2004 (10) TMI 128 - AT - Central Excise

Appellant's Fabric Processing Power Misuse: Duty Demand Upheld, Penalty Imposed

VIMAL TEXTILE MILLS Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II

The Tribunal concluded that the appellant used power in the processing of fabrics, rendering them ineligible for exemption. The amendment introduced by ... Fabrics - Cotton fabrics - Processing - Use of power - Demand - Limitation Issues Involved:1. Use of power in the processing of fabrics.2. Retrospective applicability of Notification No. 35/99-C.E., dated 4-8-1999.3. Invocation of the Proviso to Section 11A (1) of the Central Excise Act for demanding Central Excise duty for the extended period.Issue-Wise Detailed Analysis:1. Use of Power in the Processing of Fabrics:The primary issue was whether the appellant used power in the processing of cotton fabrics. The appellant admitted to using power for various ancillary activities such as using ceiling fans for drying fabrics, motors for drawing water, and stirrers for mixing chemicals. The Larger Bench of the Tribunal in Mathania Fabrics v. CCE, Jaipur held that using power for lifting water and pouring it into bleaching vessels is integrally connected with the processing of fabrics, thus constituting the use of power in the processing. Consequently, the appellant conceded that power was used in the processing of fabrics, making them ineligible for exemption under the relevant notifications.2. Retrospective Applicability of Notification No. 35/99-C.E.:The appellant argued that the amendment introduced by Notification No. 35/99-C.E., which allowed certain ancillary uses of power without disqualifying the exemption, was clarificatory and should apply retrospectively from the date of the original Notification No. 5/99-C.E. The Tribunal rejected this argument, stating that the amendment extended the scope of the deeming provision rather than clarifying an existing ambiguity. The Tribunal cited the Supreme Court's decision in J.K. Cotton Spinning & Weaving Mills Ltd. v. Union of India, which held that a deeming provision is an admission of the non-existence of the fact deemed. Therefore, the Tribunal ruled that the amendment could not be applied retrospectively.3. Invocation of the Proviso to Section 11A (1) for Extended Period:The appellant contended that the demand for duty was time-barred, arguing that they had a bona fide belief that the exemption applied even with the ancillary use of power. The Tribunal found this argument unconvincing, noting that the Supreme Court's decision in CCE, Jaipur v. Rajasthan State Chemical Works had already clarified that using power for ancillary activities constitutes use of power in manufacturing. The Tribunal held that the appellant's failure to disclose the use of power constituted suppression of facts, justifying the invocation of the extended period under Section 11A (1). The Tribunal also distinguished the cases cited by the appellant, noting that they either predated the Supreme Court's ruling or involved different facts.Conclusion:The Tribunal concluded that the appellant used power in the processing of fabrics, making them ineligible for exemption. The amendment introduced by Notification No. 35/99-C.E. was not retrospective. The extended period for demanding duty was applicable due to the appellant's suppression of facts. The Tribunal upheld the demand for duty and imposed a reduced penalty of Rs. 25 lakhs, while allowing deductions towards duty and eligibility for Modvat credit subject to verification.