1986 (10) TMI 112 - AT - Central Excise

Issues Involved:
1. Whether the tubular knitted fabrics manufactured by the appellants are "goods" liable for excise duty.
2. Whether the fabrics used within the factory for further manufacture of hosiery articles are exempt from excise duty.
3. Validity and applicability of Notification No. 213 of 1972 and its withdrawal by Notification No. 101/79.
4. Determination of assessable value and the applicability of Rule 9A(5) of the Central Excise Rules.
5. Quantification of redemption fine and penalty.

Detailed Analysis:

Issue 1: Whether the tubular knitted fabrics manufactured by the appellants are "goods" liable for excise duty.

The appellants contended that the tubular knitted fabrics would not be "goods" attracting excise duty. However, this ground was not raised in the reply to the show cause notice or during proceedings before the Collector. The Board did not discuss this contention, and no serious arguments were advanced before the Tribunal. The Tribunal rejected this contention due to the absence of evidence and the fact that it was not pursued in earlier proceedings.

Issue 2: Whether the fabrics used within the factory for further manufacture of hosiery articles are exempt from excise duty.

The appellants argued that the fabrics used in the factory for manufacturing hosiery articles in an integrated process should not attract excise duty. However, due to the retrospective amendment of Rules 9 and 49 of the Central Excise Rules, this contention was not accepted, and no arguments were advanced in support during the hearing.

Issue 3: Validity and applicability of Notification No. 213 of 1972 and its withdrawal by Notification No. 101/79.

Notification No. 213 of 1972 exempted woollen knitted fabrics used within the factory for manufacturing hosiery articles from duty. This notification was withdrawn by Notification No. 101/79 on 1.3.1979. The appellants claimed exemption for fabrics manufactured before 28.2.1979, used subsequently in manufacturing hosiery articles. The Board held that exemption was only applicable if the fabrics were used in manufacturing hosiery articles before 28.2.1979. The Tribunal agreed with this interpretation, noting that the actual use of fabrics in manufacturing hosiery articles must have occurred before the exemption's withdrawal to claim the benefit.

Issue 4: Determination of assessable value and the applicability of Rule 9A(5) of the Central Excise Rules.

The lower authorities held that duty was payable under Rule 9A(5). The appellants contended that Rule 9A(1)(ii) should apply, referencing the Tribunal's decision in Daya Ram Metal Works Pvt. Ltd. and Bata India Ltd. The Tribunal agreed, noting that duty should be demanded in terms of Rule 9A(1)(ii) when dates of actual removal are ascertainable.

Issue 5: Quantification of redemption fine and penalty.

The Board had reduced the penalty and redemption fine but quantified them before determining the exact duty evaded and the value of the goods. The Tribunal found this premature and held that the quantification of redemption fine and penalty should occur only after ascertaining the duty evaded and the value of the goods.

Conclusion:

The appeal was allowed, and the orders of the lower authorities were set aside with the following directions:
1. No duty is payable on 6124.975 kg of woollen knitted fabrics in stock in the tailoring section on 1.3.1979.
2. Duty on the remaining quantity should be assessed in terms of Rule 9A(1)(ii) based on the dates of removal and applicable duty rates.
3. The quantum of penalty and redemption fine should be re-determined after ascertaining the value of the goods and the duty evaded.
4. The matter is remitted to the Collector for fresh adjudication and orders in light of these directions.

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