2017 (10) TMI 1178 - AT - Central Excise

Demand of differential duty - finished goods and rejects cleared to DTA - Held that - undisputedly the appellant had cleared the rejected yarn and waste in DTA in excess of 50% of FOB value without permission of the Development Commissioner, accordingly, differential duty was demanded in accordance with proviso to Section 3 (1) of the CEA, 1944 - the issue is now covered by the judgement of the Hon ble Supreme Court in Sarla Performance Fibers Ltd s case 2016 (6) TMI 352 - SUPREME COURT and since the issue pertain to the period prior to the amendment to Section 3 of CEA, 1944 w.e.f 11.05.2001, differential duty calculated taking into account the formula prescribed under proviso to Section 3 (1) of Central Excise Act, cannot be sustained. The appellant had used raw-materials in the manufacture of said rejected yarn and waste therefore, the demand on the raw-material also cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against demand notice for payment of differential duty on cleared yarn and waste in DTA without appropriate duty payment; Interpretation of Section 3(1) of CEA, 1944; Applicability of proviso to Section 3(1) of CEA, 1944; Reference to judgments in Sarla Performance Fibers Ltd. case and Commissioner Vs. Amitex Silk Mills Pvt. Ltd case; Calculation of differential duty; Validity of demand on raw materials used in manufacturing.

Analysis:
The appeal was filed against a demand notice for payment of differential duty on yarn and waste cleared in DTA without appropriate duty payment. The appellant contended that duty payment was required as per Section 3(1) of CEA, 1944, which was in force at the relevant time. They argued that the expression 'allowed to be sold' was replaced with 'brought to any other place' w.e.f. 11.05.2001, thus the demand under the proviso to Section 3(1) could not be confirmed. Reference was made to the judgment in Sarla Performance Fibers Ltd. case and Commissioner Vs. Amitex Silk Mills Pvt. Ltd case to support their contention regarding duty payment on raw materials used in manufacturing.

The Revenue supported the findings of the Ld. Commissioner (Appeals) regarding the demand notice. The Tribunal found that the appellant had cleared rejected yarn and waste in DTA without permission, resulting in a demand for differential duty under the proviso to Section 3(1) of CEA, 1944. However, considering the judgment in Sarla Performance Fibers Ltd. case, the Tribunal held that the differential duty calculated based on the formula prescribed under the proviso to Section 3(1) could not be sustained for the period prior to the amendment of the section in 2001.

Consequently, the Tribunal set aside the demand for differential duty on the finished goods and rejects cleared to DTA. Additionally, the demand on raw materials used in manufacturing the rejected yarn and waste was also deemed unsustainable based on the decision in Amitex Silk Mills Pvt Ltd's case, later upheld by the Supreme Court. Therefore, the impugned order was set aside, and the appeal was allowed, with no order as to costs pronounced.