2014 (5) TMI 642 - AT - Central Excise

Duty demand - Clandestine removal of goods - Artificial segregation of the manufacturing activity - compounded levy in respect of independent processors of textile fabrics - Held that - provisions of Section 3A were inserted w.e.f. 1997 and the appellants were directly covered under the said provisions of Section 3A of the Central Excise Act, 1944 and were liable to pay the Central Excise duty in accordance with the provisions of said Section and the rules made thereunder. On perusal of the said Section 3A, it clearly transpires that the goods which are notified under the said Section are to be levied with the Central Excise duty and the said Central Excise duty shall be collected in accordance with the provisions of this Section. The said Section 3A also starts with non-obstante law. A plain reading of the said Section would indicate that in the case of notified goods, like the goods manufactured by the assessee who is an independent processor, then the duty liability has to be discharged based on the annual production capacity which is required to be determined. Duty liability on the notified goods under Section 3A of Central Excise Act, 1944 has to be worked out as provided thereunder. Since I have already held that the show cause notice is issued on the ground that M/s Super Processors, the main person is independent processor, invoking the provisions of Section 3A would have been more appropriate than invoking the provisions of Section 3 read with Section 11A of Central Excise Act, 1944 against the appellant - entire appeal is allowed in respect of this appellant who is a sole proprietorship firm, on the ground that of non-applicability of the provisions of Section 3 of Central Excise Act, 1944 on the goods notified by the appellant - Decided in favour of assessee.

Summary

Issues involved:
1. Demand of duty against a sole proprietorship firm.
2. Applicability of provisions of Section 3 or 3A of Central Excise Act, 1944.
3. Clandestine manufacture and clearance of goods.

Analysis:

Issue 1: Demand of duty against a sole proprietorship firm
The appeal was directed against an order confirming demand, penalty, and interest on a sole proprietorship firm for allegedly clandestinely manufacturing and clearing goods during a specific period. The adjudicating authority imposed penalties on the firm and its proprietor.

Issue 2: Applicability of provisions of Section 3 or 3A of Central Excise Act, 1944
The main contention revolved around the applicability of Section 3 or 3A of the Central Excise Act, 1944. The appellant's counsel argued that if Section 3A applied, the demand under Section 3 with Section 11A could not be upheld. Reference was made to a Supreme Court case supporting this argument. The Departmental Representative countered, stating that duty liability was correctly confirmed under Section 3 and Section 11A.

Issue 3: Clandestine manufacture and clearance of goods
The lower authorities alleged that the appellant engaged in clandestine manufacturing and clearance of goods. However, the Tribunal analyzed the show cause notice and highlighted that M/s Super Processor, the unit in question, fell under the provisions of Section 3A of the Act. The Tribunal referred to a Supreme Court judgment emphasizing the duty liability on notified goods under Section 3A had to be determined as per the rules. Consequently, the Tribunal allowed the appeal, citing the non-applicability of Section 3 on the goods notified by the appellant.

The judgment set aside the demand of duty based on the non-applicability of Section 3, thereby negating penalties on the firm and its proprietor. The impugned order was overturned, and the appeal was allowed.