Court quashes orders denying excise duty exemption, citing procedural flaws. Matter remitted for reconsideration.

UNITED BLEACHERS LTD. Versus ADDL. DEV. COMMR. FOR HANDLOOMS MINISTRY OF TEXTILES, NEW DELHI

UNITED BLEACHERS LTD. Versus ADDL. DEV. COMMR. FOR HANDLOOMS MINISTRY OF TEXTILES, NEW DELHI - 2019 (368) E.L.T. 601 (Mad.) Issues Involved:
1. Entitlement to exemption from excise duty under Notification No. 11/2001-Central Excise.
2. Definition and recognition of 'independent processor.'
3. Validity of the rejection of the petitioner's application for exemption.
4. Procedural fairness and adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption from Excise Duty under Notification No. 11/2001-Central Excise:

The petitioner, a limited company engaged in textile processing, sought exemption from excise duty under Notification No. 11/2001-Central Excise dated 1-3-2001, which exempts certain excisable goods, including cotton fabrics woven on handlooms and processed by an independent processor. The relevant period for this exemption was 2001-2004. The petitioner claimed entitlement to this exemption, arguing that it operated as an independent processor exclusively processing fabrics.

2. Definition and Recognition of 'Independent Processor':

The term 'independent processor' was defined in the notification as a manufacturer engaged exclusively in processing fabrics with the aid of power, without any proprietary interest in factories engaged in spinning or weaving. The petitioner applied for a certificate confirming its status as an independent processor, submitting supporting documents, including a certificate from the fourth respondent dated 10-9-2001, which recognized the petitioner as an independent processor.

3. Validity of the Rejection of the Petitioner's Application for Exemption:

The petitioner's application was rejected by the first respondent on 18-7-2003, based on a recommendation from the sixth respondent dated 13-2-2003. The sixth respondent's recommendation was influenced by the fact that shareholders of the petitioner company had interests in other textile industries, such as spinning and weaving. The court found that the sixth respondent's reasoning was flawed, as the proprietary interest of individual shareholders in other companies should not affect the petitioner's status as an independent processor. The first respondent's order was deemed cryptic and lacking proper consideration of the petitioner's supporting materials.

4. Procedural Fairness and Adherence to Principles of Natural Justice:

The court emphasized that the first respondent, as the authority empowered to grant the certificate, should have independently assessed the petitioner's claim and provided an opportunity for the petitioner to respond to any adverse findings. The first respondent's acceptance of the sixth respondent's report without giving the petitioner a chance to be heard was a violation of natural justice principles.

Conclusion:

The court quashed the impugned orders of the sixth respondent dated 13-2-2003 and the first respondent dated 18-7-2003. The matter was remitted back to the first respondent for reconsideration. The first respondent was directed to independently apply its mind, taking into account the supporting materials provided by the petitioner, and to pass an order within two months. Until a decision is made and a certificate is issued, the respondents were restrained from demanding excise duty from the petitioner. The writ petition was ordered accordingly, with no order as to costs, and the connected miscellaneous petition was closed.