2009 (2) TMI 429 - AT - Central Excise

Cess- textile cess- The Appellants have filed this Appeal by challenging the Demand Notice dated 11-7-2005 for Rs. 33,48,795/- for the period 4/2003 to 3/2004 on the ground that the Demand Notice is not maintainable as the cess is already paid by the supplier and the Appellants are not required to pay. Held that- The Appellants admit the liability to pay the cess in the event the cess is not paid by the supplier. The Appellants rely heavily on the Circular and claim exemption of paying the cess by submitting the proof of payment of the cess by the supplier. Once the burden of payment is satisfactorily discharged, in our view, the Appellants can absolve itself from the liability of paying the cess. In the light of such discussion, the Appellants are not liable to pay any cess and hence, the Demand Notice issued to them is contrary to law and not sustainable. Thus, quash and set aside the Demand Notice and allow the Appeal.

Issues: Challenge to Demand Notice for cess payment; Interpretation of Circular dated 14-11-1984; Applicability of previous judgments on cess payment liability.

Analysis:
1. The Appellants challenged the Demand Notice for cess payment dated 11-7-2005, arguing that they are not required to pay as the cess was already paid by the supplier. The Appellants, being processing units, received materials from suppliers, processed them, and returned them, without manufacturing textiles themselves. The Circular dated 14-11-1984 stated that processing units are liable to pay cess only if the raw material had no prior cess payment. The Appellants claimed that the suppliers had already paid the cess, supported by proof in the form of demand drafts. They contended that the Demand Notice was issued without a personal hearing, rendering it unsustainable under the law.

2. The Respondent argued that processing units, including the Appellants, are required to pay the cess as per a Supreme Court judgment expanding the definition of "manufacture" to include processing activities like dyeing and finishing. The Respondent also claimed that a letter superseding the Circular was issued, but the Appellants argued that it was not a Circular and thus not binding. The Appellants presented documents proving the suppliers' cess payment, unchallenged by the Respondent, indicating that processors need not pay cess if suppliers have paid.

3. The Tribunal noted that a Show Cause Notice was issued to the Appellants, who explained their exemption from cess payment and requested a hearing, which was not granted before the Demand Notice was issued. The Tribunal upheld the validity of the Circular of 1984, emphasizing the importance of proof of supplier's cess payment to absolve processors from liability. Referring to a previous judgment, the Tribunal ruled in favor of the Appellants, quashing the Demand Notice and allowing the Appeal based on the supplier's documented cess payment.

4. The Tribunal highlighted that the Appellants acknowledged liability to pay cess if not paid by the supplier, relying on the Circular for exemption upon proof of supplier's payment. The Tribunal found the Demand Notice contrary to the law and unsustainable, ultimately absolving the Appellants from cess payment obligations. The Appeal was allowed in favor of the Appellants, setting aside the Demand Notice.

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