1997 (12) TMI 198 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 269/86 for concessional rate of duty.
2. Allegation of using non-specified inputs in the manufacturing process.
3. Application of extended period of limitation.
4. Justification for penalty imposition.

Interpretation of Notification No. 269/86:
The case involved the appellants manufacturing Celluloid Nitrate Sheets under Chapter sub-heading 3920.32 and claiming a concessional rate of duty under Notification No. 269/86. The dispute arose as the Department alleged that the raw material was non-duty paid due to the appellants taking credit of duty paid on the inputs. The show cause notice proposed recovery of differential duty and penalty based on this allegation. The Collector accepted that inputs do not become non-duty paid if credit is taken but confirmed the demand on the grounds of using non-specified materials alongside the specified ones. The appellants argued that the notification did not require the final product to be exclusively made from specified materials and cited a relevant Tribunal order to support their contention.

Allegation of using non-specified inputs:
The Department contended that the benefit of Notification 269/86 was rightly denied as the final product must be produced out of goods falling under specific headings, and since the appellants used other materials not specified in the notification, the benefit was correctly denied. The extended period of limitation was also invoked as the appellants did not disclose the use of inputs falling outside the specified headings during the relevant period. The Department argued that the demand was confirmed based on the conditions of the notification and not on a different ground than alleged in the show cause notice.

Application of extended period of limitation:
The appellants maintained that they had disclosed all relevant information through a Modvat declaration, which included the use of inputs falling under Chapter 29 alongside the specified inputs. They argued that the combined reading of the classification list and the Modvat declaration should establish their eligibility for the notification's benefit. The Tribunal found that the extended period of limitation was not applicable as the appellants had disclosed the necessary information to the Department.

Justification for penalty imposition:
The Tribunal analyzed the show cause notice and the impugned order, concluding that the demand and penalty were not sustainable. The order was set aside as the charge in the notice differed from the ground on which the demand was confirmed. The Tribunal also referenced a previous case to support the view that products made from both specified and non-specified inputs could still be eligible for the notification's benefit. The Vice President, while concurring with the decision, highlighted the importance of considering technological necessity and the unsubstantiated nature of the Department's case on merits.

In conclusion, the Tribunal ruled in favor of the appellants, setting aside the demand for duty and penalty. The decision was based on the interpretation of the notification, the use of non-specified inputs, the application of the extended period of limitation, and the lack of substantiation for penalty imposition. The judgment emphasized the need for clarity in allegations raised in show cause notices and the importance of considering technological aspects in such cases.