100% EOU wins exemption for Open End Yarn made from cotton waste under Notifications 8/97-CE and 23/2003-CE

The CESTAT Ahmedabad ruled in favor of a 100% EOU appellant regarding exemption eligibility for Open End Yarn under Notifications 8/97-CE and 23/2003-CE. The revenue denied exemption claiming the yarn was manufactured from imported raw cotton. However, the tribunal found that Open End Yarn was manufactured from cotton waste generated during Ring Spun Yarn production, not directly from imported cotton. Since cotton waste was produced in India, it qualified as indigenous raw material under the notifications. The tribunal relied on SC precedent in Favourite Industries establishing that goods manufactured in EOU are considered manufactured in India. Additionally, the demand was time-barred as the department had full knowledge of appellant's activities without raising objections, negating suppression of facts. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Eligibility for benefit of exemption under Notification No. 8/97-CE and Notification No. 23/2003-CE.
2. Invocation of extended period of limitation for demand of duty.

Summary:

Issue 1: Eligibility for Exemption under Notification No. 8/97-CE and Notification No. 23/2003-CE
The appellant, a 100% Export Oriented Unit (EOU), engaged in the manufacture of ring spun cotton yarn, claimed the benefit of concessional duty rates under Notification No. 8/97-CE and Notification No. 23/2003-CE for their clearances to the Domestic Tariff Area (DTA). Both notifications stipulated that the goods cleared in DTA must be manufactured wholly from indigenous raw materials. The appellant contended that the open end cotton yarn cleared to DTA was manufactured from cotton waste generated during the production of ring spun yarn, which was produced in India. The Tribunal found that the cotton waste used to manufacture open end yarn was indeed produced in India, thus satisfying the condition of the notifications. The Tribunal also noted that cotton waste is a distinct commercial commodity and should be considered as raw material produced in India. Therefore, the appellant was eligible for the benefit of the said notifications.

Issue 2: Invocation of Extended Period of Limitation
The appellant argued that there was no suppression of facts or mis-statement on their part, and hence, the extended period of limitation could not be invoked. The Tribunal observed that the appellant's unit was under physical control, and all necessary details regarding DTA clearances were available to the department through returns and invoices. The Tribunal referred to various judgments, including those of the Supreme Court and High Courts, which held that extended period of limitation cannot be invoked in the absence of fraud, collusion, wilful mis-statement, or suppression of facts. The Tribunal concluded that the department was fully aware of the appellant's activities and had not raised any objections at the relevant time. Therefore, the demand for the extended period was not sustainable.

Conclusion:
The Tribunal set aside the impugned order, holding that the demand of duty was not sustainable on merit as well as on limitation. The appeal filed by the appellant was allowed with consequential relief as per the law.

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