI 992 - AT - Central Excise

Valuation - fabric - The fabric so supplied shrinks during processing and demand was raised on such shrinkage as having not been subject to duty - inclusion of shrinkage in assessable value - Held that - reliance placed in the case of Ujagar Textile Industries Ltd. v. Commissioner of Central Excise, Mumbai-II 2004 (2) TMI 106 - CESTAT, MUMBAI which acknowledges that shrinkage upto a limit is not subject to duty - demand set aside - appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
1. Demand of duty on fabric shrinkage during processing.
2. Inclusion of manufacturing expenses and profits in assessable value.
3. Applicability of extended period of limitation for demand.
4. Interest liability under Section 11AB of the Central Excise Act, 1944.

Issue-wise Analysis:

1. Demand of Duty on Fabric Shrinkage During Processing:
The appellant, a processor of cotton and man-made fabrics, was subjected to a demand of ?1,72,905 for the period from August 1992 to January 1993 due to shrinkage during fabric processing. The authorities contended that the appellant did not factor the shrinkage while determining the value of finished fabrics, which led to underpayment of duty. The Tribunal referenced the Indian Rayon & Industries Ltd case, emphasizing that the intrinsic value of grey cloth plus job work value, manufacturing profits, and expenses should be considered for duty assessment. The Tribunal concluded that the appellant must pay the duty including the element of shrinkage of grey fabrics.

2. Inclusion of Manufacturing Expenses and Profits in Assessable Value:
The Tribunal cited the Varma Mukherji Pvt Ltd case, which clarified that the assessable value of processed fabrics should include the value of grey cloth, job work done, manufacturing expenses, and manufacturing profits. The Tribunal rejected the appellant's contention that job charges included manufacturing profits and expenses. It affirmed that all expenses incurred until the processed fabrics leave the processor's factory gate must be included in the assessable value.

3. Applicability of Extended Period of Limitation for Demand:
The Tribunal upheld the invocation of the extended period of limitation, agreeing with the observation that the appellant, with full knowledge of its duty obligations, suppressed material facts regarding shrinkage to evade duty. The Tribunal referenced the Supreme Court's position that the appellant's actions constituted wilful suppression, justifying the extended period for demand.

4. Interest Liability Under Section 11AB of the Central Excise Act, 1944:
In line with the Ramkumar Mills Pvt Ltd case, the Tribunal acknowledged that interest under Section 11AB could only be demanded from the date of its introduction, i.e., 11-5-2001. Consequently, the appellant was liable to pay interest only from this date.

Conclusion:
The Tribunal found no merit in the appellant's contentions and upheld the demand for differential duty, including the duty on shrinkage. It remanded the matter to the original authority to determine the exact amount of differential duty and penalty. The Tribunal set aside the impugned order, allowing the appeal in favor of the appellant.