1986 (5) TMI 166 - AT - Central Excise

Summary

Issues Involved:
1. Whether the processing of cotton fabrics was done with the aid of power and/or steam.
2. Whether duty was payable if the processing was done with the aid of steam.
3. Whether the appellants processed fabrics falling under Tariff Item 19-I(1) or 19-I(2) or both.
4. Whether the demand for duty is time-barred.

Detailed Analysis:

1. Whether the processing of cotton fabrics was done with the aid of power and/or steam:

The appellants contended that they processed the fabrics without the aid of power, stating that their jigger and padding mangle were manually operated. They admitted to using steam for heating the dyeing solution and wax solution. The Collector found that the appellants used power and steam for processing, but the Tribunal found no conclusive evidence of power usage. The appellants' explanation regarding the seized electric motors and the remarks about power failure in their register was accepted, concluding that the fabrics were processed without the aid of power but with the aid of steam.

2. Whether duty was payable if the processing was done with the aid of steam:

The Tribunal noted that the use of steam for heating the dye and wax solutions was an integral part of the dyeing and proofing process. Under Notification No. 128/70-CE, the use of steam disqualified the appellants from exemption for canvas and duck fabrics under Tariff Item 19-I(1). For fabrics under Item 19-I(2), the relaxation under Notification No. 193/72-CE was not applicable as the dyed fabrics were subjected to further processing with steam. Hence, duty was payable on the processed fabrics.

3. Whether the appellants processed fabrics falling under Tariff Item 19-I(1) or 19-I(2) or both:

The appellants admitted to processing both coarse fabrics and canvas. However, they failed to provide evidence of processing coarse fabrics under Item 19-I(2). The Tribunal relied on the appellants' statements to the State Bank of India, which indicated that they processed canvas. The Show Cause Notice and seized records also supported this. Therefore, it was concluded that the appellants processed canvas and duck fabrics under Item 19-I(1) and were liable for duty.

4. Whether the demand for duty is time-barred:

The appellants argued that the demand was time-barred, as the Show Cause Notice was issued beyond six months without allegations of suppression of facts. The Tribunal found that the Show Cause Notice, issued under Rule 9(2) of the Central Excise Rules, 1944, did not have a time limit at the relevant time. The notice detailed the appellants' failure to comply with Central Excise Rules, implying suppression of facts and clandestine removal of goods. Thus, the extended time limit was applicable, and the demand was not time-barred.

Conclusion:

The Tribunal dismissed the appeal, upholding the Board's order. The appellants were found to have processed 3,87,997.28 meters of canvas and duck cotton fabrics without paying central excise duty. The duty was to be calculated based on the Tribunal's order, limited to the amount calculated by the Collector if higher. The penalty of Rs. 25,000/- was confirmed, and no further reduction was warranted.