TaxTMI 
TaxTMI 
2013 (10) TMI 351
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.... as 'Rejects' were really rejects and appropriate duty thereon was paid. 3.1 The officers found a shortage of 1,71,700 numbers of needles. The appellant imported needles duty-free under Notification No.13/81-Cus. dated 9.2.1981 and Notification No. 53/97-Cus. dated 3.6.1997 and also procured indigenous needles without payment of Central Excise duty under C.T.3 certificate vide Notification No.1/95-CE dated 4.1.1995 for use in the manufacture of goods meant for export. 3.2 The said officers also examined the records and documents in respect of clearance of 'rejected knitted fabrics' into Domestic Tariff Area (DTA) as the appellant had obtained permission from Development Commissioner, MEPZ vide letter dated 22.7.1997 and from the Assistant Commissioner of Central Excise, Coimbatore- III Division by letter dated 22.8.97 to clear 5% of the rejected knitted fabrics valued at Rs.93.37 lakhs. Goods valued at Rs.63.92 lakhs only were cleared under this permission claiming concessional rate of duty provided in notifications of the type 4/97-CE dated 01-03-97 andNotification 13/98-CE dated 02-06-98. 3.3 In a follow-up action, the said officers visited buyer's premises and recorded statem....
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....of SCN). In the adjudication order, the Commissioner proceeded (in para 34) on the basis that the word 'Rejects' was not stamped in some of the invoices, which is beyond the scope of the show-cause notice. 5.2 He drew the attention of the Bench to the letter dated 22.7.1997 of the Development Commissioner wherein it is stated that rejects must be invoiced and stamped by the manufacturer as rejects at the time of clearance into Domestic Tariff Area. It is his contention that there is no requirement of mentioning 'Rejects' on the fabrics and 'Rejects' need be stamped on the invoice only. According to him the allegation made in the show-cause notice is bad in law. 5.3 He submits that they have placed 139 invoices and the Commissioner has proceeded on the basis of some of the invoices without going into the all the invoices. It is stated that 139 invoices were stamped and sold as 'rejects'. 5.4 The adjudicating authority observed that permission letter dated 22.7.97 is valid only for one year and clearance must be done within one year and there is no permission for subsequent two years. Ld. advocate drew our attention to para 9.9 (a) of the EXIM Policy 1997-2002 which provides that ....
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.... submits that the demand was raised on the same goods by four show-cause notices during the period 11.1.99 to 23.3.2000 and last show-cause notice was issued on 26.12.2001 and the present show-cause notice was issued on 13.9.2002 for extended period. He submits that on the same goods duty was demanded earlier on the differential rates of duty on clearance of reject fabrics in DTA and it is within the knowledge of the department. It is a fit case where the decision of the Hon'ble Supreme Court in the case of Nizam Sugar Factor Vs CCE AP., reported at 2006 (197) ELT 465 (SC) would apply. 6. On the other hand, the learned ARon behalf of the Department reiterates the findings of the Commissioner. Regarding demand on rejects, he submits that on a plain reading of the letter of the Development Commissioner available at page 81 of the paper book would show that one of the conditions in para 9.22 of the Hand Book of Procedures 1997-02, Rejects must be invoiced and stamped by them at the time of clearance of goods to DTA as Rejects. He argues that such stamping should be on the fabric itself. He submits that in terms of clause (ii) of the permission letter dt. 22.8.97 of the Asst. Comm....
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....ere removed from the bonded warehouse without permission from the department or intimation to the department. There is no evidence that needles were put to use before removing from the factory. Therefore no depreciated value can be allowed. 6.6 Regarding limitation, he submits that earlier SCNs dealt with the issue in so far as rate of dutyon the ground that the goods were manufactured using imported needles and not solely from indigenous goods. The SCNwas not concerned with the nature of goods. He submits that the present case was unearthed by officers during investigation and verification of records and therefore extended period of limitation would apply. 7. After hearing both sides and on perusal of records, first we take up the issue of demand of duty of Rs.83,15,372/- on the clearance of 'Reject fabrics' as claimed by the appellant. According to Department, the appellant clearedgoods of good quality in the guise of rejects. There is no dispute that Export and Import Policy 1997 2002 permitted clearance of rejects in DTA sales as under:- Export and Import Policy, 1997-2002, From 1.4.1997 DTA Sales: 9.9 The entire production of EOU/EPZ/EHTP/STP units shall be exported subje....
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....and such other items as may be stipulated by Director General of Foreign Trade by a Public Notice issued in this behalf. Handbook of Procedures to EXIM Policy w.e.f 1.4.2000 9.22 Rejects:- EOU/EPZ/EHTP/STP units may be sell in the DTA rejects as per para 9.9(a) of the policy subject to the following conditions: (i) The term 'rejects' shall cover the products which have definite manufacturing defects and are not exportable as per declaration of the unit concerned and shall include sub-standard products but not spares, tools, waste/scrap/remnants and by-products. (ii) The following parameters shall be kept in view for determining 'rejects'. (a) The unit must certify that the rejects were an unavoidable feature on account of flaws of technology, technique or material deployed in manufacture; (b) 'Rejects' must be invoiced and stamped by the manufacturer as 'Rejects' at the time of clearance into the Domestic Tariff Area. 8. On perusal of the EXIM Policy and Handbook of Procedures 1997-2002, we find that EOU is permitted to sell rejects upto 5% of the value of production in the DTA. The parameters of reject are that the unit must certify that the rejects were unavoidable featur....
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.... stamped with the word 'Reject', which were not examined by the adjudicating authority. At any event, it is seen from the impugned order that the invoiced values of the rejects cleared were lower than the value of goods exported. 8.2 The demand of duty is for the period October 1997 to December 2000. The adjudicating authority observed that the appellant had maintained combined accounting of standard quality fabrics as well as rejects till October 1997 in their RG- I records and subsequently started maintaining separate folios for the rejects in the RG-I. It leads to a conclusion that the appellant had transferred good quality fabrics from folio for good quality fabrics to folio for rejects in the RG-I. We do not find any force in the finding of the adjudicating authority, insofar as RG I is an important record of Central Excise maintained under Rule 53 of the erstwhile Central Excise Rules, 1944. It is authenticated by the Central Excise officer and therefore such record cannot be discarded by mere presumption and without any basis. So, it is evident that the appellant maintained separate stock of reject fabrics and duly recorded it in RG-I register. 8.3 Appendix 42 (IV) of Expo....
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....vocate emphasized that they have placed 139 invoices stamped with rejects and the adjudicating authority had not examined all the invoices. This submission has not much relevance because there is no meaning in inspecting the copies of invoices retained by the appellant because it can be stamped at any point of time and it is the copy of the invoice meant for the buyer that is relevant. In many cases the buyers themselves could not be located. At any rate our finding is that stamping should have been necessarily made on the fabric which was admittedly not done. 10.3. On perusal of the Show Cause notice and its annexure for arriving at the demand of Rs. 83,15,372/-we find that the demand of duty of Rs.83,15,372/-is on account of two factors, namely,- (i) On account of Revenues contention that the value of the goods cleared to DTA as rejects should be the same as value of similar goods exported, since according to Revenue the goods cleared into domestic Tariff Area were not rejects but good quality goods; (ii) The exemption from excise duty as claimed by the appellant for rejected goods cannot be extended for the reason that the conditions prescribed in Export Import Policy and me....
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....Revenue to say that the goods were of good quality and its value was suppressed are not acceptable in the absence of positive evidence. 10.6. The second issue is about exemption notification claimed for rejects cleared into DTA. Notification13/98-CE dated 02-06-98 is reproduced below for ready reference: In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the finished products, rejects and waste or scrap specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), produced or manufactured, in a hundred per cent. export-oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India, from so much of the duty of excise leviable thereon under section 3 of the said Central Excise Act, as is in excess of the amount calculated at the rate of thirty per cent. of each of the duties of customs, which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962) read with any other notification for the time being in force issued under sub-section (1) of....
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....condition that fabrics should have been stamped as Rejects is plain and simple to understand. If the appellants did not stamp it so it can be only due to the fact that it will affect the price it can fetch in domestic market at different levels. So it cannot be taken as an innocent mistake. The whole matter came to light only due to detailed investigation. The plea of the appellant that Revenue was aware of the issue is not acceptable because there is nothing on record to show that the appellant had informed Revenue that the fabrics are not being stamped as Rejects while claiming exemption under notification of the type 13/98-CE. The show cause notice issued was for the reason that they were seen to be using imported needles obtained from another manufacturer and claiming said exemption meant for goods manufactured solely from indigenous goods. When a new fact which has been suppressed from Revenue came to light Revenue was justified in issuing Show Cause Notice invoking extended period of time. So the facts of the case is not similar to that in the case of Nizam Sugar factory (Supra) at all. 10.9. Thus a demand based on value at which the goods were cleared to DTA as evidenced fr....
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....eated as deemed exports for certain purposes under EXIM Policy. The appellants are not entitled to remove the inputs without reversal of the credit or payment of equivalent amount of duty. 11.4. The learned Advocate submits that the supplier of needles had already paid duty as per Larger Bench decision. We find that it is appropriate that the adjudicating authority should examine the demand of Rs.5,24,296/- on local needle in the light of Larger Bench decision and the submission of the appellant that duty was paid by the supplier. 12. As regards the other demand of Rs.2,91,370/- on imported needles, we agree with the submission of the learned AR that the officers during their visit detected shortage of needles and no proof of its use before removal is adduced. The goods obtained under specific bond for specified end use were cleared as rejects without permission from the department. Therefore the depreciated value, as claimed by the appellant, should not be extended. 13. The other appeal filed by Appellant No. 2, is a Company Secretary and authorised signatory of the appellant-company. It has been alleged that the Appellant No. 2 was concerned in all the acts of omission and com....