2022 (10) TMI 579 - SC - Central Excise

Exemption from Excise duty - imported paraffin/wax used by the Assessee in the process of manufacturing of cotton yarn - can be said to be a raw material or not - whether Assessee was entitled to the benefit of Notification No. 8/97-C.E., dated 1-3-1997 or not? - extended period of limitation - HELD THAT - So far as the issue whether the Assessee was entitled to benefit of Notification No. 8/97-C.E., dated 1-3-1997 is concerned, the same is squarely covered against the Assessee in view of the decision of this Court in the case of M/S. MERIDIAN INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE 2015 (11) TMI 94 - SUPREME COURT where this Court considered the very exemption notification and the use of wax in manufacturing of cotton yarn. After detailed analysis of the submissions made on behalf of the Revenue and Assessee and after considering the process of manufacturing cotton yarn and definition of raw material , ultimately it is observed and held that the wax used in manufacturing of cotton yarn is a raw material/input and therefore, the Assessee is not entitled to the benefit of notification dated 1-3-1997. Therefore, on merits the Learned CESTAT is not right in holding that the Assessee was entitled to benefit of Notification No. 8/97 for concessional rate of duty. Extended period of limitation - HELD THAT - As this Court laid down the law and clarified the law only in the year 2015 and till then, the issue was at large and therefore, on facts it cannot be said that there was any suppression on the part of the Assessee in disclosing the true and correct facts - it is to be noted that the demand for some period can be said to be within the period of limitation. Therefore, to the extent, the Department invoked the extended period of limitation, the demand must fail, as the Department was not justified in invoking the extended period of limitation. Now the Department to re-calculate the duty/differential duty to the extent the demand/show cause notice was found to be within the period of limitation/time. At the cost of repetition, it is observed that the demand of duty/differential duty found to be beyond the period of limitation by invoking the extended period of limitation is held to be unsustainable and bad in law. Appeal allowed in part.

Summary

Issues Involved:
1. Interpretation of Notification No. 8/97-C.E., dated 1-3-1997 regarding customs duty on imported paraffin/wax used in manufacturing cotton yarn.
2. Justifiability of invoking the extended period of limitation by the Department.

Analysis:

Issue 1: Interpretation of Notification No. 8/97-C.E.:
The Supreme Court examined whether the imported paraffin/wax used in manufacturing cotton yarn qualifies as a raw material under Notification No. 8/97-C.E., dated 1-3-1997. The Court referred to the case of Meridian Industries Limited, where it was established that wax used in manufacturing cotton yarn is considered a raw material. Consequently, the Assessee was not entitled to the benefits of the notification for a concessional rate of duty. The Court concluded that the Assessee was not eligible for the notification based on the definition of "raw material" and the specific use of wax in the manufacturing process.

Issue 2: Extended Period of Limitation:
Regarding the invocation of the extended period of limitation by the Department, the Court acknowledged that the Department had wrongly applied the extended period in this case. The Court reasoned that the law regarding the issue was clarified only in 2015, and until then, there was ambiguity. Consequently, the Assessee could not be faulted for non-disclosure of facts. The Court held that the Department was unjustified in invoking the extended period of limitation. However, the Court noted that the demand for a certain period fell within the limitation period. Therefore, the Court confirmed the demand for duty/differential duty for the period within the prescribed limitation but set aside the demand made by invoking the extended period of limitation.

In conclusion, the Supreme Court partially allowed Civil Appeal No. 1011/2017, confirming the duty/differential duty demand within the limitation period while rejecting the demand made through the extended period. The Court directed the Department to recalculate the duty accordingly. Civil Appeal No. 5260/2022 was disposed of in light of the decision.