Court upholds excise duty collection, allows payment via CENVAT credit. Appeal dismissed. Unfavorable outcome for assessee.

The High Court upheld the decision against the appellant, stating that they did collect excise duty and the demanded amount could be paid through CENVAT credit. The appeal was dismissed, and the outcome was unfavorable for the assessee.

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Issues Involved:
1. Interpretation of Notification No.3/2001 CE dated 1.3.2001 for exemption.
2. Alleged contravention of section 11D of the Central Excise Act, 1944.
3. Effect of issuing credit notes on liability to remit duty collected.
4. Appeal against penalty under section 11AC for suppression.
5. Rectification petition dismissal by the Tribunal.

Issue 1: Interpretation of Notification No.3/2001 CE dated 1.3.2001 for exemption
The appellant cleared VSF Yarn without paying duty by claiming exemption under Notification No.3/2001 CE. The notification required duty-paid raw materials without taking CENVAT credit to avail full exemption. The dispute arose when a show cause notice alleged that the appellant collected duty from the seller to compensate for the loss of CENVAT credit on raw materials.

Issue 2: Alleged contravention of section 11D of the Central Excise Act, 1944
The show cause notice was issued for contravening section 11D, which deals with the duty collected but not deposited. The Deputy Commissioner initially dropped proceedings, stating the appellant did not retain any account representing excise duty. However, the Department appealed, and the appellate authority held that issuing credit notes did not absolve the appellant from remitting the collected duty to the department.

Issue 3: Effect of issuing credit notes on liability to remit duty collected
The appellant argued that they did not collect excise duty but only modvat credit, citing a Bombay High Court decision. However, the original authority found that the appellant did collect excise duty equal to the duty paid for raw materials. The authority stated that the duty collected on exempted goods should be deposited as per section 11D, even though credit notes were issued to the sellers.

Issue 4: Appeal against penalty under section 11AC for suppression
The appellate Commissioner imposed a penalty under section 11AC for suppression, which was set aside by the CESTAT in the appeal. The Tribunal upheld the duty demand but dropped the penalty, leading to the appellant filing a petition for rectification, which was dismissed by the Tribunal.

Issue 5: Rectification petition dismissal by the Tribunal
The Tribunal dismissed the rectification petition, leading the appellant to appeal before the High Court. The High Court, after considering the facts and findings, upheld the decision against the appellant, stating that the appellant did collect excise duty and the amount demanded could be paid through CENVAT credit. The appeal was dismissed, and the question was answered against the assessee.

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