2021 (11) TMI 654 - AT - Central Excise

Tribunal Allows Appeal, Clarifies No Immunity under Customs Act

M/s. Lavino Kapur Cottons Pvt. Ltd. Versus Commissioner of CGST, Palghar

M/s. Lavino Kapur Cottons Pvt. Ltd. Versus Commissioner of CGST, Palghar - TMI Issues Involved:1. Levy of Central Excise Duty on 'cotton waste.'2. Applicability of the decision in the case of C.T. Cotton Yarn Ltd.3. Requirement of permission from the Development Commissioner for DTA sales.4. Applicability of Section 3(1) and its proviso of the Central Excise Act, 1944.5. Invocation of extended period of limitation.6. Demand of duty under Section 11A of the Central Excise Act, 1944.7. Imposition of penalties and interest.Issue-wise Detailed Analysis:1. Levy of Central Excise Duty on 'cotton waste':The core dispute revolves around the levy of Central Excise Duty on 'cotton waste' generated during the manufacture of absorbent cotton. The Tribunal had previously remanded the matter for reconsideration in light of the C.T. Cotton case, which held that obtaining soft cotton waste during carding and combing does not amount to manufacture as no new product with distinct name, usage, and character emerges.2. Applicability of the decision in the case of C.T. Cotton Yarn Ltd.:The Commissioner distinguished the C.T. Cotton case, stating it dealt with cotton waste from indigenously procured cotton, whereas the current case involves imported comber noils. The Tribunal found this distinction irrelevant, emphasizing that the source of raw material does not determine whether a process amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.3. Requirement of permission from the Development Commissioner for DTA sales:The Commissioner argued that permission from the Development Commissioner was mandatory for availing exemption under Notifications No. 6/97-CE and 23/2003-CE. The Tribunal disagreed, noting that the failure to obtain permission does not change the fact that cotton waste is not a manufactured product and thus not subject to excise duty.4. Applicability of Section 3(1) and its proviso of the Central Excise Act, 1944:The Tribunal clarified that the proviso to Section 3(1) applies only to excisable goods produced or manufactured in India. Since cotton waste is not a manufactured product, the proviso cannot be invoked. The Tribunal referred to the Supreme Court's decision in Sarla Performance Fibre, which distinguished between duties on finished goods and inputs at the time of debonding.5. Invocation of extended period of limitation:The Tribunal did not delve into the issue of limitation, as it found the demand for duty itself unsustainable on merits. The appellant had disclosed all relevant facts, and the extended period could not be invoked due to the absence of suppression or intent to evade duty.6. Demand of duty under Section 11A of the Central Excise Act, 1944:The Tribunal found that Section 11A could only be used for recovering 'duty of excise.' Since the demand was for customs duty on excess waste generated, the correct provision should have been Section 28 of the Customs Act, 1962. The Tribunal emphasized that the show cause notices were issued under the Central Excise Act, making the demand unsustainable.7. Imposition of penalties and interest:Given that the demand for duty was set aside, the Tribunal also set aside the demands for interest and penalties. The Tribunal highlighted that penalties could not be imposed when the primary demand itself was invalid.Conclusion:The Tribunal set aside the impugned order, allowing the appeal. It clarified that its decision should not be construed as granting immunity from any demands under the Customs Act, 1962, for violations of notifications or provisions of the Foreign Trade Policy. Any recovery under the Customs Act would need to be considered independently.