1993 (3) TMI 225 - AT - Central Excise

Appellants disqualified from partial exemption, penalty reduced, duty demand unsustainable.

The Tribunal held that the appellants were disqualified from availing the partial exemption under Notification 79/82 due to the use of power in hydro ... Man-made fabrics - Exemption Issues Involved:1. Eligibility for partial exemption under Notification 79/82.2. Limitation period for demand of duty.3. Non-accountal of goods in statutory records.Issue-wise Detailed Analysis:1. Eligibility for Partial Exemption under Notification 79/82:The core issue was whether the use of power in the hydro extraction process disqualified the appellants from availing the partial exemption of 40% under Notification 79/82. The Department argued that using power for hydro extraction disqualified the appellants from the exemption as it constituted a manufacturing process. The appellants contended that hydro extraction was merely for removing moisture and did not change the fabric, thus not a manufacturing process. The Supreme Court decision in Rajasthan State Chemical Works was cited, emphasizing that any process integral to manufacturing, even if it does not change the raw material, is considered a manufacturing process. The Tribunal concluded that hydro extraction was integrally connected to the manufacture of the final product, thus disqualifying the appellants from the exemption.2. Limitation Period for Demand of Duty:The appellants argued that the demand was barred by limitation, asserting that they had not suppressed any facts from the Department. They referred to ground plans submitted and verified by the Department, indicating the use of power for hydro extraction. The Department countered that the appellants had not clearly disclosed the actual installation and use of power-operated machinery. The Tribunal noted that the ground plans did indicate the presence of hydro extraction machines and that the factory had been visited by the Audit Party and departmental officers, suggesting no deliberate suppression. The Tribunal accepted the appellants' plea, concluding that the demand beyond six months was not sustainable and set aside the extended period demand under Section 11A.3. Non-accountal of Goods in Statutory Records:The Department found 656.00 L. Mtrs. of man-made fabrics in the factory without being entered in the statutory accounts, leading to confiscation under Rule 173Q of Central Excise Rules, 1944. The appellants admitted the non-accountal, attributing it to heavy rain preventing timely entry in the records. The Tribunal upheld the confiscation for non-accountal as per the Panchnama and the appellant's admission. However, considering the findings on the limitation issue, the Tribunal reduced the penalty from Rs. one lakh to Rs. 20,000/-.Conclusion:The Tribunal ruled that the use of power in hydro extraction disqualified the appellants from the partial exemption under Notification 79/82. However, it found that the demand for duty beyond six months was not sustainable due to the lack of deliberate suppression of facts. The confiscation for non-accountal was upheld, but the penalty was reduced to Rs. 20,000/-. The appeal was disposed of accordingly.