2017 (7) TMI 475 - AT - Central Excise

Scope of SCN - Benefit of N/N. 67/95-CE dated 16.3.1995 - denial of benefit on the ground that the appellant has consumed the dyed yarn in their factory and since the handloom durries was chargeable to nil rate of duty the benefit of Notification not available - Held that - the provisions of Rule 12B were neither invoked in the show cause notice nor dealt in the adjudication order. On being asked, the Learned AR also could not show us where Rule 12B was referred directly or indirectly in the SCN. In the absence of the same, the Commissioner (Appeals) clearly traveled beyond the scope of SCN - invocation of Rule 12B by the Commissioner (Appeals), which fastens duty liability on the appellant, is without jurisdiction. Extended period of limitation - penalty - Held that - the dyed yarn for which duty has been demanded is used in the manufacture of goods which were exported. In case the appellants were to pay duty on the inputs used in the exported good, the same would have been liable to be refunded to the appellants themselves as manufacturer exporter. In these circumstances, the situation was revenue neutral and there appears to be no mala fide on part of the appellants. Hence, extended period and penal provisions are not applicable in this case. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of Notification No.67/95-CE regarding duty exemption for manufactured goods.
2. Application of Rule 12B of Central Excise Rules, 2002 in the case.
3. Control over job workers and establishment of "manufacture on behalf."
4. Revenue neutrality and absence of mala fide intentions in the case.

Analysis:
1. The case involved the appellants engaged in manufacturing handloom durries and made-ups. They purchased grey yarn, got it dyed from job workers, and used it as an intermediate product for manufacturing exempted final products. The dispute arose regarding the duty liability on dyed yarn used in the manufacture of goods chargeable to nil rate of duty. The Commissioner (Appeals) upheld the demand, which the appellants contested, arguing that Notification No.67/95-CE was not applicable as the processing was done outside their factory by job workers. The Tribunal found that the goods were exported, making the situation revenue neutral, and set aside the demand as the benefit of the notification was available to the appellants.

2. The Tribunal addressed the application of Rule 12B of Central Excise Rules, 2002. The appellants argued that Rule 12B was not invoked in the show cause notice or adjudication order, and the Commissioner (Appeals) erred in relying on it. Citing relevant case laws, the Tribunal emphasized that invoking a rule not mentioned in the show cause notice exceeded the scope of adjudication. Following legal precedents, the Tribunal held that the invocation of Rule 12B by the Commissioner (Appeals) for duty liability was without jurisdiction, favoring the appellants' argument.

3. The issue of control over job workers and establishing "manufacture on behalf" was crucial. The Tribunal noted that the Revenue failed to provide evidence that the job workers were manufacturing goods on the appellants' account. Referring to legal precedents, the Tribunal emphasized the necessity of clear establishment of "manufacture on behalf." As the appellants had no control over the job workers, the Tribunal found in favor of the appellants, highlighting the absence of evidence supporting captive consumption.

4. Lastly, the Tribunal considered the revenue neutrality and absence of mala fide intentions in the case. Given that the dyed yarn was used in manufacturing goods for export, the Tribunal concluded that any duty paid would have been refunded to the appellants as manufacturer-exporters. In light of the revenue-neutral situation and lack of mala fide intentions, the Tribunal deemed the extended period and penal provisions inapplicable, ultimately allowing the appeal filed by the appellants.