Proof of powered fabric processing is essential for excise duty, confiscation and penalty to stand under the exemption regime.

Excise duty on processed fabrics cannot be sustained unless the department proves with concrete evidence that the processing was carried out with the aid of power or steam, because the exemption for fabrics processed without such aid remains applicable. On the facts described, the machinery was not shown to be in working condition, the fabrics were supported by export documents, and the activity was explained as rolling and packing rather than powered processing; the duty demand therefore failed. Where duty liability is not established, confiscation of the seized goods and the related penalty also fail, and both are unsustainable on the same evidentiary record.

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Issues: (i) Whether the fabrics processed in the appellant's unit were liable to central excise duty on the footing that they were processed with the aid of power or steam and whether the exemption notifications applied. (ii) Whether confiscation of the seized goods and the penalty imposed on the appellant were sustainable.

Issue (i): Whether the fabrics processed in the appellant's unit were liable to central excise duty on the footing that they were processed with the aid of power or steam and whether the exemption notifications applied.

Analysis: The finding of duty liability depended on proof that the processing activity was actually carried on with the aid of power or steam. The record showed that the machinery at the unit was not in working condition for such processing, that the printed fabrics were brought only for rolling and packing, and that the export documents supported the appellant's version. The evidence did not establish concrete use of power or steam for the relevant processing activity. In that situation, the exemption available for cotton fabrics processed without the aid of power or steam was applicable, and the demand could not be sustained on the material before the authority.

Conclusion: The duty demand was not sustainable and the issue is answered in favour of the assessee.

Issue (ii): Whether confiscation of the seized goods and the penalty imposed on the appellant were sustainable.

Analysis: Once duty liability was not established, the foundation for confiscation and penalty also failed. The seized printed fabrics were supported by the export papers and the appellant's explanation that they were meant for rolling and packing for export. As the goods were not shown to be liable to duty on the facts found, confiscation was unjustified and penalty could not survive.

Conclusion: Confiscation and penalty were unsustainable and the issue is answered in favour of the assessee.

Final Conclusion: The order of demand, confiscation and penalty could not be sustained on the evidence and the statutory exemptions applicable to the processed fabrics.

Ratio Decidendi: Excise duty, confiscation and penalty cannot be sustained unless the department proves with concrete evidence that the fabrics were processed with the aid of power or steam and thereby fall outside the applicable exemption notification.

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