2017 (5) TMI 39 - AT - Central Excise

Manufacture of garments - deemed duty paid - Benefit of N/N. 15/2002-CE dated 01.03.2002 - denial on the ground that the fabric which has been used in the manufacturing of garments has not suffered duty, as the same is exempt, therefore, no duty has been paid on the inputs - Held that - the appellant is manufacturing knitted garments from the knitted fabrics and Notification No. 15/2002 prescribed nil rate of duty if cenvat credit was not availed on knitted fabrics. Knitted fabrics is also exempt from payment of duty, therefore, in view of the explanation to the notification for the benefit of said notification, the fabrics shall deemed to have been duty paid even without production of documents evidencing payment of duty thereon - benefit of notification allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against denial of benefit of Notification No. 15/2002-CE dated 01.03.2002 S. No. 14 for manufacturing knitted garments.

Analysis:
1. Issue of Denial of Benefit of Exemption Notification:
The appellant appealed against the denial of the benefit of Notification No. 15/2002-CE dated 01.03.2002 S. No. 14 for manufacturing knitted garments. The appellant claimed that the fabric used in manufacturing the garments had not suffered duty, as it was exempt, thus making them eligible for the exemption notification. The appellant cited the case of M/s Sports & Leisure Apparel Ltd. where the issue was settled in favor of the appellant. The Ld. AR reiterated the findings of the impugned order, leading to a hearing where both sides presented their arguments.

2. Interpretation of Notification and Legal Precedents:
The Tribunal examined the relevant Notification No. 15/2002, which prescribed nil rate of duty if cenvat credit was not availed on knitted fabrics. The Hon'ble Apex Court's judgment in the case of Sports & Leisure Apparel Ltd. was referenced, emphasizing that fabrics used in manufacturing garments were deemed to have been duty paid, even without documentary proof of payment. The legal fiction created by Explanation II of the notification was discussed, highlighting that no duty was required to be paid by manufacturers of knitted garments under certain conditions.

3. Reference to Previous Legal Decisions:
The Tribunal referred to a previous case involving conflicting views, which was resolved by a Larger Bench judgment favoring the assessee. The judgment clarified that the benefit of exemption notification should be available to all such assessees. Additionally, the Tribunal noted that the decision in M/s Dhiren Chemical Industries, which was relied upon in the impugned order, had been considered and settled in favor of the appellant by the Hon'ble Apex Court in the case of M/s Sports & Leisure Apparel Ltd.

4. Decision and Conclusion:
After thorough consideration of the arguments and legal precedents, the Tribunal held that the benefit of exemption Notification No. 15/2002-CE dated 01.03.2002 could not be denied to the appellant. The Tribunal found that the knitted fabrics were deemed to have been duty paid, making the appellant entitled to the exemption. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential relief deemed necessary.

This detailed analysis of the judgment highlights the legal intricacies involved in the interpretation of exemption notifications and the application of legal fictions to determine the duty liability of manufacturers in specific circumstances.