2001 (9) TMI 201 - AT - Central Excise

Issues Involved:
1. Applicability of exemption Notification Nos. 28/95-C.E., 8/96-C.E., 4/97-C.E., and 5/98-C.E.
2. Allegations of willful mis-statement and suppression of facts.
3. Classification and dutiability of the cotton roving (sliver) used in manufacturing cabled yarn.
4. Eligibility for Modvat credit.
5. Justification for invoking the extended period of limitation.
6. Imposition of penalty and demand of interest.

Detailed Analysis:

1. Applicability of Exemption Notifications:
The matter concerns the applicability of exemption Notification Nos. 28/95-C.E., 8/96-C.E., 4/97-C.E., and 5/98-C.E. to the cabled yarn manufactured by PFL using duty-paid lycra yarn and cotton roving. Under these notifications, a nil rate of central excise duty was provided for goods under Heading No. 56.07 if they were made from duty-paid yarn, monofilament, tapes, or strips. The central issue was whether the cotton roving used by PFL qualified as a specified input under these notifications.

2. Allegations of Willful Mis-Statement and Suppression of Facts:
The show cause notices alleged that PFL willfully misstated and suppressed facts by declaring that their cabled yarn was manufactured from duty-paid yarn, while the cotton yarn used was not duty-paid. The adjudicating authority upheld these allegations, asserting that PFL mis-declared the use of duty-paid input materials to evade excise duty.

3. Classification and Dutiability of Cotton Roving (Sliver):
PFL contended that the cotton roving used in manufacturing cabled yarn was not dutiable as it was not a marketable product. They argued that the cotton roving was an intermediate product used captively and did not qualify as cotton yarn. The adjudicating authority, however, considered that if the input material was cotton roving, it did not qualify for exemption under the notifications. If it was cotton yarn, then duty had not been paid, justifying the denial of the exemption benefit.

4. Eligibility for Modvat Credit:
PFL argued that even if the cotton roving was considered dutiable, they would be eligible for Modvat credit for the duty paid on inputs used in the manufacture of cabled yarn. The adjudicating authority allowed Modvat credit on duty-paid inputs used in the final product, subject to verification and actual payment of duty confirmed in the order.

5. Justification for Invoking the Extended Period of Limitation:
PFL challenged the invocation of the extended period of limitation, claiming that there was no suppression of facts as their manufacturing process and declarations were known to the Department. They argued that their belief that no duty was leviable on the intermediate non-marketable product was bona fide.

6. Imposition of Penalty and Demand of Interest:
The adjudicating authority imposed a penalty equal to the duty amount and demanded interest under Section 11AB of the Central Excise Act, 1944. PFL contended that there was no justification for the penalty or interest as they had not suppressed any facts.

Judgment:
The Tribunal found that the allegations of suppression and mis-statement were not substantiated. It held that the benefit of the exemption notifications could be legally extended to PFL after charging appropriate central excise duty on the cotton yarn manufactured and captively used. The Tribunal noted that PFL's classification lists and declarations had been approved by the jurisdictional central excise authorities and that Modvat credit was available for the inputs used in the manufacture of cabled yarn.

The Tribunal accepted PFL's plea to charge duty on the cotton yarn and extend the benefit of the exemption notifications. It referenced the Supreme Court's decision in Chandrapur Magnet Wires (P) Ltd. v. Collector of Central Excise, Nagpur, which allowed the benefit of exemption upon reversal of Modvat credit. The Tribunal concluded that after charging duty on the cotton yarn, the benefit of the notifications should be extended to PFL, and the penalty imposed was set aside.

Conclusion:
The appeal was allowed with consequential benefits to PFL as per law. The demand of duty on the cotton yarn manufactured and captively consumed was upheld, but the benefit of the exemption notifications was to be extended after such duty payment. The penalty imposed was set aside.

← Previous Next →