TaxTMI 
TaxTMI 
2010 (4) TMI 663
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.... the processed fabrics had been made out of the fabrics on which the appropriate central excise duty and AED (GSI) had not been paid as per the condition of the exemption, as in terms of Sl. No. 14 of the table annexed to the Notification No. 14/02-C.E., dated 1-3-02, unprocessed fabrics are fully exempt from duty and accordingly the Appellant was liable to pay the duty at the tariff rate of 24% ad valorem. It is on this basis that a show cause notice dated 1-10-03 was issued to the Appellant for (a) demand of differential duty of Rs. 13,21,097/- from the Appellant under Section 11A(1) of the Central Excise Act, 1944, alongwith interest on this duty at the applicable rate as per the provisions of Section 11AB ibid and (b) imposition of penalty on the appellant under Rule 25(1) of the Central Excise Rules, 2002. 1.1 The show cause notice was adjudicated by the Joint Commissioner vide order-in-original dated 24-2-04 by which the duty demand alongwith interest was confirmed and penalty of Rs. 13,21,099/- was imposed on the Appellant under Rule 25 of Central Excise Rules, 2002, readwith Section 11AC of Central Excise Act. 1.2 On appeal to CCE (Appeals), th....
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.... the duty demand of Rs. 13,21,099/-. (6) Since in this case, dispute is only about interpretation of exemption notification, there is no justification for imposition of penalty. 2.2 Shri B.K. Singh, the learned Jt. CDR defending the impugned order, emphasised that since the unprocessed knitted fabrics from which the processed fabrics had been manufactured, were fully exempt from duty vide Sl. No. 14 of the table annexed to the Notification No. 14/02-C.E., the condition for concessional rate of duty for processed fabrics is not satisfied and therefore the processed fabrics would be liable to duty at the tariff rate of 24% ad valorem and that the Tribunal's judgment in case of CCE, Ludhiana v. Prem Industries (supra) is not applicable to the facts of this case as that judgment is based on the Board's Circular No. 680/71/2002-CX, dated 10-12-02, in respect of composite mills while the Appellant are not a composite mill. 3. We have carefully considered the submissions from both the sides and perused the records. First of all, we find that neither the show cause notice, nor the order-in-original passed by Jt. Commissioner nor the order-in-appeal passed by CCE ....
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....;In Sl. No. 16 of the table annexed to the Notification No. 14/02-C.E., the condition for concessional rate of duty for the goods covered by this serial No., "processed knitted fabrics of man made fibre/yarn being one of items covered by this serial as under - "If made from textile fabrics, whether or not processed, on which the appropriate duty of excise leviable under 1st Schedule to the said Central Excise Tariff Act and Additional Duties of Excise (Goods of Special Importance) Act, readwith any notification for the time being in force, or the additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975, as the case may be, has been paid." 4.1 As per Explanation-II to this exemption, "For the purposes of the conditions specified below, textile yarn or fabrics shall be deemed to have been duty paid without production of documents evidencing payment of duty thereon." 4.1.1 By Notification No. 37/02-C.E., dated 3-7-02, issued under Section 5A(2A) of the Central Excise Act, 1944, an Explanation-VII was added to notification No. 14/02-C.E. from retrospective effect. The Explanation-VII is as under - "In this notification - (1) for the re....
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....mposite mill starting from spinning of yarn from fibre, weaving/knitting of grey fabrics from yarn and thereafter processing of grey fabrics or by a manufacturer engaged in processing of fabrics alongwith weaving or knitting of fabrics within the same factory, in term of Explanation-VII, the condition for concessional rate of duty for processed fabrics will be deemed to be satisfied if the yarn or fibre from which the processed fabrics have been manufactured, is duty paid. But Explanation-VII does not cover "independent processor". The question now arises as to whether in case of independent processor engaged only in processing of fabrics without undertaking weaving/knitting of grey fabrics and spinning of yarn, who are not covered by Explanation-VII, Explanation - II will have the effect of nullifying the condition that for enjoying concessional rate of duty on processed fabrics, the unprocessed fabrics must be duty paid. On this point, a Division bench of the Tribunal in case of Auro Textile & Others v. CCE, Chandigarh (order in appeal No. 1276-1346/09-EX., dated 11-12/11-09 paras 36, 37 and 38 [2010 (253) E.L.T. 35 (Tri.)] of the judgment has held as under :- "36. The A....
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..... It is a conditional exemption subject to condition that the unprocessed fabrics has been made out of duty paid yarn/fibre and no Cenvat credit of duty paid on inputs or capital goods has been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002. Therefore just because "unprocessed knitted fabrics other than of cotton" are covered by Sl. No. 14 of the table annexed to the notification with nil rate of duty against this serial No., it cannot be presumed that the same would always be fully exempt from duty. If the appellant are an independent processor engaged in unprocessed fabrics acquired from outside, while presumption regarding its duty paid character would be available in terms of Explanation-II, it will be a rebuttable presumption and if there is evidence indicating that unprocessed fabrics is non-duty paid, concessional rate of duty would not be available in respect of processed fabrics. If the appellant are a composite mill or a processor engaged in manufacture of fabrics from yarn Explanation VII would be applicable and conditions for concessional rate of duty on processed fabrics will be treated as satisfied if the yarn or fibre from which grey fabric manufactur....