1999 (10) TMI 122 - AT - Central Excise

Tribunal Upholds Duty Demand, Sets Aside Penalties on Appellants

The Tribunal confirmed the duty demand on M/s. Super Poly Fabrics but set aside the penalties imposed on both appellants. The order was upheld with ... Exemption under small scale industry notification and slab limit - job work and captive manufacture - classification of intermediate goods and liability to duty - interpretation of benefit-extension notifications (Notification Nos. 83/94 and 84/94) vis-a-vis principal notification - penalty-misapprehension of law versus deliberate evasionJob work and captive manufacture - classification of intermediate goods and liability to duty - interpretation of benefit-extension notifications (Notification Nos. 83/94 and 84/94) vis-a-vis principal notification - Validity of duty demand on Super Polyfabriks Ltd. in respect of plastic strips emerging at an intermediate stage during job work - HELD THAT: - The Tribunal rejected the appellants' contention that the slabs-based exemption under the principal notification continued to exclude intermediate clearances by a job-worker and that Notification Nos. 83/94 and 84/94 extended the captive-consumption concept to cover intermediate products arising out of job work. The Dukart majority decision, relied upon by the appellants, dealt with computation of aggregate value of specified goods captively consumed within the factory of production of inputs and did not concern clearances by job-workers; its ratio could not be extended to the distinct context of notifications 83/94 and 84/94. The Tribunal accepted the Department's construction that where a different commercially identifiable item (plastic strip) comes into existence at an intermediate stage and is not covered by the specified goods under the exemption notification, duty is exigible on that intermediate item under the rules. The impugned orders were found to correctly construe the limited scope of the definition of 'job work' in the extension notifications and to sustain the duty demand on the job-worker (Super Polyfabriks). [Paras 8, 10]Duty demand confirmed against M/s. Super Polyfabriks Ltd. in respect of plastic strips manufactured at the intermediate stage; impugned order otherwise upheld.Penalty-misapprehension of law versus deliberate evasion - Sustainability of penalties imposed on the appellants for alleged non-payment of duty - HELD THAT: - The Tribunal found that the original order offered no detailed reasons for imposing penalties beyond stating that duty had not been paid 'in the guise of job work' and invoking that intent to evade need not be proved under fiscal statutes. The appellants had contested the demand on a bona fide legal interpretation, consistently asserting that emergence of strips was an inevitable consequence of the process. The Tribunal held that where non-payment arises from a contested legal position or a mistaken view about availability of an exemption, imposition of penalty is not appropriate. On that basis the penalties imposed on both appellants were set aside. [Paras 9]Penalties imposed on both appellants quashed.Final Conclusion: The Tribunal confirmed the duty demand on Super Polyfabriks Ltd. in respect of intermediate plastic strips, but set aside the penalties imposed on both appellants; appeals disposed accordingly. Issues:Interpretation of Notification No. 1/93 and its application to job work basis manufacturing.Detailed Analysis:The case involved two appellants, M/s. Super Poly Fabrics Ltd. and M/s. Fine Fabricators, both manufacturers of HDPE bags and sacks under Chapter Heading 39 of the Central Excise Tariff Act, 1985, who availed the benefit of SSI exemption Notification No. 1/93. The dispute arose when the Department issued a show cause notice proposing a duty demand on the grounds that plastic strips emerged during the manufacturing process, which were not covered under the exemption notification. The Additional Collector confirmed the duty demand, and penalties were imposed on the appellants, leading to the present appeals challenging the order.The appellants argued that the exemption under Notification No. 1/93 should apply only after crossing the exemption limit of Rs. 30 lakhs for final products cleared, excluding clearances for captive consumption. They contended that the intention of the notification was to extend the exemption to inputs captively consumed in the manufacturing process. Additionally, they highlighted that the job work basis under Notification No. 83/94 aimed to extend the exemption facility to job workers' premises. The appellants emphasized that the demand should be against the supplier of the granules if plastic strips were considered dutiable products.On the other hand, the Department asserted that duty should be paid on plastic strips manufactured during the intermediate stage, as they were not covered under the specified goods of Notification No. 1/93. The Department argued that the job work was limited to processing or finishing the material supplied and did not include manufacturing activities on behalf of the raw material supplier. It was contended that the appellants, as job workers, were liable to pay excise duty on the plastic strips consumed during the manufacturing process.The Tribunal rejected the appellants' contentions, stating that the exemption under Notification No. 1/93 could not be extended to intermediate goods manufactured during job work. The Tribunal upheld the duty demand on M/s. Super Poly Fabrics. However, regarding the penalties imposed, the Tribunal found that they were not warranted as the appellants had contested the duty demand on legal grounds, and therefore, set aside the penalties.In conclusion, the Tribunal confirmed the duty demand on M/s. Super Poly Fabrics but set aside the penalties imposed on both appellants. The impugned order was upheld with the modifications related to the penalties, and the appeals were disposed of accordingly.