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TMI Blog2010 (4) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... ing rise to this appeal are, in brief, as under. 1.1 The appellants having a composite mill, are engaged in the manufacture of cotton/man made blended yarn and fabrics of cotton and man made blended yarn. The fabrics of cotton and blended yarn are chargeable to Central Excise Duty under Heading 5207, 5208, 5511 and 5512 of the Central Excise Tariff. The appellant start from cotton and man made fibre from which the cotton/cotton man made blended yarn is manufactured and thereafter in the same mill, the yarn is woven into grey fabric, which, thereafter, is processed. The appellant were availing full duty exemption in respect of cotton and blended yarn and grey fabrics of cotton/blended yarn under Notification No. 22/96-C.E., dated 23-7-96. The dispute in this case is about the rate of duty on the processed cotton fabrics cleared during the period from October 2002 to February 2003. During the period of dispute, the tariff rate of duty on the woven processed cotton or blended fabric was 24% [16% basic excise duty plus 8% AED (GSI)]. However, exemption Notification No. 14/02-C.E., dated 1-3-02 issued under Section 5A(1) of the Central Excise Act, 1944 (Serial No. 4 of the table ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same within the same factory, the conditions specified in column (5) of the table to the Notification No. 14/02-C.E. for concessional rate of duty on processed fabrics "is intended to be satisfied" if the textile fibre/yarn is duty paid. 1.2 In this case, full duty exemption was availed in respect of cotton yarn and unprocessed cotton fabrics under Notification No. 22/96-C.E., but the appellant cleared the processed fabrics on payment of concessional duty @ 12% ad valorem. Department was, however, of the view that since the appellant have availed full duty exemption on the yarn and the grey fabric and since view of the Hon'ble Supreme Court's judgment in the case of CCE, Vadodara v. Dhiren Chemical Industries reported 2002 (139) E.L.T. 3 (S.C.), the goods in respect of which full duty of exemption have been availed, cannot be said to be the goods on which the appropriate of duty of excise has already been paid, the condition for concessional rate of duty in respect of processed fabrics, as prescribed in the exemption Notification No. 14/02-C.E., is not satisfied and accordingly the appellant would be liable to pay duty at the tariff rate of 24% ad valorem (16%) of basic e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CCE, Vadodara v. Dhiren Chemical Industries (supra), the board's circulars are binding on the Department, that the intention of the Government was to charge duty only at the processed fabric stage and for this reason, under Notification No. 22/96-C.E., the grey manufactured in a composite mill and used captively manufacture of processed fabrics were fully exempt from duty, that the Government's intention to charge duty on the processed fabrics @ 12% Ad valorem is also clear from the explanatory notes to budget proposals in the Budget Bulletin, 2002 published by the Directorate of Publicity and Public Relations, Customs and Central Excise, New Delhi, wherein it has been clarified that Notification No. 14/02-C.E. and 15/02-C.E., both dated 1-3-2002, prescribed effective rate of duty of nil or 12% ad valorem in case of textile fabrics subject to the condition that the goods should have been made from textile yarns or fabrics an which appropriate duty of excise or additional customs duty under Section 3 of the Customs Tariff Act, has been paid and that explanation-II to the notification makes it abundantly clear that all the fabrics and yarns are deemed to be duty paid even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ics alongwith spinning of yarns from fibres and weaving of fabrics within the same factory, and thus manufacturing processed textile fabrics in a continuous process from textile fibres bought from the market would attract excise duty of 12% ad valorem on processed fabrics, that from the language in para 4 of the circular, it is clear that the textile fibres and yarn brought from the market, which are deemed to be duty paid, are the man made fibres and yarns and the same cannot be cotton fibre as cotton being a natural produce is not excisable and cannot be deemed to be duty paid, that since no duty has been paid on the cotton yarn, the condition for concessional rate of duty in processed cotton fabrics cannot be treated as satisfied by applying Explanation VII, that the Tribunal's judgment in the case of CCE, Ludhiana v. Prem industries (supra), which was in respect of processed man made fabrics, is not applicable to the facts of this case, as in this case dispute is respect of rate of duty on the processed cotton fabrics, which have been manufactured in a continuous process starting from cotton while being non-excisable is non-duty paid. 3. We have carefully considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation II to the exemption Notification No. 14/02-C.E. provided that for the purposes of the conditions specified in this notification for duty exemption, textile yarn or fabrics shall be deemed to have been duty paid even without production of documents evidencing the payment of duty thereon. 3.3 Under Section 5A(2A) of the Central Excise Act, 1944, the Central Government may, if it considers it necessary to do so for the purpose of clarifying the scope or applicability of any exemption notification under Section 5A(1) or ad-hoc exemption order issued under Section 5A(2), issue an explanation in such notification or order by notification in the official Gazette, at any time within one year of the issue of the exemption notification under Section 5A(1) or exemption order issued under Section 5A(2) and every such exemption shall have effect as if it had always been the part of such exemption notification or exemption order. By Notification No. 37/2002-C.E., dated 3-7-02, issued under Section 5A(2A) in respect of exemption Notification No. 14/02-C.E., the Central Government added Explanation-VII to this exemption notification, which is as under : "Explanation VII - In this no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table annexed to the notification, regarding duty payment on fibre/yarn/fabrics for concessional rate of duty on the final products specified in Column (2) and (3). 4. As regards the question (1) in para 3.3.2 above, Hon'ble Supreme Court in the case of CCE, Vadodara v. Dhiren Chemical Industries (supra), wherein in paras 2, 3, 4, 5, 6 and 7 has held as under :- "2. The only question that we are concerned with, relates to the correct interpretation to be placed upon the phrase "on which the appropriate amount of duty of excise has already been paid". 3.In the case of Usha Martin the relevant Exemption Notification, so far as is relevant, read thus : "Exemption in goods falling under Item 26-AA(i-a) made from duty-paid material : In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of the notification of the Government of India in the M.F. (D.R.) No. 131/62-C.E., dated 13-6-1962, the Central Government hereby exempts iron or steel products falling under sub-item (i-a) of Item No. 26-AA made from any of the following materials or a combination thereof namely : fresh unused (i) re-rollable scrap 'on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the raw material being an item which was manufactured in India, a rate of excise duty was leviable thereon. On the raw material which had been imported, the appropriate amount of duty had not been paid. It was only if this payment had been made that the exemption notification would be applicable. 5. In our view, the correct interpretation of the said phrase has not been placed in the judgment in the case of Usha Martin. The stress on the word "appropriate" had been mislaid. All that the word "appropriate" in the context means is the correct or the specified rate of excise duty. 6. An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words "has already been paid". For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the "appropriate" or correct rate. Unless the manufacturer has paid, the correct amount of excise duty, he is not entitled to the benefit of the exemption notification. 7. Where the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in obligation which is required to be discharged by an assessee in order to enable him or her to claim the benefit under the notification. The purpose specified therein relates to the condition. The obligation of the assessee prescribed under condition relates to discharge of duty liability. The explanation specifies that even without production of any document evidencing payment of duty, the assessee would be entitled to claim the benefit under the notification. In other words, the explanation absolves the assessee from the primary obligation of an assessee which is otherwise required to be performed while claiming any benefit under a taxing statute and it relates to the proof of payment of duty. It is settled law that it is always for the assessee to establish that he has discharged the liability regarding the payment of duty or tax. Only when this primary burden is discharged, the onus shifts upon the department to establish that the assessee is a defaulter. In case of claim of benefit under the notification in question, however, the executives have made an exception in favour of the assessees claiming benefit under the said notification. The assessee is absolved of such primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interpretation well settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate". After quoting the observations of Lord Asquith in East End Dwellings Co. Ld. v. Finsbury Borough Council reported in 1952 AC 109, 132 to the effect "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imaging as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. ...............The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs", it was ruled that "fiction under Section 18A(9)(b) therefore that failure to send an estimate under Section 18A(3) is to be deemed to be a failure to send a return must mean that all those facts on which alone there could be a failure to send the return must be deemed to exist, and it must accordingly be taken that by reason of this fiction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was observed that by the deeming clause one is not required to treat any imaginary state of affairs as real but to treat the agreements specified and enumerated in sub-section (1) of Section 33 as the agreements relating to restrictive trade practices. It can be said that Parliament after having examined different trade practices, had identified such trade practices which were to be held as the restrictive trade practices for the purposes of the Act. To keep such trade practices beyond controversy in any proceeding, a deeming clause has been introduced in sub-section (1) of Section 33 saying that they should be deemed to be restrictive trade practices and in that background, there was no much scope for argument that although a particular agreement was covered by one or the other clauses of sub-section (1) of Section 33, still it should not amount to an agreement containing conditions which could be held to be restrictive trade practices within the meaning of the Act. Referring to the said deeming clause, it was specifically observed by the Supreme Court that "The legislature by a statute may create a legal fiction saying that something shall be deemed to have been done which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the payment of duty itself. In other words, while claiming the benefit under the notification, the assessee need not produce documentary proof of payment of duty. But if it is shown by the department that the assessee has not paid any duty on the products specified in the conditions, then certainly the claim for benefit under the notification can be denied. 36. The Apex Court, therefore, has clearly ruled that undoubtedly efforts should be to give full effect to the fiction created under a statute. However, in the process of giving full effect to a fiction created under a statute, the Courts and Tribunals are not empowered to create another fiction and thereby extend the benefits of the legal fiction under a statute to a totally different situation. 37. Undoubtedly, the explanation in question creates a fiction about the presumption of payment of the duty for the purpose of condition. It does not enlarge the scope of the condition. However, every presumption is rebuttable. To interpret the fiction created under the explanation to mean that even in case of a product which is subjected to nil rate of duty to be presumed to have been subjected to the payment of duty wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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