2005 (5) TMI 158 - AT - Central Excise

Issues Involved:
1. Alleged clearance of processed cotton yarn without payment of duty.
2. Compliance with Rule 96E of Central Excise Rules.
3. Invocation of extended period under proviso to Section 11A(1) of Central Excise Act, 1944.
4. Penal provisions under Section 11AC of the Central Excise Act.
5. Consideration of units as "factory" under Rule 96E(2).
6. Export of goods and domestic clearance on payment of duty.
7. Time-barred demands.

Issue-wise Detailed Analysis:

1. Alleged Clearance of Processed Cotton Yarn Without Payment of Duty:
The appellants were accused of clearing 323487.60 kgs of processed cotton yarn without payment of duty during October 1998 to November 2000. The yarn was sent to subsidiary units for processing activities like knitting, twisting, and rewinding. The department alleged contravention of Rule 96E of Central Excise Rules.

2. Compliance with Rule 96E of Central Excise Rules:
The appellants contended that the removals were made under AR-3As by following procedures under Rules 156A, 156B, and 173N of Central Excise Rules, 1944. They submitted that there was no suppression or misstatement on their part, and the extended period could not be invoked under Section 11A(1) of the Central Excise Act, 1944. They argued that the processed quantities were duly accounted for and that any lapses were purely procedural.

3. Invocation of Extended Period Under Proviso to Section 11A(1) of Central Excise Act, 1944:
The appellants argued that the extended period could not be invoked as there was no suppression or misstatement. They had provided all necessary documents and filed monthly returns, and the department was aware of the removals.

4. Penal Provisions Under Section 11AC of the Central Excise Act:
The appellants requested not to invoke penal provisions under Section 11AC or Rule 173Q of Central Excise Rules, arguing that the procedures followed were within the department's knowledge, and there was no loss of revenue.

5. Consideration of Units as "Factory" Under Rule 96E(2):
The Commissioner held that the units to which the cotton yarn was supplied did not qualify as a "factory" under Rule 96E(2), leading to the confirmation of demands. However, the Tribunal found that all units belonged to the same manufacturer, and removals under Rule 96E did not require payment of duty.

6. Export of Goods and Domestic Clearance on Payment of Duty:
The appellants submitted that a significant portion of the processed yarn was exported, and the remaining was cleared domestically on payment of duty. The Tribunal noted that 95% of the goods were exported, and the rest were cleared on payment of duty, thus negating the demand for duty on exported goods.

7. Time-Barred Demands:
The Tribunal observed that the appellants had been filing declarations and monthly returns, and the department was aware of the removals. The investigation was conducted in November 2000, but the Show Cause Notice was issued on 30-10-2003, almost three years later. Therefore, the demands were considered time-barred.

Conclusion:
The Tribunal concluded that the demands were not sustainable and set them aside, allowing the appeal with consequential reliefs. The penalty was also deemed not imposable in the given facts and circumstances. The operative portion of the order was pronounced in open court.

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