1995 (2) TMI 227 - AT - Central Excise

Issues Involved:
1. Entitlement to exemption notifications for job work manufacturers.
2. Nature and classification of raw materials used.
3. Price and market rate of raw materials.
4. Onus of proof regarding non-duty paid raw materials.
5. Levy of penalty on manufacturers and suppliers.
6. Application of Rule 173Q and Rule 209A.
7. Quantum of duty and penalties imposed.

Detailed Analysis:

1. Entitlement to Exemption Notifications for Job Work Manufacturers:
The appellants claimed they were entitled to the benefits of various exemption notifications (119/66-C.E., 174/84-C.E., and 149/86-C.E.) as they procured brass scrap from outside for job work. The department argued that the appellants wrongly availed these benefits without payment of duty, knowing they were not entitled to them.

2. Nature and Classification of Raw Materials Used:
The appellants argued that they received brass scrap, not brass dross, and it was impossible to manufacture brass rods from dross alone. They asserted that the materials received were indeed brass scrap, which was necessary for manufacturing brass rods. The department contended that the raw materials were non-duty paid brass dross.

3. Price and Market Rate of Raw Materials:
The appellants submitted that the suppliers charged rates consistent with brass scrap, not brass dross, indicating that the materials were indeed brass scrap. The department did not dispute the market rates but focused on the duty status of the materials.

4. Onus of Proof Regarding Non-Duty Paid Raw Materials:
The appellants argued that the department failed to prove the raw materials were non-duty paid. They cited rulings from the Supreme Court and High Courts supporting their claim that the onus was on the department to prove the non-duty paid status of the raw materials.

5. Levy of Penalty on Manufacturers and Suppliers:
The appellants contended that penalties were unsustainable as they acted in good faith, believing the raw materials were duty-paid. They argued that penalties under Rule 173Q read with Rule 9(2) could only be imposed on manufacturers, not suppliers. The department maintained that penalties were justified due to the appellants' actions and the longer period of limitation was applicable.

6. Application of Rule 173Q and Rule 209A:
The appellants argued that Rule 209A, which came into effect in 1986, could not be applied retrospectively. The department invoked Rule 173Q and Rule 9(2) for imposing penalties.

7. Quantum of Duty and Penalties Imposed:
The appellants argued that even if the department's case was accepted, the duty levied was highly inflated. They provided specific quantities of raw materials and argued for a reduction in duty based on the actual quantity of non-duty paid raw materials used.

Judgment Summary:

The Tribunal consolidated the appeals due to common issues and similar evidence. The Tribunal found that the job workers received raw materials that were not proved to have suffered duty, making them ineligible for exemption notifications. However, it was noted that the notifications did not restrict the use of non-duty paid raw materials if other duty-paid materials were also used.

The Tribunal referred to Supreme Court rulings, emphasizing that in the absence of restrictive expressions in exemption notifications, the benefit could not be denied merely due to the use of some non-duty paid materials. The duty liability was restricted to the quantity of finished products capable of being manufactured from the non-duty paid raw materials.

For M/s. Dayalal Siddibhai, the Tribunal held that the duty liability would not include finished products manufactured from raw materials purchased before the demand period. The matter was remitted to the original authority to work out the quantum of duty accordingly.

Regarding penalties, the Tribunal reduced the penalties on the job worker manufacturers, considering the reduced duty liability and the gravity of the offense. Penalties on suppliers of raw materials were set aside, giving them the benefit of doubt as they had no control over the manufacturing activities.

Conclusion:
The appeals were disposed of with adjustments to the duty and penalties based on the findings and observations of the Tribunal. The original authority was directed to reassess the duty liability, and penalties on suppliers were annulled.

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