2005 (5) TMI 197 - AT - Central Excise

Issues Involved:

1. Recovery of Central Excise Duty and imposition of penalties on M/s. Samir Textiles (P) Ltd. and M/s. Shree Hem Fabrics (P) Ltd.
2. Definition and calculation of "metre length" for embroidery machines.
3. Validity and applicability of Trade Notice and amendments to Rule 96ZI.
4. Clarification and retrospective effect of amendments.
5. Arguments presented by the appellants and the Department.
6. Examination of relevant case laws and precedents.
7. Final judgment and rationale.

Issue-wise Detailed Analysis:

1. Recovery of Central Excise Duty and Imposition of Penalties:
The Commissioner of Central Excise & Customs, Surat-II, directed the recovery of Central Excise Duty amounting to Rs. 6,15,670/- from M/s. Samir Textiles (P) Ltd. and Rs. 19,04,619/- from M/s. Shree Hem Fabrics (P) Ltd. under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A(2) of the Central Excise Act, 1944. Penalties equivalent to the duty amounts were imposed under Rule 96ZL and 173Q(1) read with Section 11AC. Additionally, the Commissioner ordered the confiscation of land, building, plant, machinery, etc., of M/s. Shree Hem Fabrics (P) Ltd., with an option for redemption by payment of Rs. 5,00,000/-. Penalties of Rs. 5,00,000/- and Rs. 1,00,000/- were also imposed on the Director and the authorized signatory, respectively, under Rule 209A.

2. Definition and Calculation of "Metre Length":
During physical verification, it was found that the embroidery machines had two rollers each measuring 13.90 metres. The Department concluded that 27.80 linear metres of fabric were being embroidered on each machine at a time, contrary to the assessee's declaration of 13.90 linear metres. The Commissioner held that the correct metre length should include the sum of both rollers' lengths, thus 27.80 linear metres per machine.

3. Validity and Applicability of Trade Notice and Amendments to Rule 96ZI:
The appellants argued that according to Trade Notice No. 289/69 dated 18-9-1969, the metre length should be the distance between the first and last needle of one roller, even if there were more than two rollers. They contended that the amendment to Rule 96ZI(6)(a) by Notification No. 15/98-C.E. (N.T.) was clarificatory and reflected the earlier Trade Notice, indicating that only one roller's length should be considered.

4. Clarification and Retrospective Effect of Amendments:
The Department argued that the amendment effective from 2-6-1998 could only apply prospectively and not to the impugned period (1-4-1993 to 12-2-1998). They maintained that the definition of 'metre length' during the relevant period included the distance between the first and last needles of all rollers, not just one.

5. Arguments Presented by the Appellants and the Department:
The appellants cited several Tribunal decisions supporting their interpretation that the metre length should be based on one roller's distance. They also referenced Supreme Court decisions emphasizing that departmental circulars and Trade Notices should guide duty calculations. Conversely, the Department argued that the plural term 'rollers' in the definition indicated that the lengths of all rollers should be summed.

6. Examination of Relevant Case Laws and Precedents:
The Tribunal decisions in cases like Maruti Embroideries, Doshi Industrial Corporation, Vadilal Embroidery Unit, and Alpha Woven Labels (India) Pvt. Ltd. supported the appellants' view. These decisions held that metre length should be the distance of one roller only, even for machines with two rollers, and that the amendment was clarificatory with retrospective effect.

7. Final Judgment and Rationale:
The Tribunal found that the intention of the Central Government, as reflected in the Trade Notice and subsequent clarifications, was to consider the metre length as the distance between the first and last needle of one roller, even for machines with two rollers. The impugned orders of the Commissioner were set aside, and all appeals were allowed. The Tribunal concluded that the Notification under Rule 96ZI(1) took into account the nature of embroidery machines and their average production capacity, including the aspect that embroidery machines ordinarily had two rollers.

Conclusion:
The appeals were allowed, and the impugned orders were set aside, based on the interpretation that the metre length should be calculated as the distance between the first and last needle of one roller, consistent with the Trade Notice and clarificatory amendment.

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