Central Excise - Recovery of interest on yarn used in the manufacture of exported fabrics - Regarding - Central Excise - 31/89

Central Excise - Recovery of interest on yarn used in the manufacture of exported fabrics - Regarding Circular No. 31/89 Dated 15-5-1989 [From F. No. 209/14/88-CX.6] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Central Excise - Recovery of interest on yarn used in the manufacture of exported fabrics - Regarding. Doubts have been raised as to whether in respect of export of fabrics under bond under rule 13/14, interest on yarn duty is also payable or not where the manufacturer-exporter is working under rule 49A of the Central Excise Rules, 1944. 2. Earlier the Ministry vide Instructions F. No. 261/18A/3/79-CX.8, dated 24-2-1982 had, inter alia, clarified that in case of exports of cotton fabrics under rule 13, the interest on yarn chargeable under rule 49A was recoverable. Thereafter the CEGAT has, in the case of Collector of Central Excise, Bombay-I v. Century Spinning and Manufacturing Co. Ltd., 1986 (25) E.L.T. 829 (Tribunal), vide its order, dated 25-10-1985, held that the Explanation 2(ii) to rule 13 defining "goods", also includes raw materials used in the manufacture of exported goods. Therefore when fabrics are imported without payment of duty under rule 13, no duty would be payable on the yarn used since such yarn is a raw material for exported fabrics. Since interest under rule 49A of the Central Excise Rules, 1944 is charged as a percentage of yarn duty, this interest would also be nil in view of the fact that no duty is recoverable on yarn in such cases. 3. This decision of the CEGAT has been accepted by the Ministry. Ministry's Instructions dated 24-2-1982 referred to above are therefore withdrawn. 4. It is however clarified that in case the fabrics which are initially cleared for export under bond are subsequently diverted for home consumption, not on, the duty on such fabrics and yarn would be recoverable but also the interest on the yarn duty, (in case the manufacturer is working under rule 49A) would be recoverable. 5. Field formations may be suitably advised.