1988 (3) TMI 201 - AT - Central Excise

Summary

Issues Involved:
1. Entitlement to exemption under Notifications No. 297/79 and 80/76.
2. Justification for the demand of handloom cess.
3. Validity of the demand for duty and cess for the period confirmed by the Collector.
4. Alleged suppression of facts and intention to evade duty.
5. Liability of the 5th appellant for payment of duty.
6. Question of valuation and consideration of discounts.
7. Imposition of penalties and redemption fines.

Detailed Analysis:

1. Entitlement to exemption under Notifications No. 297/79 and 80/76:
The appellants argued that the strict construction of the words "within the factory" in the notifications would lead to discrimination. The Tribunal rejected this argument, stating that the words of the notification should be read as they stand and applied to the facts. The Tribunal found that the appellants would be dis-entitled to the benefit of exemption under the respective notifications if the notifications are construed literally, as they carried out certain other processes within the same factory.

2. Justification for the demand of handloom cess:
The appellants initially argued that the demand for handloom cess was not justified due to the absence of the word "cloth" in the relevant schedule. However, this argument was conceded by the appellants' counsel upon realizing that the definition had been amended. Another argument was that processed cloth was not covered under the definition of "cloth" in the Khadi and other Handloom Industries Development Act, 1953. The Tribunal rejected this contention, stating that the amended definition of entries in the Central Excises and Salt Act, which includes processed cloth, would apply to the levy of handloom cess.

3. Validity of the demand for duty and cess for the period confirmed by the Collector:
The Tribunal analyzed the periods for which the demands were confirmed, noting the dates of the show cause notices and the periods covered. The Tribunal concluded that the demands were justified for the periods confirmed by the Collector.

4. Alleged suppression of facts and intention to evade duty:
The appellants argued that they were illiterate and unaware of the withdrawal of the exemption, carrying out their activities openly and to the knowledge of the Central Excise Officers. The Tribunal noted that the appellants had been carrying on the same work before and after 24-11-1979, and the liability for duty arose due to the notifications issued on that date. The Tribunal held that the failure to take out a license or pay duty was due to a bona fide mistaken impression and not due to any mala fide intention to evade duty. Therefore, the demands could only be enforced for removals within six months preceding the show cause notices.

5. Liability of the 5th appellant for payment of duty:
The 5th appellant claimed they were not liable for duty as the only activity carried out with power was hydro extraction, which was not considered a manufacturing process. The Tribunal rejected this argument, noting that the 5th appellant had subjected the cotton fabric to dyeing and hydro extraction in the same factory, thus disqualifying them from total exemption under the notification.

6. Question of valuation and consideration of discounts:
The appellants argued that the Collector erred in valuation by not considering elements of discount. The Tribunal agreed and directed that the question of valuation be re-examined and the quantum of duty reworked based on the findings.

7. Imposition of penalties and redemption fines:
The Tribunal held that there had been no conscious contravention of the liability for payment of duty, and therefore, the penalties imposed on the appellants were set aside. The Tribunal also reduced the redemption fine imposed on the confiscated goods to a nominal sum of Rs. 250 in each case.

Conclusion:
The Tribunal modified the orders of the lower authority as follows:
(a) The demand for duty is confined to the period of six months preceding the show cause notice.
(b) The question of valuation will be re-examined, and the quantum of duty reworked.
(c) The penalties are set aside in all cases.
(d) The redemption fine is reduced to Rs. 250 in each case.

The appeals were allowed in the above terms.