2001 (11) TMI 559 - AT - Central Excise

Summary

Issues Involved:

1. Classification of yarn under appropriate tariff headings.
2. Validity of evidence relied upon by the adjudicating authority.
3. Burden of proof for classification.
4. Penalty imposed on the assessee and its director.
5. Concession by the appellant on certain duty demands.

Detailed Analysis:

1. Classification of Yarn:
The primary issue revolves around the classification of yarn produced by the appellant. The appellant classified their yarn under Heading 5505, claiming it did not contain polyester staple fibre. The department, however, argued that the yarn should be classified under Heading 5506, as it contained polyester staple fibre. The show cause notice alleged that the appellant misdeclared the yarn's composition, leading to an incorrect tariff classification.

2. Validity of Evidence:
The adjudicating authority initially relied on the Chemical Examiner's report but later dismissed it, opting instead to base his conclusion on his inspection of the suppliers' manufacturing units several years after the relevant period. The authority's reliance on evidence from visits made in 1993, while the disputed period was from February 1988 to August 1990, was considered inappropriate. The adjudicating authority's rejection of the Chemical Examiner's report and reliance on outdated inspections was contested by the appellant.

3. Burden of Proof:
The appellant argued that the department failed to prove the procurement and use of polyester staple fibre of uniform length, which is crucial for classification under Heading 5506. The appellant maintained records indicating that the polyester fibre they purchased was sub-standard and not of uniform length. The Tribunal emphasized that the burden of proof lies with the department to establish that the yarn was manufactured using polyester staple fibre of uniform length, which the department failed to do.

4. Penalty Imposed:
The adjudicating authority imposed a penalty of Rs. 20 lakhs on the assessee and Rs. 5 lakhs on the director under the Central Excise Rules. However, the director's appeal was dismissed as withdrawn under the Kar Vivad Samadhan Scheme (KVSS). The Tribunal, considering the appellant's concession on certain duty demands, reduced the penalty to Rs. 1 lakh and remitted the confiscation.

5. Concession by the Appellant:
During the hearing, the appellant conceded to certain duty demands, specifically Rs. 18,455.64 for blend variation, Rs. 34,072.92 for 100% blend, and Rs. 2,87,465.53 for forged documents. Consequently, the appeal regarding these amounts was dismissed.

Conclusion:
The Tribunal concluded that the department did not discharge its burden of proof regarding the classification of yarn under Heading 5506. The evidence relied upon by the adjudicating authority was deemed insufficient and outdated. The demand related to classification amounting to Rs. 65,36,941/- was decided in favor of the assessee, while the demand of Rs. 6,96,410/- was upheld against the assessee. The penalty was reduced to Rs. 1 lakh, and the confiscation was remitted. The appeal was disposed of with consequential relief to the assessee.