1989 (7) TMI 225 - AT - Central Excise

Issues:
1. Interpretation of duty liability on cotton fabrics produced by a composite mill.
2. Validity of demand for differential duty on cotton fabrics.
3. Limitation period for issuing demand under Central Excise Rules.
4. Authority to modify price lists of mills.
5. Applicability of previous court judgments on similar issues.

Analysis:

1. Interpretation of Duty Liability:
The case involved the duty liability on cotton fabrics manufactured by a composite mill. The issue arose due to a change in the tariff structure from specific to ad valorem rates of duty. The Assistant Collector alleged that the mills did not discharge their duty liability correctly, specifically regarding the duty paid on yarn by a composite mill. The mills argued that the duty paid on yarn should not be included in the assessable value of the fabric. However, the Tribunal referred to the Gujarat High Court's judgment, which held that the duty paid on yarn forms part of the assessable value of textile fabrics, thereby upholding the demand for differential duty.

2. Validity of Demand for Differential Duty:
The Assistant Collector issued a show cause notice to the mills for not discharging their duty liability correctly. The mills contended that the demand, even for a limited period, was illegal as the price lists could not be retrospectively modified. They argued that the order modifying the price lists should have been appealed against or a separate show cause notice should have been issued. The Tribunal accepted the mills' argument that the show cause notice did not specifically address the modification of price lists. However, it upheld the demand for differential duty based on the Gujarat High Court's judgment.

3. Limitation Period for Demand:
The issue of the limitation period for issuing a demand under the Central Excise Rules was raised. The mills argued that the demand for duty was time-barred as the show cause notice was issued beyond the prescribed period. The Revenue contended that the demand was within the limitation period as per Rule 10 read with Rule 173J. The Tribunal did not address this issue explicitly in its judgment.

4. Authority to Modify Price Lists:
The mills argued that the price lists could not be retrospectively modified without proper procedure, such as issuing a show cause notice. They contended that the order modifying the price lists should have been appealed against. The Tribunal agreed with the mills that the show cause notice did not specifically address the modification of price lists and accepted this argument.

5. Applicability of Previous Court Judgments:
Both parties cited previous court judgments to support their arguments. The mills relied on the Supreme Court's judgment in M.R.F. case, which held that the duty paid on Tyre Cord Yarn is not includible in the value of the final product. However, the Tribunal distinguished this judgment, stating that it was not directly applicable to the present case involving cotton yarn. The Tribunal also noted that the Supreme Court had recalled its judgment in the M.R.F. case, further diminishing its relevance. The Tribunal primarily relied on the Gujarat High Court's judgment, which directly addressed the issue at hand and upheld the demand for differential duty.

In conclusion, the Tribunal allowed the appeal filed by the mills regarding the modification of price lists but upheld the demand for differential duty based on the Gujarat High Court's judgment. The Revenue's appeal was dismissed for the same reason.

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