1997 (12) TMI 279 - AT - Central Excise

Summary

Issues:
1. Interpretation of Notification No. 373/86 regarding exemption from excise duty.
2. Application of Chapter X procedure in excise law.
3. Liability of manufacturers for excise duty payment.
4. Imposition of penalties for non-compliance with procedural requirements.

Analysis:
The judgment by the Appellate Tribunal CEGAT, New Delhi involved two appeals with a common question of law and facts. The case revolved around M/s. Orissa Women's Voluntary Services (OWVS) and M/s. Konark Television Ltd. (KTV) entering into an agreement for assembling populated circuit boards (PCBs). OWVS supplied these PCBs to KTV without paying duty, believing that duty was not applicable as certain essential parts had to be fitted at KTV's premises. The Collector of Central Excise held OWVS liable for duty payment, stating that they were actual manufacturers and were not eligible for exemption under Notification No. 373/86 due to non-compliance with Chapter X procedure. Penalties were imposed on both OWVS and KTV.

The argument presented for OWVS was that the PCBs were not marketable as they required additional parts to be fitted at KTV's premises. Even if duty was payable, they contended that the goods were exempt under Notification 373/86 as they were used in the manufacture of television sets within the prescribed size limit. The failure to follow Chapter X procedure was considered a procedural irregularity that should not deny substantive benefits under the law. Various case laws were cited to support this argument.

On behalf of KTV, it was argued that the demand was time-barred, and they were not liable for penalties. They claimed that the department was aware of the PCBs received from OWVS, and there was no intent to evade duty. The failure to issue CT-2 certificates was attributed to a misconception about the requirement, as the raw materials were duly recorded and sent to OWVS.

The Tribunal observed that the PCBs supplied by OWVS were used in the manufacture of television sets, meeting the conditions of the exemption notification. Despite the non-compliance with Chapter X procedure, the substantive benefit of exemption could not be denied if the goods were indeed used as claimed. The Tribunal concluded that OWVS and KTV were not liable to pay duty, considering the factual use of the PCBs in manufacturing TV sets.

Regarding penalties, the Tribunal acknowledged OWVS's status as a voluntary organization focused on social welfare, reducing the penalty imposed on them to a nominal amount of Rs. 5,000. The Tribunal found that penal liability against KTV was not sustainable, given the department's awareness of the PCBs received. In essence, the judgment emphasized the importance of proving the actual use of goods for exemption eligibility and highlighted that procedural irregularities should not override substantive benefits under the law.