1996 (11) TMI 269 - AT - Central Excise

Issues involved:
1. Use of electrically operated high-speed stirrer for preparation of water proofing/water repelling paste.
2. Eligibility for exemption under Notifications 180/82, 54/87, 111/87, and 48/90.
3. Applicability of extended period of limitation for duty demand.

Issue-wise detailed analysis:

1. Use of electrically operated high-speed stirrer for preparation of water proofing/water repelling paste:

The primary contention by the appellants was that the electrically operated high-speed stirrer was not used for the preparation of water proofing/water repelling paste. The appellants argued that the high-speed stirrer was acquired for an experimental process to develop dual shade fabric, which was not successful and thus, the stirrer was not used for regular production. The Tribunal examined the evidence, including statements from employees and experts, and concluded that the high-speed stirrer was indeed not used in the preparation of water proofing/water repelling paste. The Tribunal noted that the stirrer was used for achieving desired color shades and not for the manufacturing process of the fabrics in question. Therefore, the Tribunal held that the high-speed stirrer operated by electric motor was not used by the appellants in their factory for stirring chemicals evenly for preparation of paste in the course of production/manufacture of processed cotton fabrics. Consequently, the fabrics processed were eligible for the benefit of total exemption from duty under the relevant notifications.

2. Eligibility for exemption under Notifications 180/82, 54/87, 111/87, and 48/90:

Given the finding that the high-speed stirrer was not used in the preparation of water proofing/water repelling paste, the Tribunal held that the appellants were entitled to the benefit of the exemption notifications. The Tribunal emphasized that the processes carried out by the appellants, including dyeing, squeezing, drying, and application of water proofing chemicals, were conducted manually or without the aid of power. Therefore, the water proofed/water repelled fabrics were eligible for the total exemption from duty under the provisions of Notifications 180/82, 54/87, 111/87, and 48/90.

3. Applicability of extended period of limitation for duty demand:

The Tribunal examined whether the extended period of limitation under Section 11A(1) was applicable. The appellants argued that they had filed declarations regularly and that any non-declaration of the use of the power-operated stirrer was based on a bona fide belief that the fabrics processed were not liable to duty. The Tribunal noted the judgment of the Hon'ble Gujarat High Court in the case of Nirma Chemical Works, which held that if any process carried on with the aid of power does not bring about any change in the raw material, it cannot be said that any process in or in relation to the manufacture of an article has been carried on with the aid of power. The Tribunal found that the appellants' belief was bona fide and based on this judgment. Therefore, the non-declaration did not amount to suppression or wilful misstatement with intent to evade payment of duty. Consequently, the Tribunal held that the demand was barred by limitation.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order. It was concluded that the appellants did not use the power-operated stirrer for the preparation of water proofing/water repelling paste, were eligible for exemption under the relevant notifications, and the demand was barred by limitation due to a bona fide belief based on existing legal precedents.

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