2009 (9) TMI 327 - AT - Central Excise

Captive consumption- the assessee is a manufacturer of cotton yarn falling under Chapter sub-heading 5205 00 and they are also manufacturing sewing thread falling under Heading 5204. The assessee is clearing part of the cotton yarn manufactured by them as such on payment of duty; they are also using part of the yarn in their own factory for manufacture of sewing thread. The dispute relates to the stage at which duty becomes payable on the cotton yarn and the value to be adopted for the purpose of paying the duty on the cotton yarn. The original authority has held that the duty on yarn was payable at the time of clearance of waxed doubled cotton yarn which were used captively in the manufacturing of sewing thread and would be at 115% of Rs.74/- per kg. for 28 counts. On the above finding, the original authority has confirmed demand of duty of along with interest and imposed penalty under Section 11AC and also imposed a penalty of Rs.1 lakh under Rule 25 of the Central Excise Rules. Held that- Regarding the invocation of extended period of limitation, it is observed that the assessee no doubt filed classification list regarding manufacture of yarn and sewing thread. They have also not filed any returns relating to such production and clearances of yarn so used for sewing thread. We have not been shown that the Department was made aware of the fact that the assessee was clearing yarn without payment of duty and using it for the purpose of manufacture of sewing thread. In view of the above we hold that there is willful suppression of relevant facts and therefore the extended period is rightly invocable. On the same grounds, the penalty under Section 11AC is also sustainable. Therefore, we are in agreement with the submissions of learned DR that the Commissioner (Appeals) was not justified in reducing the penalty under 11AC to an amount lower than the duty short paid. However, in the facts and circumstances of this case we do not find justification for a separate penalty under Rule 25 of the Central Excise Rules.

Summary

Issues:
- Duty payable on cotton yarn used for manufacturing sewing thread
- Stage at which duty becomes payable on cotton yarn
- Value to be adopted for paying the duty on cotton yarn
- Invocation of extended period of limitation
- Quantum of duty payable
- Penalty under Section 11AC and Rule 25

Analysis:

Duty Payable on Cotton Yarn for Manufacturing Sewing Thread:
The case involved the assessment of duty on cotton yarn used for manufacturing sewing thread. The appellant, a manufacturer of cotton yarn and sewing thread, disputed the duty payment on the yarn issued for sewing thread production. The dispute centered around the stage at which duty becomes payable on the cotton yarn.

Stage for Duty Payment on Cotton Yarn:
The original authority held that duty on yarn was payable at the time of clearance of waxed doubled cotton yarn used for sewing thread manufacturing. However, the appellant contended that duty should be paid at the single ply stage for captive consumption in sewing thread production. The Tribunal, relying on legal precedents, determined that duty should be discharged at the single ply yarn stage, aligning with the Supreme Court's decision in a similar case.

Value for Paying Duty on Cotton Yarn:
The appellant argued that the duty paid at the double ply stage was excessive, advocating for a lower duty amount. The Tribunal acknowledged the appellant's position and directed a re-quantification of duty at the single ply stage, in accordance with legal principles.

Extended Period of Limitation and Penalty:
The invocation of the extended period of limitation was contested. The Tribunal found willful suppression of facts by the appellant regarding yarn clearance for sewing thread production, justifying the extended period. The penalty under Section 11AC was upheld, aligning with the duty short paid. However, the penalty under Rule 25 was set aside due to the specific circumstances of the case.

Conclusion:
In conclusion, the Tribunal ruled that duty on yarn for sewing thread production is payable at the single ply stage. The duty, interest, and penalty under Section 11AC were to be reworked based on this determination. The penalty under Rule 25 was revoked. The appellant's contentions on duty payment stage and penalty reduction were addressed, ensuring compliance with legal standards and precedents.