Central excise duty deferment in a composite mill did not justify penalty where payment stage was uncertain.

Penalty for deferment of central excise duty in a composite mill was found unsustainable because the duty position at the yarn stage was uncertain and the same yarn could be used for home-consumption or export clearances. The contemporaneous trade notice recognised payment on yarn used in grey fabrics according to the existing procedure and internal records, showing practical difficulty and confusion about the correct stage of payment. Although the violation could attract penalty under the excise penalty provision, the reduced penalty was not maintained and was set aside.

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Issues: Whether penalty was imposable for deferment of central excise duty in the circumstances of a composite mill manufacturing yarn and grey fabrics.

Analysis: The appellant's manufacturing process involved spinning and weaving in a composite mill, and the duty position at the yarn stage was uncertain because the same yarn could ultimately be used for goods cleared for home consumption or for export. The contemporaneous trade notice also recognised that a composite mill clearing grey fabrics would discharge duty on yarn used in such fabrics on the basis of existing procedure and internal records. In these facts, the deferment of duty payment was treated as arising from practical difficulty and confusion regarding the correct stage of payment. Although violation could attract penalty under the excise penalty provision, the circumstances did not warrant maintaining the reduced penalty.

Conclusion: Penalty was held not sustainable and was set aside in favour of the assessee.

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