Excisable processing by admitted steam use upheld, while penalty was reduced on notice and fairness grounds.

Cotton fabric processing was treated as dutiable where the assessee's own admission showed use of steam in heating dye and wax solution, even though the Department failed to prove use of power. The finding on whether the cloth was coarse or fine was treated as factual and was not disturbed. The levy on merits was therefore maintained. The penalty was, however, reduced because the notice did not specifically set out the steam basis of liability and the surrounding facts justified a more lenient approach.

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Issues: (i) whether the processing of cotton fabrics was carried on with power or steam so as to attract central excise duty, and (ii) whether the penalty imposed required interference and reduction.

Issue (i): whether the processing of cotton fabrics was carried on with power or steam so as to attract central excise duty.

Analysis: The Tribunal rejected the Department's case of use of power, but sustained the levy on the footing that the appellant had admitted use of steam in heating dye and wax solution. The question whether the cloth was coarse or fine was treated as one of fact, and the finding resting on the appellant's own statement to its banker that the cloth was not coarse was held not to suffer from legal error. Though steam was not specifically mentioned in the show-cause notice, the admission regarding use of steam for boiling dye was sufficient to support the finding that processing was done with the aid of steam.

Conclusion: The finding that the fabrics were processed with the aid of steam was upheld and the levy was not disturbed on merits.

Issue (ii): whether the penalty imposed required interference and reduction.

Analysis: Since the Department's case of use of power was not accepted, and the steam basis for liability did not form part of the notice, the Court considered the facts sufficient to warrant a lenient approach on penalty.

Conclusion: The penalty was reduced to Rs. 5,000.

Final Conclusion: The levy on merits was maintained, but the penal component was substantially moderated, resulting in only partial relief to the assessee.

Ratio Decidendi: A finding of excisable processing may rest on an admitted use of steam even if power is not proved, and penalty may be reduced where the liability turns on facts not fully set out in the notice and the circumstances justify leniency.

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