2023 (12) TMI 472 - AT - Central Excise

100% EOU - eligibility for benefit of exemption available under Notification No. 8/97-CE dated 01.03.1997 and Notification No. 23/2003-CE dated 31.03.2003 to pay duty on DTA clearance of Open End Yarn - case of the revenue is that Open end yarn was manufactured by the appellant out of imported raw cotton hence not eligible for exemption - suppression of facts or not - time limitation. HELD THAT - The appellant has manufactured Ring Spun Yarn and Open End Yarn. The Ring Spun Yarn was manufactured out of imported raw cotton as well as locally procured raw cotton and in the process of production of the same, cotton waste was generated. The open end cotton yarn was manufactured from cotton waste. The sole basis on which the exemption is sought to be denied by the revenue is that Open End Yarn cleared in the DTA is produced out of the cotton waste allegedly arose of the imported cotton. Whereas it is found that the Notification only provides that finished goods should be manufactured or produced from raw materials manufactured or produced in India - In the present case, cotton waste is indeed produced in India. The goods cleared to DTA in the present case are Open End Yarn which is manufactured wholly out of cotton waste generated at the time of manufacture of Ring Spun Yarn in the factory premises of appellant. The entire quantity of imported cotton or domestic cotton used as raw materials for the manufacture of Ring Spun Yarn and not for the Open End Yarn - In the present matter imported cotton are raw material for Ring Spun Yarn , it cannot be said that the same are raw materials as envisaged in Notification No. 8/97 for Open End Yarn. The expression raw materials is a material used in manufacture of goods; in the case in hand Open End Yarn is manufactured from cotton waste and not from the imported cotton. The Supreme Court in the decision in COMMISSIONER OF CENTRAL EXCISE, SURAT-I VERSUS M/S FAVOURITE INDUSTRIES 2012 (4) TMI 65 - SUPREME COURT upheld the judgment of this Tribunal in Favourite Industries and ruled that the benefit of exemption under Notification No. 8/97-C.E. is available where raw materials supplied by another 100% EOU are used by a 100% EOU and that such raw materials or goods belonging to 100% EOU would constitute raw materials or goods produced or manufactured in India. In view of the aforesaid Apex court judgment, it is clear that goods manufactured in EOU is duly considered to be manufactured in India. In the present matter the cotton waste was manufactured in Appellant factory and the same was used for Open End Yarn accordingly the condition of the Notification stand satisfied by the appellant - It therefore, also follows that when further goods are manufactured out of such cotton waste, which is an indigenous product, such further goods viz. Open End Yarn in this case, shall be goods which are manufactured wholly out of indigenous raw material and therefore, eligible for the benefit of the Notification. Clearly, in the present matter revenue has failed to consider the provisions of Section 2(d) and Section 3 of the said Act and erred in holding that cotton waste is not manufactured product. Time Limitation - suppression of facts or not - HELD THAT - It is on records that department was fully aware about the activity of appellant and all the facts were in the knowledge of the department at the time of issuance of first show cause notice dated 31.01.2005. In this fact when the department was in complete knowledge regarding the use of raw material and clearance of finished goods in DTA, however, the department has not raised any objection at the relevant time. Therefore, there is absolutely no suppression of fact or mis-declaration with intent to evade payment of duty on the part of the appellant. Therefore, extended period of demand cannot be invoked. Hence the demand for extended period is not sustainable on limitation also. The demand of duty is not sustainable on merit as well as on limitation. Accordingly, the impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Eligibility for benefit of exemption under Notification No. 8/97-CE and Notification No. 23/2003-CE.
2. Invocation of extended period of limitation for demand of duty.

Summary:

Issue 1: Eligibility for Exemption under Notification No. 8/97-CE and Notification No. 23/2003-CE
The appellant, a 100% Export Oriented Unit (EOU), engaged in the manufacture of ring spun cotton yarn, claimed the benefit of concessional duty rates under Notification No. 8/97-CE and Notification No. 23/2003-CE for their clearances to the Domestic Tariff Area (DTA). Both notifications stipulated that the goods cleared in DTA must be manufactured wholly from indigenous raw materials. The appellant contended that the open end cotton yarn cleared to DTA was manufactured from cotton waste generated during the production of ring spun yarn, which was produced in India. The Tribunal found that the cotton waste used to manufacture open end yarn was indeed produced in India, thus satisfying the condition of the notifications. The Tribunal also noted that cotton waste is a distinct commercial commodity and should be considered as raw material produced in India. Therefore, the appellant was eligible for the benefit of the said notifications.

Issue 2: Invocation of Extended Period of Limitation
The appellant argued that there was no suppression of facts or mis-statement on their part, and hence, the extended period of limitation could not be invoked. The Tribunal observed that the appellant's unit was under physical control, and all necessary details regarding DTA clearances were available to the department through returns and invoices. The Tribunal referred to various judgments, including those of the Supreme Court and High Courts, which held that extended period of limitation cannot be invoked in the absence of fraud, collusion, wilful mis-statement, or suppression of facts. The Tribunal concluded that the department was fully aware of the appellant's activities and had not raised any objections at the relevant time. Therefore, the demand for the extended period was not sustainable.

Conclusion:
The Tribunal set aside the impugned order, holding that the demand of duty was not sustainable on merit as well as on limitation. The appeal filed by the appellant was allowed with consequential relief as per the law.