2022 (8) TMI 986 - HC - Central Excise

Recovery of excise duty leviable on cotton yarn manufactured and removed captively for the manufacture of entire grey cotton fabrics - benefit of duty exemption under Notification No.22/96-CE, dated 23.07.1996 - Rule 49A of the erstwhile Central Excise Rules, 1944 - HELD THAT - It is seen that this is the second round of litigation. Earlier the petitioner suffered an order in original No.14 of 2002 dated 28.03.2002. Thereafter, the petitioner challenged the same before the CESTAT - the petitioner again participated in adjudicating the proceedings before the Commissioner. In the meanwhile, the jurisdiction Assistant Commissioner finalized the provisional assessment, passed the assessment order dated 24.06.2011. Following the same, he had passed three refund orders. Admittedly, all the four orders never challenged by the department by way of revision. Now, the assessment finalized. The Deputy Commissioner in his letter of the year 2001 cleared the doubt of the department and the difficulty. Admittedly, the petitioner is a composite mill, wherein, yarn is manufactured consumed captively in manufacture of both grey and process fabrics. The process fabrics are mostly dutiable and further there is exemption from paying duty on the yarn. In view of the same, in the yarn manufacture, the portion of the same is used for export. As regards grey fabric, it is exempted for clearance, hence, duty to the yarn used for this process to be paid. This calculations can be precisely made only at the time of clearance either as grey fabric or process fabric. In the impugned order, there is no discussion about considering the report of the Deputy Commissioner of the year 2001, which is followed and orders passed by the jurisdictional Assistant Commissioner, while passing the assessment order which ought to be considered before finalizing the order in original. The matter is remitted back to the Commissioner to consider afresh the petitioner's plea from the stage of issuance of show cause notices - petition allowed by way of remand.

Issues Involved:

1. Legality of the demand for excise duty on cotton yarn captively consumed in the manufacture of exempted grey cotton fabrics.
2. Validity of the penalty imposed under erstwhile Rule 173Q of Central Excise Rules, 1944.
3. Whether the provisional assessment of yarn duty was finalized correctly.
4. Compliance with procedural requirements under Rule 49A of the erstwhile Central Excise Rules, 1944.
5. Whether the impugned order was a speaking order and adhered to principles of natural justice.

Issue-wise Detailed Analysis:

1. Legality of the demand for excise duty on cotton yarn captively consumed in the manufacture of exempted grey cotton fabrics:

The petitioner, a manufacturer of cotton yarn and fabrics, argued that the duty liability on cotton yarn consumed captively in the manufacture of exempted grey cotton fabrics was discharged in terms of Rule 9 read with Rule 49 of the erstwhile Central Excise Rules, 1944. The contention was that at the time of clearance to the weaving section, it was not known whether the yarn would be used for exempted grey fabrics or dutiable processed fabrics. The respondents issued show cause notices demanding excise duty on the yarn used for grey fabrics, arguing that the benefit of duty exemption under Notification No.22/96-CE was not available for yarn removed for captive consumption in the manufacture of exempted fabrics. The petitioner had paid Rs.1,37,137/- under protest towards interest payable under Rule 49A.

2. Validity of the penalty imposed under erstwhile Rule 173Q of Central Excise Rules, 1944:

The respondents confirmed the total demand of Rs.4,06,71,198/- and imposed a penalty of Rs.1,00,00,000/- under erstwhile Rule 173Q. The petitioner challenged this penalty, arguing that the penalty was increased to Rs.4,18,00,960/- in the impugned order without assigning any reason. The petitioner cited a previous order by the Commissioner of Central Excise in Appeal No.135 of 2000, which found that interest under Rule 49A was not maintainable, and this order was not challenged by the department.

3. Whether the provisional assessment of yarn duty was finalized correctly:

The Tribunal had remanded the case to the Commissioner with a direction to finalize the provisional assessment of yarn duty. The petitioner argued that the Deputy Commissioner had clarified that there was no short payment of duty and no ground for invoking Section 11A. The provisional assessment was finalized by the Assistant Commissioner, resulting in refund orders, which were not challenged by the department. The petitioner contended that the impugned order did not consider these finalized assessments and refund orders.

4. Compliance with procedural requirements under Rule 49A of the erstwhile Central Excise Rules, 1944:

The respondents argued that the petitioner did not obtain permission from the jurisdictional Commissioner as required under Rule 49A, which allowed deferring the payment of duty on yarn to the fabric stage subject to interest. The petitioner contended that the Deputy Commissioner had admitted the difficulty in quantifying yarn usage at the time of issue for weaving and that the actual usage could only be determined at the time of clearance.

5. Whether the impugned order was a speaking order and adhered to principles of natural justice:

The petitioner argued that the impugned order was a non-speaking order and did not consider the Deputy Commissioner's report or the finalized provisional assessments. The court found that the impugned order lacked detailed discussion and did not reflect the adjudicating authority's mind. The court emphasized the need for a detailed order addressing the contentions and materials presented.

Conclusion:

The court set aside the impugned order, finding it unsustainable due to the lack of detailed reasoning and consideration of relevant materials. The case was remitted back to the Commissioner for fresh consideration, directing the Commissioner to pass an appropriate order after giving the petitioner an opportunity to present their objections. The court directed the Commissioner to complete this process within three months. The writ petition was disposed of with no order as to costs, and the connected miscellaneous petition was closed.

← Previous Next →