2000 (7) TMI 606 - AT - Central Excise

Summary

Issues Involved:
1. Excisability and dutiability of cotton waste.
2. Invocation of extended period of limitation.
3. Applicability of exemption notifications.
4. Quantum of penalty imposed.

Detailed Analysis:

1. Excisability and Dutiability of Cotton Waste:
The appellants, a 100% Export Oriented Unit (EOU), were engaged in the manufacture of cotton yarn and removed cotton waste to the Domestic Tariff Area (DTA) without paying central excise duty. The central issue was whether cotton waste was a manufactured product and thus subject to excise duty. The Tribunal noted that prior to the 1995-96 Budget, there was no specific mention of cotton waste in the Central Excise Tariff. However, with the introduction of the Finance Bill, 1995, cotton waste was specifically included under Heading No. 52.02, making it an excisable item. The Tribunal referred to the Provisional Collection of Taxes Act, 1931, which gave immediate effect to the imposition of excise duty on cotton waste from 16-3-1995. The Tribunal rejected the appellants' argument that cotton waste was not a manufactured product, citing the Supreme Court's decision in Commissioner of Sales Tax, Bombay v. Bharat Petroleum Corpn. Ltd., which held that cotton waste is a manufactured commodity.

2. Invocation of Extended Period of Limitation:
The Tribunal upheld the invocation of the extended period of limitation, noting that the appellants had not disclosed the clearance of soft cotton waste to the Department. The first show cause notice dated 4-12-1995 covered the period from 1-5-1995 to 31-7-1995, and the second show cause notice dated 22-7-1996 covered the period from 16-3-1995 to 30-4-1995. The Tribunal found that the appellants had failed to furnish a fresh classification list as required under Rule 173B of the Central Excise Rules, 1944, following the changes in the law, and thus the extended period of limitation was rightly invoked.

3. Applicability of Exemption Notifications:
The appellants argued that there was no duty on cotton waste after 31-7-1995 due to an exemption granted vide Notification No. 105/95-C.E., dated 1-8-1995. However, the Tribunal clarified that under Section 5A of the Central Excise Act, 1944, unless specifically provided in any notification, no exemption applies to excisable goods produced or manufactured by a 100% EOU and allowed to be sold in India. Notification No. 2/95-C.E., dated 4-1-1995, provided an exemption from so much of the duty of excise as was in excess of the amount calculated at the rate of 50% of each of the duties of customs. Since the rate of customs duty on the import of cotton waste was 25%, the applicable rate came to 12.5% ad valorem.

4. Quantum of Penalty Imposed:
The Tribunal agreed with the adjudicating authority on the imposition of penalties but considered the facts and circumstances of the case to reduce the penalties. For the show cause notice dated 4-12-1995, the penalty was reduced from Rs. 5 lakh to Rs. 2.5 lakh, and for the show cause notice dated 22-7-1996, the penalty was reduced from Rs. 2.5 lakh to Rs. 1.25 lakh. The rest of the order was confirmed, and the appeals were otherwise rejected.

Conclusion:
The Tribunal upheld the excisability and dutiability of cotton waste, confirmed the invocation of the extended period of limitation, clarified the non-applicability of exemption notifications to 100% EOUs, and reduced the quantum of penalties imposed. The appeals were rejected subject to the reduction in the quantum of penalty.