2009 (5) TMI 216 - AT - Central Excise

Appellant is engaged in the manufacture of Dyed Polyester Yarn from non-duty paid exempted Poly Twisted Yarn - issue involved is their eligibility for exemption under Notification No. 6/2000-CE dated 1-3-2000 - Till the Hon ble Supreme Court rendered their decision in Dhiren Chemical case, both Revenue as well as Trade were under the impression that where goods are exempted or attracted nil rate subject to the condition that the same are manufactured out of raw material on which appropriate duty has been paid, the appropriate duty could be nil rate of duty or fully exempted goods. Further, Supreme Court also observed in Dhiren Chemical case that the Revenue would be bound by beneficial circular issued by the Board - Board Circular No. 125/36/95-CX, dated 15-5-1995 was withdrawn vide circular No. 667/58/2002-CX, dated 26-9-2002, after the Hon ble Supreme Court rendered their decision in the case of Dhiren Chemical Industries 2007 - TMI - 1709 - SUPREME COURT OF INDIA - Further the cut off date for application of Hon ble Supreme Court decision should be 26-9-2002 the date on which earlier circular was withdrawn and not the date 12-12-2001 on which SC rendered the decision demand for the period subsequent to 26-9-2002, can be sustained Notification provided where Department takes action without invoking proviso to Section 11A.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 6/2000-CE.
2. Interpretation of the term "appropriate duty."
3. Application of the Supreme Court's decision in Dhiren Chemical Industries case.
4. Validity of the extended period for issuing the show cause notice.
5. Whether the appellant's actions constituted suppression of facts.

Detailed Analysis:

1. Eligibility for Exemption under Notification No. 6/2000-CE:
The appellant, M/s. Gupta Dyeing and Printing Mills Private Limited, claimed exemption under Notification No. 6/2000-CE for dyed polyester yarn manufactured from non-duty paid twisted yarn. The department contended that the exemption was only applicable if the twisted yarn had suffered appropriate duty.

2. Interpretation of the Term "Appropriate Duty":
The appellant relied on Circular No. 125/36/95-CX, which allowed exemption even if inputs were exempted from excise duty. However, this circular was withdrawn following the Supreme Court's decision in Dhiren Chemical Industries case, which interpreted "appropriate duty" to mean the correct or specified rate of excise duty, excluding nil rate or exempted inputs.

3. Application of the Supreme Court's Decision in Dhiren Chemical Industries Case:
The appellant argued that based on the Supreme Court's observations in Dhiren Chemical Industries and Kalyani Packaging Industries cases, the benefit of exemption should be extended if already granted, and past assessments should not be reopened. The Tribunal agreed, noting that both Revenue and Trade were under the impression that "appropriate duty" could include nil rate or fully exempted goods until the Dhiren Chemical decision.

4. Validity of the Extended Period for Issuing the Show Cause Notice:
The show cause notice was issued on 20-4-2005 for the period from April 2002 to March 2003. The appellant contended that the extended period was not invokable as they had filed classification lists and monthly returns reflecting the exempted clearances. The Tribunal found that the extended period could not be invoked as there was no suppression or fraud, and the appellant genuinely believed they were eligible for the exemption.

5. Whether the Appellant's Actions Constituted Suppression of Facts:
The department argued that the appellant suppressed the fact that the twisted yarn had not suffered duty. The Tribunal, however, noted that prior to 26-9-2002, the department would not have verified this due to the 1995 circular. Post 26-9-2002, the appellant's failure to inform the department was seen as negligence, not suppression. The Tribunal concluded that the department had not established a convincing case for invoking the extended period under Section 11A of the Central Excise Act, 1944.

Conclusion:
The Tribunal allowed the appeals on the ground of limitation, with consequential relief to the appellants. The impugned order regarding duty demanded, interest, and penalties was set aside. The Tribunal held that the demand for the period subsequent to 26-9-2002 could be sustained, but the extended period for issuing the show cause notice was not applicable due to the lack of suppression or fraud.

(Pronounced in the Court on 29-5-2009)