2001 (11) TMI 181 - AT - Central Excise

Summary

Issues involved:
Appeals by Revenue against Commissioner (Appeals) order, liability of duty on molasses produced by Khandsari sugar factory, eligibility for small scale industry exemption, legal fiction created under Rule 9C, interpretation of Notification No. 7/97, reconsideration of previous decision, application of legal fiction in statutes.

Analysis:

1. Appeals against Commissioner (Appeals) Order:
The appeals were filed by Revenue against a common order passed by the Commissioner (Appeals) in favor of two distillery units. The Commissioner had allowed the appeals filed by the distilleries against orders passed by the adjudicating authority.

2. Liability of Duty on Molasses:
The issue revolved around the liability to pay duty on molasses produced by a Khandsari sugar factory. Rule 7A of the Central Excise Rules, 1944, imposed the duty on the procurer of molasses. The key question was whether the procurer was eligible for the small scale industry exemption available to manufacturers of excisable goods.

3. Legal Fiction under Rule 9C:
After the amendment in Rule 9, the duty liability for Khandsari molasses was shifted to the procurer. The legal fiction created under Rule 9C deemed the procurer as the manufacturer of Khandsari molasses. The Tribunal held that this legal fiction could not extend the small scale industries exemption to the procurers of Khandsari molasses used in non-excisable alcohol production.

4. Interpretation of Notification No. 7/97:
The Tribunal referred to Notification No. 7/97 and emphasized that a procurer of Khandsari molasses did not meet the conditions of the notification. The notification required manufacturing molasses in a factory, which the procurer did not fulfill. Legal fiction must be limited to its intended purpose and cannot be extended beyond its legitimate scope.

5. Reconsideration of Previous Decision:
The appellant sought reconsideration of a previous decision in light of Supreme Court judgments. The Tribunal held that the legal fiction treating the procurer as a manufacturer was solely for duty collection purposes. Extending the fiction to grant small scale industries exemption would go against the legislative intent of the Rule amendments.

6. Application of Legal Fiction in Statutes:
The Tribunal clarified that the legal fiction in this case did not align with the provisions of Sher Singh's case. The legal fiction should be applied within its defined scope and not stretched to grant unintended exemptions.

In conclusion, the Tribunal set aside the Commissioner (Appeals) order and restored the orders passed by the adjudicating authority, thereby allowing the appeals filed by the Revenue.