2000 (8) TMI 606 - AT - Central Excise

Summary

Issues Involved:
1. Classification of special yarn
2. Applicability of Notification No. 318/86-C.E.
3. Allegation of mis-declaration
4. Demand of Central Excise duty
5. Imposition of penalty and redemption fine
6. Issue of limitation

Issue-Wise Detailed Analysis:

1. Classification of Special Yarn:
The core issue was the classification of special yarn manufactured by the appellants on the imported Saurer Allma ring twisting machine. The yarn was alleged to be classifiable under Heading No. 56.06 of the Central Excise Tariff, while the appellants claimed exemption under Notification No. 318/86-C.E. The adjudicating authority found that the special finished yarn had a core yarn around which other yarns were wound spirally, fitting the description under Heading No. 56.06. Various test reports confirmed the presence of a core yarn, supporting the classification as special yarn.

2. Applicability of Notification No. 318/86-C.E.:
The appellants argued that their yarn was doubled/multifold yarn exempted under Notification No. 318/86-C.E., which exempted yarn doubled or multifold falling within Chapter 54 or 55 from excise duty. However, the adjudicating authority concluded that the yarn in question did not qualify for this exemption as it was not merely doubled or multifold yarn but a special yarn with a core, thus falling under Heading No. 56.06.

3. Allegation of Mis-Declaration:
The appellants were accused of mis-declaring the special finished yarn as normally constructed doubled/multifolded yarn to evade duty. The adjudicating authority found that the appellants had not sought approval for the assumed classification and had misdeclared the yarn to avoid excise duty. The yarn was initially treated as special yarn and duty was paid, but subsequently, the appellants stopped paying duty by misclassifying the yarn.

4. Demand of Central Excise Duty:
The adjudicating authority confirmed the demand of Rs. 66,88,657/- out of the total demand of Rs. 1,03,24,167/-, providing relief for Rs. 36,35,510/-. The demand was confined to the yarn manufactured on the Saurer Allma Machine, as agreed by the appellants. The demand for the months of July 1988 and August 1989 was set aside due to the limitation period, as the show cause notices were issued after six months.

5. Imposition of Penalty and Redemption Fine:
A penalty of Rs. 3 lakhs was imposed on the appellants, which was later reduced to Rs. 2.5 lakhs. A redemption fine of Rs. 50,000/- was imposed in lieu of confiscation of the Saurer Allma machine used in the manufacture of the disputed yarn. The reduction in penalty was due to the setting aside of the demand for certain months based on the limitation period.

6. Issue of Limitation:
The issue of limitation was crucial in determining the validity of the demands. The adjudicating authority concluded that the demands for July 1988 and August 1989 were time-barred as the show cause notices were issued beyond the six-month period. However, the demand for the period from 1-3-1986 to 31-12-1987 was upheld as it was issued by the Collector of Central Excise with allegations of willful misstatement.

Conclusion:
The appeal was rejected except for the reduction in penalty and setting aside of the demand for the months of July 1988 and August 1989. The classification of the special yarn under Heading No. 56.06 was upheld, and the demand for central excise duty was confirmed for the yarn manufactured on the Saurer Allma Machine. The penalty was reduced from Rs. 3 lakhs to Rs. 2.5 lakhs, and the redemption fine of Rs. 50,000/- was maintained.