2013 (5) TMI 121 - HC - Customs

Pre-deposit of duty - CESTAT directed to deposit Rs. 5 crores against stay order - extended period of limitation - Availing Concessional rate of duty as per Notification No. 23/2003 - Failure on the part of the assessee to disclose use of the imported raw materials in the manufacture of the final product constituted suppression of facts - Held that - The Apex Court in the case of Vanasthali Textiles Industries Ltd. v. Commissioner of Central Excise, Jaipur, Rajasthan - 2007 (10) TMI 303 - SUPREME COURT OF INDIA has held that consumables are the inputs which are used in the manufacturing process but are not identifiable in the final product by reason of the fact that it gets consumed in the manufacturing process. In the present case, since the approximate consumption of imported Selbana is only 0.02%, it may be that the assessee formed a belief that the same was consumable and not a raw material in the manufacture of the final product. Moreover, it is not in dispute that in the present case, the plant, machinery and building belonging to the assessee have already been taken over by the Asset Reconstruction Company (India) Ltd. in the year 2007. Apart from the above, the assessee has also been declared as a sick unit under the Sick Industrial Companies Act, 1985. - Stay granted in full - order of CESTAT modified.

Summary

Issues:
1. Justification of directing appellant to make pre-deposit of duty for entertaining appeal.
2. Whether imported materials were raw materials or consumables in the manufacture of final products.

Analysis:
1. The primary issue in this case revolved around the justification of directing the appellant to make a pre-deposit of duty for entertaining the appeal against the orders-in-original. The appellant, a 100% Export Oriented Unit engaged in manufacturing various yarns, availed the benefit of concessional duty rates under a specific notification. However, the revenue alleged suppression of material facts and demanded duty, leading to a dispute. The CESTAT initially directed a pre-deposit of Rs. 5 crores, which was challenged by the appellant. The High Court set aside the CESTAT's order, emphasizing consideration of financial hardship. Subsequently, the Tribunal confirmed the pre-deposit, prompting the appellant to file the present appeal challenging the order.

2. The second crucial issue pertained to whether the imported materials, Selbana and Katex, were raw materials or consumables in the manufacture of final products. The revenue contended that the appellant's use of these imported materials constituted suppression of facts, justifying the larger period of limitation for demanding duty. However, the appellant argued that these materials were consumables, not raw materials. The Adjudicating Authority upheld the demand by invoking the larger period of limitation. Upon examination, it was found that the imported materials were used as processing aids, not as raw materials. The consumption of these materials was minimal, with Selbana constituting only 0.02% of wool. Citing a Supreme Court precedent, it was established that consumables used in the manufacturing process but not identifiable in the final product could be considered differently. Additionally, the appellant's financial distress, being a sick unit under the Sick Industrial Companies Act, further supported the argument for a waiver of pre-deposit.

In conclusion, the High Court quashed the CESTAT's order, directing a full waiver of pre-deposit due to the highly debatable nature of the issue. The Tribunal was instructed to hear the appeal on merits without insisting on pre-deposit, emphasizing that the observations made were prima facie. The appeal was disposed of with no order as to costs.