1989 (11) TMI 135 - AT - Central Excise

Summary

Issues: Classification of terry towels under Central Excise Tariff Act, 1985; Seizure of terry towels by Excise Authorities; Demand for excise duty and penalty; Applicability of redemption fine and encashment of Bank Guarantee.

Classification of Terry Towels:
The appellants had been manufacturing terry towels classified under Heading 58.02 post the introduction of the new Central Excise Tariff Act, 1985. The Excise Authorities, however, contended that terry towels in cut and stitched form fall under Heading 63.01 of the Act, demanding excise duty at 12%. The appellants argued that the classification under Heading 63.01 was erroneous, as clarified by CBEC Tariff Advice No. 26/80. They also highlighted that post-March 1988, terry towels were fully exempted from duty, and no duty was payable. The absence of a show cause notice post-March 1988 further supported the appellants' stance.

Seizure of Terry Towels:
The Excise Authorities seized terry towels valuing Rs. 67,45,192.48, meant for domestic sale, on the grounds of incorrect classification. The appellants contended that the towels were seized illegally as they were within the factory premises, and Rules 9(2) and 173Q did not apply. The Principal Collector's acknowledgment that the proviso to Section 11A did not apply further weakened the seizure's legality.

Demand for Excise Duty and Penalty:
The demand for excise duty and penalty was contested by the appellants on various grounds. They argued that the duty calculation was incorrect, and the penalty imposition was unjustified as the Collector had deemed the demand time-barred beyond six months. The appellants moved an application for rectification of errors apparent in the order, emphasizing that they were not liable for the duty or penalty.

Redemption Fine and Bank Guarantee:
The issue of redemption fine and encashment of the Bank Guarantee of Rs. 7 lakhs was debated. The appellants sought a waiver of the redemption fine, citing that it was not covered under Section 35F. The Tribunal acknowledged the power to intervene in exceptional circumstances but found no compelling reason to direct the Collector regarding the Bank Guarantee at that stage. The appellants' financial hardship claims were not strongly pressed during the hearing, and the Tribunal left the matter open to the Collector's discretion regarding encashment.

Conclusion:
The Tribunal granted the waiver of duty and penalty based on a prima facie case presented by the appellants. However, it rejected the request for immediate directions to the Collector on the Bank Guarantee encashment, leaving the decision to the Collector's discretion. The appellants were required to keep the guarantee active during the appeal's pendency. The Tribunal disposed of the application with these observations and orders, emphasizing the need for a deeper examination of merits during the main hearing.