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Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) whether a trader supplying grey fabrics could be saddled with central excise duty on processed fabrics cleared by the processor without payment of duty; (ii) whether confiscation and penalty were sustainable against the trader who received processed fabrics knowing that duty had not been discharged.
Issue (i): Whether a trader supplying grey fabrics could be saddled with central excise duty on processed fabrics cleared by the processor without payment of duty.
Analysis: The liability to pay duty lies on the person who brings about manufacture. In the case of processed fabrics, the processor is the manufacturer and the trader supplying grey fabrics is not the manufacturer. Notification No. 27/92, dealing with exemption from registration under Rule 174, does not govern the question of duty payment. The trader therefore cannot be fastened with duty merely because the processor cleared the goods without duty.
Conclusion: The duty demand against the respondents was not sustainable and was rightly set aside.
Issue (ii): Whether confiscation and penalty were sustainable against the trader who received processed fabrics knowing that duty had not been discharged.
Analysis: The processed fabrics were received with knowledge that duty had not been paid. That conduct attracted confiscation and also rendered the respondents liable to penalty under Rule 173Q and Rule 209A of the Central Excise Rules, 1944.
Conclusion: Confiscation and penalty were sustainable and the adjudication orders were restored to that extent.
Final Conclusion: The appeal of the revenue succeeded only on the question of penalty, while the finding that no duty was recoverable from the respondents was upheld.
Ratio Decidendi: A trader supplying grey fabrics is not liable for excise duty on processed fabrics manufactured and cleared by the processor, but confiscation and penalty can be sustained if the trader knowingly deals with goods cleared without payment of duty.
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