Steam-aided cotton fabric processing lost exemption; duty and Rule 9(2) demand were sustained on the record.

Processing of cotton fabrics with admitted steam was held to satisfy the requirement of manufacture with the aid of steam, while use of power was not proved. The exemption under Notification No. 128/70-CE did not apply, and relaxation under Notification No. 193/72-CE was also unavailable for the further processed dyed fabrics, so duty remained payable. On classification, the evidence supported processing of canvas and duck cotton fabrics under Tariff Item 19-I(1), and the alternative classification was not established. The demand was sustained under Rule 9(2) because the facts showed non-compliance with excise procedure and clandestine removal, and limitation was rejected.

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Issues: (i) whether the appellants processed the cotton fabrics with the aid of power and/or steam; (ii) whether duty was payable where steam was used in the processing; (iii) whether the goods processed were fabrics falling under Tariff Item 19-I(1), Tariff Item 19-I(2), or both; and (iv) whether the demand was time-barred and whether Rule 9(2) of the Central Excise Rules, 1944 was applicable.

Issue (i): whether the appellants processed the cotton fabrics with the aid of power and/or steam.

Analysis: The available evidence did not conclusively establish use of power by the appellants, and the circumstances relating to the seized motors were insufficient to displace their explanation. However, the record showed that steam was admittedly used for heating the colour and wax solutions, and that heating of the dye bath and wax solution formed part of the processing operations.

Conclusion: The use of power was not proved, but the processing with the aid of steam was established.

Issue (ii): whether duty was payable where steam was used in the processing.

Analysis: The exemption under Notification No. 128/70-CE did not extend to processing carried out with the aid of steam in the manner undertaken by the appellants. For fabrics under Tariff Item 19-I(2), the relaxation under Notification No. 193/72-CE was also unavailable because the dyed fabrics were subjected to further processing, including padding, with steam. The processing therefore remained dutiable.

Conclusion: Duty was payable on the processed fabrics notwithstanding the use of steam.

Issue (iii): whether the goods processed were fabrics falling under Tariff Item 19-I(1), Tariff Item 19-I(2), or both.

Analysis: The appellants' own declarations, stock statements, bank records, and seized registers supported the conclusion that canvas and duck cotton fabrics were processed. The claim that the relevant goods were not canvas or that the fabrics fell only under Tariff Item 19-I(2) was not supported by reliable records. The charge of processing canvas and duck fabrics was therefore established.

Conclusion: The appellants processed canvas and duck cotton fabrics falling under Tariff Item 19-I(1), and the claimed alternative classification was not proved.

Issue (iv): whether the demand was time-barred and whether Rule 9(2) of the Central Excise Rules, 1944 was applicable.

Analysis: The demand was raised under Rule 9(2), and the facts set out in the show cause notice disclosed non-compliance with the excise procedures and clandestine removal without disclosure to the authorities. On the record, the ingredients for invoking Rule 9(2) were satisfied, and the absence of the words "suppression of facts" in so many terms did not matter. The plea of limitation was therefore untenable.

Conclusion: The demand was not time-barred, and Rule 9(2) was correctly invoked.

Final Conclusion: The liability to central excise duty on the processed canvas and duck cotton fabrics was sustained, and the penalty, as reduced by the appellate authority, was confirmed.

Ratio Decidendi: Where excisable goods are processed with admitted steam, removed without disclosure and without compliance with the prescribed excise procedure, the relevant exemption is unavailable and a demand under Rule 9(2) can be sustained even in the absence of an expressly stated allegation of suppression of facts.

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