1984 (1) TMI 209 - AT - Central Excise

Summary

Issues:
1. Appeal against rejection of duty liability on backing material.
2. Request for change of Bench due to potential bias.
3. Dispute over duty imposition on cushion compound.
4. Allegations of suppression of facts and duty evasion.
5. Comparison with a similar case and demand for conformity.
6. Interpretation of Rule 9 of Central Excise Rules.
7. Delay in granting personal hearing and issuance of show cause notice.
8. Central Excise misuse of Rule 9(2) and imposition of penalty.
9. Limitation of demand period under the show cause notice.

Analysis:
1. The appeal was filed against the rejection of duty liability on backing material produced by the appellants for captive use. The Assistant Collector imposed duty under Rule 9(2) of Central Excise Rules, which the appellants contested, claiming the backing material was part of a continuous manufacturing process and not a separate assessable product.

2. The appellants requested a change of Bench due to a potential bias issue as one of the Bench members had previously ruled against a similar case. However, the Tribunal advised the appellants' counsel to seek direction from the President but proceeded with the hearing when the appellants were not represented.

3. The dispute centered around the duty imposition on cushion compound used captively by the appellants. The Central Excise demanded duty citing Rule 9(2) for the period from 1963 to 1972. The appellants argued that the cushion compound was exempted from duty under Notification No. 208 of 1972 for captive consumption.

4. Allegations of suppression of facts and duty evasion were raised by the Central Excise, claiming that the appellants did not declare the backing material/cushion compound as a separate excisable product. The Central Excise contended that the failure to inform them led to a loss of duty, and the demands were not barred by limitation.

5. The comparison with a similar case highlighted the Tribunal's agreement with the findings that intermediate goods used captively were liable to excise duty. The Tribunal noted the Kerala High Court's judgment on a similar matter and the amendment to Rule 9 in 1982, making captively used intermediate goods taxable.

6. The interpretation of Rule 9 of the Central Excise Rules was crucial in determining the liability of the cushion compound for duty. The Tribunal emphasized that captive use did not exempt the product from duty, as per the amended rule.

7. The delay in granting a personal hearing and issuing the show cause notice was criticized by the Tribunal, noting a four-year gap between the request and the hearing. The issuance of the notice after the exemption notification raised concerns about the Central Excise's awareness of the duty liability.

8. The misuse of Rule 9(2) by the Central Excise was highlighted, with the Tribunal expressing dissatisfaction with the imposition of a penalty disproportionate to the alleged fraud amount. The Tribunal deemed the Central Excise's actions as a cover-up for their failure to assess and levy duty correctly.

9. The Tribunal limited the demand period under the show cause notice to one year under Rule 10, rejecting the unlimited demand period set by the department. The Tribunal ordered all consequential actions to be completed within three months, emphasizing the lack of justification for an extended demand period.