2001 (3) TMI 194 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility of procurers of khandsari molasses for small scale exemption under Notification No. 1/93 CE dated 28-2-1993.
2. Constitutional validity of Rule 7A and Rule 9C of the Central Excise Rules, 1944.
3. Legitimacy of appeals filed by the Revenue.
4. Imposition and reduction of penalties.

Detailed Analysis:

1. Eligibility of Procurers of Khandsari Molasses for Small Scale Exemption:
The primary issue revolves around whether the procurers of khandsari molasses are entitled to the benefits of small scale exemption under Notification No. 1/93 CE dated 28-2-1993. The Commissioner of Central Excise (Appeals) had previously ruled in favor of the procurers, stating that they were entitled to the exemption. However, the Tribunal's decision in the case of Commissioner of Central Excise, Chandigarh v. Dewan Modern Breweries Ltd. and M/s. Gupta Modern Breweries Ltd. established that the benefit of small scale exemption is not available to the procurers of khandsari molasses. The Tribunal emphasized that the exemption notification was conditional and could not be extended to procurers merely because they were deemed manufacturers under Rule 9C of the Rules. The procurers did not meet the conditions required for the exemption, such as clearing the molasses for home consumption and having a factory where the molasses were produced.

2. Constitutional Validity of Rule 7A and Rule 9C of the Central Excise Rules, 1944:
The Revenue argued that the constitutional validity of Rule 7A and Rule 9C, which were inserted via Notification No. 6/97 C.E. (N.T.) dated 1-3-1997, had been upheld by the Jammu and Kashmir High Court. These rules deemed the procurers of khandsari molasses as manufacturers for the purpose of levying duty. The Tribunal noted that the legal fiction created by these rules was specifically for the purpose of collecting duty at the consumption point and not at the manufacturing point. This legal fiction was not intended to extend the benefits of small scale exemption to the procurers.

3. Legitimacy of Appeals Filed by the Revenue:
The respondents argued that the appeals were not maintainable because the same officer who passed the impugned order-in-appeal had also ordered the filing of the appeals. The Tribunal found no merit in this argument, stating that the name of the officer was inconsequential under Section 35B(2) of the Act. The provision allows the Commissioner of Central Excise to direct the filing of appeals if he believes an order is not legal or proper, regardless of whether the same individual had previously passed the order in a different capacity.

4. Imposition and Reduction of Penalties:
The Tribunal upheld the imposition of penalties on the respondents for failing to pay the required duty. However, considering the facts and circumstances, the penalties were reduced. In Appeal No. E/3034/2000 D, the penalty was reduced from Rs. 4,01,517/- to Rs. 2,00,000/-. In Appeal No. E/3035/2000D, the penalty was reduced from Rs. 4,00,000/- to Rs. 3,00,000/-. In Appeal No. E/3077/2000D, the penalty of Rs. 50,000/- was upheld as the duty liability was Rs. 1,23,555/-.

Conclusion:
The Tribunal set aside the impugned orders-in-appeal and restored the orders-in-original with modifications to the penalties. The appeals filed by the Revenue were allowed, and the cross objections filed by the respondents were disposed of accordingly. The Tribunal reaffirmed that the legal fiction created by Rule 9C was limited to the purpose of duty collection and did not extend to granting small scale exemption benefits to the procurers of khandsari molasses.