TaxTMI 
TaxTMI 
2007 (6) TMI 487
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....acturers 100% Cotton Yarn from Cotton. The applicant for its 100% EOU, is registered with the office of the Development Commissioner, Kandla. The applicant commenced its commercial production from 15-6-94 and is continuously operating as 100% EOU since then. 3. The applicant produces (a) 100% Ring Spun Cotton yarn from cotton at ring spinning section and (b) open end cotton yarn from the waste of cotton generated. Waste generated out of ring spinning yarn is used as raw material for manufacturing of open end cotton yarn. The applicant has another facility of producing open end cotton yarn for which there is a separate set of machines and these machines are in a separate identified area within the 100% EOU. 4. The facts relevant for this order are that the applicant has cleared its products i.e. cotton yarn/open end cotton yarn in DTA by wrongly availing the concessional rate of duty under Notification No. 8/97-C.E., dated 1-3-1997. As such a case of contravention of the provisions of Notification No. 8/97-C.E., dated 1-3-97 against the applicant was booked by the Revenue. 5. On the basis of investigations carried out, the Department issued three Show Cause Notices having i....
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.... SCN that, the applicants have not maintained records to the satisfaction of the revenue to show that the production of open end yarn is manufactured out of indigenous raw material. The period covered for the show cause notice No. 2 is from 1-4-2000 to 30-11-2004 while show cause No. 3 covers the period from 1-12-2004 to 31-3-2005. 9. The department has sought to deny exemption available under Notification No. 8/97 in respect of DTA despatches of Open End Yarn. The basis on which the Show Cause Notice No. 2 dated 15-2-2005 & No. 3 dated 21-7-2005 have been issued is that, the applicant has not maintained separate registers to show production of open end yarn out of the waste of imported cotton and open end yarn manufactured out of the waste of domestic cotton, in terms of notification No. 8/97. It is alleged in the Show Cause Notices Nos. 2 and 3 as referred above that the applicant has not maintained separate records to identify the use of waste derived out of imported cotton and domestic cotton used in the manufacture of Ring Spun Yarn. 10. The department's view is that Notification No. 8/97 requires that there should be separate records for availing the benefit of the said....
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.... raised by the earlier counsel (in the last hearing) as to whether full and true disclosure of duty had to be made at the admission stage or later. As regards the Revenue's allegations in respect of the aforesaid Show Cause Notices, he submitted that (i) the applicant had procured source materials from domestic market, i.e. from various traders including KC and SVE. (ii) that the applicant fabricated the invoices of KC and SVE and shown the source materials as a receipt from them, are unconvincing since the Revenue has verified invoices of only KC and not those of other suppliers nor they have any other evidence except the statement of an employee of KC. (iii) that the applicant had, however, accepted the demand relating to KC. He also mentioned that it was an admitted fact in the Show Cause Notice that no discrepancy had been found at the time of search and stock verifications. (iv) that the applicant has kept separate accounts head-wise in order to distinguish finished goods under distinct raw materials' heads and further submitted that a major portion of the demand is relatable to duty leviable under the Additional Duties of Excise [Textiles and Textile Articles] Act, 1978 which....
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....(i) The applicant to submit the following to the Revenue by 16-6-2006: (a) Name and address of the suppliers of indigenous cotton. (b) Copies of bills/invoices under which the applicant received the indigenous cotton from the suppliers. (c) Details of payment made to suppliers and the mode thereof. (d) Documents towards transportation of the goods from the suppliers premises to the applicants premises with transporting vehicle particulars. (ii) The Revenue and the applicant to hold a joint sitting as per their mutual convenience, within 10 days from 16-6-2006 to sort out their differences in regard to the duty liability. (iii) The Revenue to submit a report within 30 days from today (i.e. 14-6-2006) on the final duty liability after giving admissible deductions with a copy to the applicant, who shall submit its comments thereon, if any, by 24-7-2006. 16.2 Accordingly the Revenue submitted their comments vide report dated 3-8-2006 and the applicant submitted its rejoinder. After going through the report and the rejoinder....
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....t is also maintaining separate records for the recording of production of yarn produced out of domestic cotton and that from imported cotton (viz. production register for yarn produced from domestic cotton and production register for yarn produced from imported cotton) and Ø It is also maintaining separate records for recording waste generated out of domestic cotton and wasted generated out of imported cotton separately (viz. register of waste out of domestic cotton and register of waste out of imported cotton). Ø Admittedly the applicant is maintaining separate records to show issue of waste out of domestic cotton for production to open end yarn and issue of waste out of imported cotton for production of open end yarn separately (viz. waste receipt and issue register for waste out of domestic cotton and waste receipt and issue register for waste out of imported cotton). Further, that- (i) Once the open end yarn is manufactured the applicant does not have any records to identify segregation of open end yarn produced out of imported cotton waste and open end y....
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.... narrating the facts of the case submitted that in the Show Cause Notice dated 31-1-2005 (supra) there are two periods involved, one is from 1-4-2000 to 31-3-2001 involving duty demand of Rs. 64,61,926/- and another is from 1-4-2001 to 30-11-2001 involving duty demand of Rs. 50,72,764/-, Thus total duty demand vide the said SCN, has arrived at Rs. 1,15,34,689/-. The Revenue's allegations that no material transactions took place and no raw cotton had been sold by M/s. KC to the applicant and only fake transactions were made by fabricating the sale invoices of raw cotton are based on only assumptions and presumptions. There were no fake invoices during the period from 1-4-2000 to 31-3-2001 and there was no evidence to substantiate that there were any bogus invoice dealings during the said period. Moreover there are several other domestic suppliers from whom the applicant had purchased raw cotton, but in the SCN the Revenue has mentioned only about the verification of records of M/s. KC and not other suppliers. The said Show Cause Notice refers to the statement of Mr. Rajedra Prasad Sharma recorded during investigations which cannot be relied upon since he was a lower level executive.....
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....ng to Rs. 10,75,782/- against the total demanded duty liability of Rs. 1,15,34,689/- as leveled by the Revenue in the Show Cause Notice dated 31-1-2005. 18. Referring to the two other Show Cause Notices dated 15-2-2005 and 21-7-2005, the ld. Advocate argued that these Show Cause Notices are in respect of the cotton waste generated and later used as a raw material for the manufacture of open end yarn by the applicant. The Revenue's allegations that (a) no separate records have been maintained in respect of open end yarn manufactured out of waste of imported cotton and open end yarn manufactured out of indigenous cotton, (b) the waste manufactured in 100% EOU is not allowed to be held as indigenously manufactured, are on the basis of a technical point and further referring to the process of generating cotton waste submitted that the applicant maintains separate record of yarn manufactured out of imported cotton and yarn manufactured out of indigenous cotton. The applicant also maintains separate records for waste generated out of imported cotton and waste generated out of indigenous cotton separately. When the open end yarn finely is manufactured, the applicant do not maintain sep....
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....ce dated 31-1-2005, there are two periods involved, one is from 1-4-2000 to 31-3-2001 involving duty demand of Rs. 64,61,926/- and the other from 1-4-2001 to 30-11-2001 involving duty demand of Rs. 50,72,764/-. The applicant availed the concessional rate of duty @ 8% by taking the benefit of Notification No. 8/97 whereas it should have paid the duty equivalent to the 50% of total Customs duty by virtue of Notification No. 2/95 dated 4-1-95. The applicant has manufactured finished goods partially using imported stock and partially using indigenous raw materials. However, regarding first period, since the Revenue could not establish the claim properly in the absence of sufficient documentary evidences, no duty can be demanded for the first period. But for the second period, the entire amount has been correctly demanded and needs to be paid by the applicant for a number of reasons. In addition to above, the Revenue conceded that demand of duty of Rs. 57,58,516/- [(under additional duty (AEOTTA)] was not sustainable and therefore the said demand was not pressed upon. Referring to the report of the Commissioner (Investigations), the ld. Consultant submitted that the said report lacked o....
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....Total 461.849 21.1 Even as per the investigation records of the Revenue, the purchase of cotton made by the applicant from M/s. Kirti Corporation during the year 2000-2001 have been found to be genuine and the opening stock as on 31-3-2001 of domestic cotton, cotton WIP of domestic cotton, yarn WIP out of domestic cotton and Yarn manufactured out of domestic cotton have not been taken into account while computing the duty in respect of the 1st show cause notice and further referred to the audited balance sheet as at 31-3-2001, tax audit report for the year 2000-2001, supporting working papers of the audited balance sheet which was audited as on 11-7-2001 much before the search by the department on 14-12-2001 wherein it was found that the applicant had the stock of domestic cotton of 262.099 M.T., 189.096 M.T. yarn manufactured out of domestic cotton, cotton WIP of domestic cotton of 135.233 MT, yarn WIP out of domestic cotton of 2.716 MT and yarn manufactured out of domestic cotton of 134.804 MT. Accordingly the applicant had 461.849 MT of finished stock of open end yarn and prayed for settlement of the case. 22. We have gone through the case records and oral submissions m....
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....ility was conceded to be not arising for the first period by the Revenue. This should hold good for the second period as well, and therefore the demand for the second period would be only for Rs. 43,80,429/- (Rs.50,72,764/- (-) Rs. 6,92,335/-). The whole of the duty of excise leviable under Sec. 3 of the Additional Duty of Excise (Textiles and Textile Articles) Act, 1978 has been exempted vide Notfn. 55/91-C.E. dated 25-7-1991. Supreme Court decision in the case of Nahar Industrial Enterprise & Others [2004 (170) E.L.T. 518 (S.C.)] and also the Circular No. 384 dated 20-3-1998 refer. The demand of Rs. 1,15,34,689/- under Show Cause Notice dated 31-1-2005, therefore, gets reduced to Rs. 43,80,428/- straightaway while the duty liability admitted is only Rs. 10,75,782/-. 24.1 While going through Page-4 of the Show Cause Notice dated 31-1-2005 on para 3.2, it is seen that the show cause notice reproduced certain figures from the excise records. 24.2 It has reproduced following figures for the period from 1-4-2001 to 30-11-2001; (a) opening Balance of raw cotton (b) cotton received as receipt (from Kirti Corporation) (c)&nbs....
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....f the settlement application of the Applicant) and, therefore, the applicant did not have stock to the extent of 102.207 tons (564.056-461.849) of yarn manufactured out of indigenous cotton. 25.4 Though the show cause notice demands duty for the period upto 30-11-2001, in the spirit of settlement, the applicant has calculated duty for the extended period up to 31-12-2001 and has offered and paid duty by also including the DTA despatch of December, 2001 and total negative stock of cotton yam is calculated at 117.361 tons (being total of the negatives of October, 2001, November, 2001 and December, 2001) as shown and reflected on page no. 16 of the Annexure C of the Settlement Application of the applicant. 25.5 The calculations were verified and found correct. In view of this, the investigation has arrived at the finding that the additional duty offered by the applicant is correct. The Commission accepts this report of the Commissioner (Investigation) of the Commission. 25.6 The Commission therefore, finds that for the Show Cause Notice dated 31-1-2005 the additional duty liability works out to only Rs. 10,75,782/- as against the demand of Rs. 1,15,34,689/-. 26. The Show C....
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.... raw materials, benefit of Notification No. 8/97 was being denied simply because the said circular clarified that the benefit of the notification was available to units which manufacture from indigenous raw materials only. The circular is interpreted by the field officers to mean that to avail benefit under this notification no import should be made by the unit, irrespective of the fact whether the imported goods are to be/being used in the manufacture of a different final product or not. 2. The matter has been examined. It is clarified that benefit of afore-mentioned notification may be allowed to units importing as well as indigenously procuring raw materials, provided the unit is able to satisfy the jurisdictional Central Excise authorities beyond doubt that the inputs used in the manufacture of goods to be sold in DTA are manufactured out of indigenous raw materials only by way of maintenance of records, physical scrutiny/verification and the manufacturing process etc. The jurisdictional Assistant Commissioner, keeping in mind the nature of goods produced, may get the input-output norm fixed by a Cost Accountant so as to ensure that imported inputs, if common, are not used f....
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.... 2. The matter has been examined. It is reiterated that the benefit of notification No. 8/97-C.E., dated 1-3-97 may be allowed to the units using imported as well as indigenously procured raw materials provided the unit is able to satisfy the jurisdictional authorities beyond doubt that the goods to be sold in DTA are manufactured out of wholly indigenous raw materials by way of maintenance of records etc. as provided in the said Board's Circular. Maintenance of separate records would include, inter alia, separate raw material registers for indigenously procured goods and imported ones, separate finished goods registers - one for final products manufactured out of indigenously procured raw materials and the other for final products manufactured out of imported materials, batch-wise production and despatch registers in respect of the quantity manufactured and sold in DTA etc. The jurisdictional officers would thus need to satisfy themselves that the goods under DTA sale have been manufactured wholly out of indigenous raw materials. The Circular referred to above even enjoins the jurisdictional officers to get the input-output norm fixed by the Cost Account so as to ensure that im....
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....ars mentioned as to how satisfaction beyond doubt is required. Proportionate grant of the exemption as contended by the applicant would defeat the very purpose of the Notification and the circulars issued clarifying/reiterating the need to be absolutely sure about the wholly indigenous nature of the raw material. The applicants have also pressed into service Circular No. 85/2001/Cus, dated 21-12-2001 to allow part benefit of the Notification on the proportionate extent of the Indian Cotton Waste used in the manufacture of the open end yarn. A simple reading of the said Circular shows that it is issued for obviating difficulties when a series of imports and a series of export products out of the imported item takes place particularly in regard to imports/exports under export promotion schemes. The circular is related to import and export to eliminate procedural difficulties to count the export performances smoothly. The Circular does not apply to DTA clearances and in any case would not have any say in the interpretation of an exemption Notification. 26.7 Their contention is that cotton waste having appeared in the C.X. Tariff under TI 5202, is a distinct and commercial commodity....
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....manufacture are not unknown. 26.10 We would also refer to CESTAT's decision in 2007 (211) E.L.T. 406 in the case of Heubach Colour Pvt. Ltd. 26.11 In the result, we find that the benefit of Notification. 8/97-C.E. dated 1-3-1997 cannot be extended to the applicant and they would have to pay the duty vide Notification. 2/95 C.X. dated 4-1-95. The SCN demands a total duty liability of Rs. 3,27,41,199/-. This duty amount however, includes a duty amount of Rs. 41,71,252/- as Additional Duty of Excise (Textiles and Textile Articles). This Additional Duty however, is not to be paid in view of the fact that it is exempted vide Notification No. 55/91 dated 25-7-1991 read with circular No. 384 dated 20-3-1998 and the Supreme Court decision in the Nahar's case 2004 (170) E.L.T. 518 (S.C.) of the period 1-4-2003 onwards, Notification No. 24/2003 dated 31-3-2003 applies. The duty payable therefore worked out to be Rs. 2,85,69,946/-. 27. Show Cause Notice dated 21-7-2005 has sought the duty in terms of Sr. No. 2 of Notification 23/03-C.E., dated 31-3-2003 as against, the claimed Sr. No. 3 of the same Notification. Sr. No. 3 of Notification 23/03 and Notification No. 8/97-C.E. talk of t....