2005 (8) TMI 217 - AT - Central Excise

Tribunal rules against appellants in duty evasion case, exemption denied under Notification

The Tribunal ruled in favor of the appellants, finding no wilful suppression of facts to evade duty and determining that the extended period for demand ... Demand - Shrink proofing fabrics - Limitation - Suppression of facts - Exemption Issues Involved:1. Whether the appellants have wilfully suppressed facts with intent to evade payment of duty.2. Whether the appellants are entitled to claim the benefit of exemption Notification No. 8/96-C.E. and its successor notifications for the fabrics manufactured by them.3. Whether the appellants manufactured shrink-proof fabrics.4. Whether the appellants are liable to pay the duty demanded by the adjudicating authority.5. Whether the appellants are liable to pay interest and penalty.Detailed Analysis:(i) Wilful Suppression of Facts:The appellants argued that there was no wilful suppression of facts with intent to evade duty. They referred to their letters dated 14-10-96, 29-10-96, 4-2-97, and 18-3-97 to establish their bona fide intentions. They informed the department about setting up a factory and the receipt of machinery but did not update about the commencement of production. They claimed that based on CBEC Circular No. 115/26/96-CX dated 6-4-1995, their fabrics, made from bleached or dyed yarn, were not processed fabrics and thus not liable for duty. They also contended that their production was for export garments, not home consumption. The Tribunal found no evidence of intent to evade duty and ruled that the extended period for demand is not invocable.(ii) Entitlement to Exemption Notification No. 8/96-C.E.:The appellants' fabrics fall under sub-heading 52.15 of Notification No. 8/96-C.E. However, the exemption does not apply to fabrics processed in a factory with facilities for bleaching, dyeing, or printing with the aid of power or steam. The adjudicating officer noted that the appellants had a jigger machine operating with power for desizing, scouring, bleaching, dyeing, and finishing. The Tribunal agreed with the adjudicating authority that the appellants did not meet the conditions for exemption under Notification No. 8/96-C.E.(iii) Manufacture of Shrink-Proof Fabrics:According to Note 3 of Chapter 52, shrinkage proofing amounts to manufacture, making such fabrics liable for duty. The appellants argued that their fabrics had a shrinkage of 3% or more, not qualifying as shrink-proof under CBEC Circular No. 15/110/61-CX dated 27-4-64. However, the adjudicating authority relied on retest reports from the Chief Chemical Examiner, which showed some fabrics had a residual shrinkage of 1.5% or less. The Tribunal upheld the adjudicating authority's findings that duty is payable on fabrics that passed the shrink-proof test.(iv) Liability to Pay Duty:The Tribunal held that the extended period for demand is not applicable, and duty should be confined to the normal period. The appellants claimed that all fabrics were used for export garments, but lacked sufficient evidence. The Tribunal remanded the issue to the jurisdictional Commissioner to allow the appellants to provide evidence of the fabrics' use in export garments. Duty should be demanded only on fabrics not proven to be used in export garments.(v) Liability to Pay Interest and Penalty:The Tribunal found that the appellants had a bona fide belief that no duty was payable and thus, the imposition of a penalty was not justified. Interest liability depends on the final duty quantification after remand.Conclusion:The appeal was disposed of with the Tribunal setting aside the duty demand and remanding the matter to the jurisdictional Commissioner for re-examination of the appellants' claims regarding the use of fabrics in export garments. The Tribunal also ruled that penalties were not justified, and interest would depend on the final duty determination.