2005 (9) TMI 197 - AT - Central Excise

Summary

Issues Involved:
1. Duty demand of over Rs. One Crore on the appellant.
2. Allegation of removal of 126.65 MTs of POY on bobbins of one Kg. or less without determining Central Excise duty.
3. Accounting and disposal of waste yarn.
4. Invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act.

Issue-Wise Detailed Analysis:

1. Duty Demand of Over Rs. One Crore on the Appellant:
The case concerns a duty demand of over Rs. One Crore raised on the appellant under a show cause notice dated 28/29-10-85, and confirmed in adjudication. The Hon'ble Supreme Court remanded the case to the Tribunal for a fresh hearing, emphasizing that various aspects highlighted by the Collector were not considered properly by the CEGAT. The Supreme Court directed the Tribunal to consider the presence of articles in the finishing room, the effect of mention in the log sheets, the effect of non-maintenance of required records, and the allegations in the show cause notice to apply the extended period of limitation.

2. Allegation of Removal of 126.65 MTs of POY on Bobbins of One Kg. or Less Without Determining Central Excise Duty:
The show cause notice alleged that the appellant did not account for the production of POY on bobbins of one Kg. and less, amounting to 126.65 MTs, and removed them without determining the Central Excise duty as required under Rules 173F and 173Q(1) read with Rule 9(1), resulting in a short payment of Central Excise duty to the tune of Rs. 1,06,07,775.00. The Commissioner upheld this charge and demanded the duty short-paid. However, the Tribunal initially set aside the duty demand, leading to the Revenue's appeal to the Supreme Court and the subsequent remand.

3. Accounting and Disposal of Waste Yarn:
The appellant argued that waste arose at several stages in the manufacture of partially oriented yarn (POY) and was stored together, accounted for, and disposed of as waste after paying the applicable Central Excise duty. The appellant's practice of treating yarn waste as waste and accounting for it together with other waste was known to the jurisdictional Central Excise authorities. The Assistant Collector's order dated 3-3-84 classified all varieties of waste under T.I.18(IV), confirming the appellant's practice. The appellant produced the RG-1 register and other contemporaneous correspondence to support their claim that all waste, including yarn waste, was duly accounted for and duty paid.

4. Invocation of the Extended Period of Limitation Under the Proviso to Section 11A of the Central Excise Act:
The appellant contended that the demand was time-barred as it was raised by invoking the proviso to Section 11A of the Central Excise Act. The appellant argued that the contemporaneous correspondence, adjudication order, and other records clearly showed that both sides were aware of the appellant's waste yarn accounting practice, and there was no suppression or misstatement of facts with intent to evade duty. The ld. SDR, however, argued that the appellant failed to keep an account of 1 Kg. or less yarn wound on bobbins beyond the machine log sheet stage, and there was no proof of proper accounting of such yarn as waste.

Tribunal's Findings:
The Tribunal found that the appellant's explanation that yarn on less than 1 Kg. bobbins formed part of the overall clearance of waste was reasonable. The contemporaneous correspondence and stock verification by Central Excise officers confirmed that part of the yarn was treated as waste. The Tribunal concluded that the appellant disposed of the yarn on 1 Kg. or less bobbins as waste and not as yarn, and there was no evidence of clearance of such yarn in any other manner. The Tribunal also found that the accounting gap did not facilitate clandestine clearance, and separate accounting of yarn waste was not warranted since it had the same commercial value as other types of waste.

Conclusion:
The Tribunal set aside the duty demand and penalty imposed on the appellant, concluding that the finding of the Commissioner that the appellant disposed of POY in less than 1 Kg. bobbins without proper accounting and payment of duty was not warranted or justified. The appeal was allowed.