2000 (5) TMI 378 - AT - Central Excise

Issues Involved:
1. Classification and applicability of excise duty on the conversion of hank yarn to cone yarn.
2. Validity of invoking the extended period of limitation for demand of duty.
3. Applicability of mandatory penalty and interest under Sections 11AC and 11AB of the Central Excise Act, 1944.
4. Eligibility for abatement of duty content and Modvat credit.

Issue-wise Detailed Analysis:

1. Classification and Applicability of Excise Duty:
The core issue was whether the conversion of hank yarn to cone yarn constituted "manufacture" under Note 3 of Chapter 51 of the Central Excise Tariff. The Tribunal held that converting hank yarn to cone yarn amounted to manufacture, making it dutiable. The adjudicating authority had confirmed this classification, asserting that the process employed by the noticees for conversion of yarn received in hank form into yarn in the form of cones amounted to the process of manufacture and the duty of Central Excise was chargeable on such conversion.

2. Validity of Invoking the Extended Period of Limitation:
The Tribunal found that the extended period of limitation was not applicable. The noticees were registered with the Central Excise Department, maintained statutory records, and filed regular returns. The Tribunal noted that there was no suppression of facts or intent to evade duty. The noticees had a bona fide belief, supported by Trade Notice No. 10-C.E./95 and Notification No. 35/95-CE, that the conversion process did not attract duty. The Tribunal referenced several judgments, including CCE v. Chemphar Drugs & Liniments and Padmini Products v. CCE, to support the decision that mere inaction or failure to pay duty does not justify invoking the extended period of limitation.

3. Applicability of Mandatory Penalty and Interest:
The Tribunal held that mandatory penalty under Section 11AC and interest under Section 11AB were not applicable as these provisions were effective from 28-9-1996, and the disputed period was prior to this date. The Tribunal cited legal precedents that penalty provisions are quasi-criminal and cannot be applied retrospectively unless explicitly stated by the legislature. The Tribunal agreed with the adjudicating authority that no interest was payable as the provisions were not in force during the period in dispute.

4. Eligibility for Abatement of Duty Content and Modvat Credit:
The Tribunal accepted the noticees' plea for treating their prices as cum-duty prices, in line with the decision in Sri Chakra Tyres Ltd. v. CCE, where excise duty subsequently determined should be abated from the total sale price realization. The Tribunal also agreed that the benefit of Modvat credit should be extended to the noticees, subject to verification. This was supported by previous Tribunal decisions in Elgi Equipments Ltd. v. CCE and Dalmia Indus. Ltd. v. CCE.

Conclusion:
The Tribunal concluded that the demands should be restricted to the normal period of limitation, and the benefits of treating prices as cum-duty prices and Modvat credit should be extended to the noticees. The penalties imposed were set aside, and no interest under Section 11AB was chargeable. The appeals filed by the noticees were disposed of in these terms, and the appeals filed by the Revenue were dismissed.

← Previous Next →