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2013 (1) TMI 249 - AT - Central ExciseManufacture Clearance to DTA - Appellant are a 100% EOU engaged in manufacture of 100% cotton yarn - Under Chapter heading 52.05 - Soft waste arises at carding and combing stage, which was being cleared by the appellant to DTA without payment of duty - Whether DTA clearances of soft cotton waste by 100% EOU would attract duty in terms of proviso to Section 3 (1) of Central Excise Act, 1944 read-with exemption Notification No. 2/95-CE Held that - The obtaining soft cotton waste, in course of carding and combing of ginned cotton does not amount to manufacture and no new product with distinct name, usages and character emerges more so when the Department has not led any evidence in this regard. In the decision in case of AHMEDABAD ELECTRICITY CO. LTD. (2003 (10) TMI 47 - SUPREME COURT OF INDIA) that the onus to show that particular goods on which excise duty is sought to be levied have gone through the process of manufacture in India is on the Revenue. In favour of assessee Extended period of limitation Held that - In Show Cause Notices department had sought clarification as to whether DTA clearances of soft cotton waste would attract duty. It is absolutely clear that the Department was aware of the fact about emergence of soft cotton waste in course of manufacture of cotton yarn from ginned cotton and clearance of soft cotton waste into DTA. Department with changes in tariff structure of Chapter 52 by introducing a new heading 5202 for cotton waste w.e.f. 16/3/95, the position with regard to duty on DTA clearance of soft cotton waste changed, the department should have advised the appellant accordingly and even if it is held that w.e.f. 16/3/95 the DTA clearance of soft cotton waste attracted duty, the non-payment of duty cannot be attributed to fraud, willful misstatement, suppression of facts on contravention of provision of Rules with intent to evade the payment of duty. We, therefore, hold that in respect of both the show cause notices only normal limitation period would be available. In favour of assessee
Issues Involved
1. Whether soft cotton waste generated during the manufacturing process is a manufactured product subject to central excise duty. 2. Applicability of the extended period of limitation for the demand of duty. Detailed Analysis 1. Whether Soft Cotton Waste is a Manufactured Product Subject to Central Excise Duty Facts and Background: The appellant, a 100% Export Oriented Unit (EOU), engaged in manufacturing 100% cotton yarn, cleared soft cotton waste to the Domestic Tariff Area (DTA) without paying duty. The Department argued that soft cotton waste became excisable from 16/3/95 and issued two show cause notices demanding duty and imposing penalties. Tribunal's Initial Decision: The Tribunal initially upheld the Commissioner's order, confirming the duty demands and penalties but reduced the penalty amount. Supreme Court's Remand: The Supreme Court remanded the case to the Tribunal to determine if the process of generating cotton waste during yarn manufacturing constitutes 'manufacture.' Tribunal's Denovo Decision: The Tribunal held that soft cotton waste is not a manufactured item, being merely a residue from separating unusable material from cotton. Supreme Court's Second Remand: The Supreme Court set aside the Tribunal's order again, directing fresh consideration of whether soft cotton waste is a manufactured product attracting duty, referencing the case of Commissioner of Sales Tax, Bombay vs. Bharat Petroleum Corporation Ltd. Final Tribunal Decision: The Tribunal concluded that soft cotton waste is not a manufactured product. It reasoned that: - Soft cotton waste consists of short fibers and other waste material obtained during carding and combing of ginned cotton. - The Department failed to show that soft cotton waste is commercially distinct from cotton with different character and usages. - The inclusion of cotton waste under tariff heading 5202 does not automatically make it excisable, as per the Supreme Court's judgment in CCE, Chandigarh vs. Markfed Vanaspati and Allied Industries. - Referencing the Supreme Court's judgment in Krishi Utpadan Mandi Samiti vs. Ganga Dal Mills & Co., the Tribunal found that cotton waste is essentially inferior quality cotton and not a new product resulting from manufacture. 2. Applicability of the Extended Period of Limitation Show Cause Notices and Periods: - The first show cause notice dated 4/12/95 covered the period from 1/5/95 to 31/7/95. - The second show cause notice dated 22/7/96 covered the period from 16/3/95 to 30/4/95. Tribunal's Decision on Limitation: - The normal limitation period was six months, while the extended period of five years under proviso to Section 11A (1) required proof of fraud, willful misstatement, suppression of facts, or contravention of provisions with intent to evade duty. - The first show cause notice did not invoke the proviso to Section 11A (1) and lacked allegations of fraud or suppression. - The appellant had informed the Department about the clearance of cotton waste, and the Department had clarified that DTA clearance of soft cotton waste would not attract duty if only indigenous cotton was used. - Given the Department's awareness and the appellant's compliance with previous clarifications, the Tribunal held that the extended period could not be invoked. Thus, the demands in both show cause notices were largely time-barred. Conclusion The Tribunal set aside the impugned order confirming duty demands and penalties, ruling that: - Soft cotton waste is not a manufactured product and thus not subject to excise duty. - The extended period of limitation was inapplicable, rendering the duty demands time-barred. The appeals were allowed.
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