2013 (9) TMI 170 - AT - Central Excise

Tribunal rules demand time-barred, steam use not disqualifying, appeal allowed

M/s National Chemical Versus CCE, Kanpur

The Tribunal, led by Ms. Archana Wadhwa, ruled in favor of the appellant, holding that the demand was time-barred and the use of steam for drying did not ... Benefit of Notification No. 137/77-CE dated 18/6/77 as amended and Notification No. 130/82-CE dated 20/4/82 - Notifications grant exemption to cotton fabrics processed without the aid of power and steam, subject to certain conditions - The appellant s factory was found to be using steam for the purpose of drying of the processed fabrics – Held that:- The use of steam cannot be held to be as used in the dyeing process - Steam is not used for running of any machine for the purpose of dyeing but is admittedly used after the process of dyeing for the purpose of drying the wet fabrics, that too during rainy season only - The denial of notification, in question, is neither justified nor warranted – Decided in favor of Assessee. Limitation – Issue of Show-cause notice issued after 15 years from the date of visit of the Revenue officers - During the search operation, certain processed fabrics were also put to seizure by the officers, which action was challenged before the Hon’ble Allahabad High Court. The High Court only stayed the recovery of duty in respect of such seized fabrics – Held that:- Nothing in the order of the Hon’ble High Court restraining the Revenue from issuing a show cause notice for the past period. As such the Revenue’s stand that they were restrained by the Hon’ble High Court for issuance of the show cause notice during pendency of the writ-petition before the Hon’ble High Court is without any merits and cannot be pressed into services for excluding the intervening period of pendency of writ-petition before the Hon’ble High Court for the purpose of deciding the limitation – Demand is barred by limitation – Decided in favor of Assessee. Issues:1. Claim of exemption under Notification No. 137/77-CE and Notification No. 130/82-CE.2. Seizure of processed fabrics and subsequent demand of duty.3. Barred by limitation - demand raised after 15 years.4. Merits of the case - use of steam in drying process.5. Interpretation of notifications and applicability to the manufacturing process.Claim of Exemption under Notifications:The appellant, engaged in dyeing and water proofing textiles, claimed exemption under Notification No. 137/77-CE and Notification No. 130/82-CE. The issue arose when Central Excise officers found the appellant using steam for drying processed fabrics, potentially disqualifying them from the exemption.Seizure of Processed Fabrics and Demand of Duty:Following the visit and discovery of steam use, a show cause notice was issued proposing duty demand for the period 1981-1983. The lower authorities confirmed a duty demand of Rs. 18,43,033.71 and imposed a penalty of Rs. 19,00,000. The appellant challenged the seizure of fabrics, leading to a High Court order restraining duty recovery during the proceeding.Barred by Limitation - Delay in Demand:The appellant argued that the demand was time-barred, citing a 15-year delay in raising it. The appellant contended that the High Court order only restrained duty recovery on seized goods, not issuance of a show cause notice for the past period.Merits of the Case - Use of Steam in Drying Process:The appellant's advocate argued that steam was used solely for drying after the manufacturing process, not as part of the manufacturing itself. Referring to previous tribunal decisions, the appellant contended that steam use for drying did not disqualify them from the exemption.Interpretation of Notifications and Applicability:The Tribunal analyzed the use of power in the manufacturing process, citing precedents related to hydro-extraction and drying processes. The Tribunal held that drying did not constitute a manufacturing process, thus rejecting the Revenue's argument that steam use in drying disqualified the appellant from the exemption.The Tribunal, led by Ms. Archana Wadhwa, considered the arguments on limitation, steam use in drying textiles, and the interpretation of notifications. Relying on precedents, the Tribunal ruled in favor of the appellant, holding that the demand was indeed time-barred and the use of steam for drying did not disqualify them from the exemption. The judgment emphasized the distinction between manufacturing processes and ancillary activities like drying, ultimately setting aside the impugned orders and allowing the appeal with consequential relief to the appellant.