Customs, Excise and Gold Tribunal - Tamil Nadu
S.R.F. Ltd. vs Cce on 6 April, 2005
Equivalent citations: 2005(191)ELT1154(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The appellants are engaged inter alia in the manufacture of nylon filament yarn of 210 denier, falling under Chapter 54 of the Central Excise Tariff Schedule. Nylon filament yarn of denierage 210±4% with high tenacity, falling in Chapter 54, was fully exempt from payment of duty under Notification No. 27/95-CE dated 16.3.1995. In 1996 Budget, such yarn was taken out of the purview of exemption. Accordingly, from 23.7.1996, only nylon filament yarn of 210+4% denier, with low tenacity, falling under SH 5402.41, was exempt from payment of duty Under Notification No. 8/96-CE dated 23.7.1996. The appellants filed a declaration under Rule 173B on 30.7.1996 claiming exemption under Notification No. 8/96-CE in respect of their product, which was accepted for provisional assessement under Rule 9B till the outcome of test results on the denierage and tencity of the yarn. Samples were drawn on 7.6.1996, 26.7.1996, 29.8.1996, 1.10.1996 and 31.12.1996 for determination of denierage. The Chemical Examiner found the denierage of the yarn samples to be above 224, which exceeded even the higher limit of 210+4% prescribed under the Exemption Notification. The assessee contested the test results and sought re-test of the samples by the Chief Chemist, CRCL, New Delhi. The Chief Chemist's report confirmed the Chemical Examiner's test results. Subsequently, as suggested by the Chief Chemist, the samples were got tested at the National Test House, Madras for tenacity of yarn. The National Test House reported tenacity as below the minimum [52.92 cN/Tex] required for 210 denier yarn under IS : 4401-1981. The NTH results as to denierage of yarn further confirmed the results reported by the Chemical Examiner and the Chief Chemist. On the basis of the test results, the original authority held that the benefit of exemption under Notification No. 8/96-CE was not available to the Nylon filament yarn of denierage higher than 210±4% manufactured and cleared by the assessee during the period 23.7.1996 to 31.12.1996. The authority finalised the assessments accordingly and demanded basic excise duty and additional excise duty totalling to about Rs. 4.14 crores on the above clearances. Abatement of the quantity of yarn directly exported by the assessee during the said period and Modvat credit of basic excise duty to the extent of Rs. 89,641/- paid on the inputs consumed in the manufacture of yarn were allowed by the original authority while quantifying the demand of duty. The decision of the original authority was appealed against, but the appeal was rejected by the first appellate authority. Hence the present appeal of the assessee.
2. Heard both sides. Ld. Counsel for the appellants submitted that the demand of duty was based on the Chemical Examiner's report which according to them, was not reliable in view of what was stated by the Chemical Examiner when cross-examined. Without prejudice to this submission, ld. Counsel raised a contention that the Chemical Examiner's report on any sample could be made applicable only to the lot from which the sample was drawn. In this connection, he relied on the Tribunal" decision in the cases of CCE, Vadodara v. Basantlal B. Lekhadia 1996 (17) RLT 279 (CEGAT-D) and Kiran Spinning Mills, Bombay v. CCE, Bombay . He also relied on the Madras High Court's judgment in Collector v. Cambodia Mills Ltd. .
3. Reverting to the assessee's plea as to denierage of their yarn, ld. counsel submitted that denierage of yarn could be controlled, in the process of its manufacture, by varying one or more of four parameters, namely:
a) The type of chips which has a bearing on the relative viscosity which directly influences the denierage;
b) the temperature of extrusion;
c) metering pump frequency; and
d) draw ratio in draw twisters/SPU system.
Counsel submitted that the appellants had kept the denierage and tenacity of the yarn within the limit prescribed for exemption from duty, by suitably varying the process parameters. He claimed that, during the entire period of dispute, the denierage and tenacity of yarn were maintained within the limits specified for exemption and therefore no duty was payable on the yarn manufactured and cleared during the said period.
4. Ld. Counsel also submitted that the quantity of the yarn removed for export by the appellants (physical exports) as also the quantity of yarn cleared by the appellants to their job workers for conversion into fish net twine for export (deemed exports) should have been excluded from the levy. Referring to the finding of the original authority that no quantity of twine which was claimed to have been manufactured out of yarn cleared by the appellants during the period of dispute and to have been exported, was correlated with any quantity of yarn cleared by the appellants during the said period, ld. Counsel argued that the authority should have followed the "First In First Out" (FIFO) method, in which event it would have been found that 2,81,336.215 K.grms. of yarn contained in twine exported were out of the clearances of yarn effected after 23.7.1996 from the appellants' factory. This quantity of yarn ought to have been excluded from levy of duty. This argument of ld. Counsel was based on an equitable principle like the one followed by the Hon'ble Supreme Court in the case of TELCO v. Municipal Commissioner, Thane reported in 1993 Supp.(1) Supreme Court Cases 361. Ld. Counsel, in this connection, quoted from para 29 of the Supreme Court judgment, which reads as under:
29. The concept of octroi as held by this Court in Burmah Shell case may include "the bringing in of goods in a local area so that the goods come to a repose there." It is this concept that is reflected in Rule 28(2)(b) when it requires evidence that the goods were exported out of the octroi limits within a period of six months of their imports. The learned Counsel for the appellants Mr. Andhyarujina had expressed certain difficulties in satisfying the Corporation that the goods imported were exported within the period of six months as provided in the rules in view of certain peculiar circumstances in this case. He pointed out the goods received in bulk are small small items and there are about 16,000 distinctive types of articles and when the bulks are broken and each of the categorised items are mixed up together it becomes difficult for him to individually identify when the goods were received and when they were exported. However, he was sure that the goods were exported before six months. When this difficulty was pointed out during the pendency of the appeal, as an interim direction this. Court by order dated May 1, 1989 directed the parties to proceed on the basis that the goods which came in first had gone out first unless some factors or features indicate otherwise. This is an equitable principle not unknown to law. Even as early as in 1816 with reference to money paid on account to a creditor in Clayton case it was held that in the absence of an agreement to the contrary, in the case of current account containing debit and credit entries there is a presumption that the first item on the credit side of the account is intended to be applied in the payment of the first item on the debit side of the account. This is an equitable principle which could be followed in the instant case and it may be presumed that the goods which came in first have gone out first and the six months period could be determined on that basis. In any case in view of the interim direction given by this Court on May 1, 1989 that may be usefully followed for the future also in this case.
Ld. Counsel also submitted that abatement of duty from sale price was not allowed by the lower authorities, which was against the Tribunal's Larger Bench decision in the case of Sri Chakra Tyres v. CCE 1998 (108) ELT 341 (LB) : 1999 (83) ECR 690 (LB) affirmed by the Supreme Court in CCE v. Maruti Udyog Ltd. . Yet another grievance raised by the Counsel was that Modvat credit of the duty paid on Chips (input), amounting to over Rs. 33 lakhs, was not allowed by the authorities while quantifying the demand of duty. Counsel also referred to another show-cause notice dated 29.1.1997 which demanded duty of Rs. 33,75,286/- on the opening stock of yarn as on 23.7.1996 on the ground that this quantity of yarn was not eligible for exemption. It was pointed that this quantity of yarn was also included for the demand of duty presently under challenge, which was referred to by counsel as duplication.
5. Ld. SDR submitted that it was not open to the appellants to contest any of the chemical test reports inasmuch as their Counsel had abandoned this contest before the lower appellate authority. Anything stated by the Chemical Examiner in her cross-examination was not consequential inasmuch as her test reports were accepted. Ld. SDR claimed judicial support when she argued that demand of duty based on a test, report need not be restricted to the lot or batch from which the sample was drawn and that duty could be demanded till the date of taking of the next sample. In this connnection, the following decisions were cited:
1) Ramalinga Choodambikai Mills Ltd. v. UOI
2) Bojaraj Textiles Mills Ltd. v ACCE
3) Laxmi Vishnu Textile Mills Ltd. v. CCE Relying on the above decisions, ld. SDR argued that the demand of duty for the entire period of dispute, based on the test reports on samples of yarn drawn periodically during the period was sustainable in toto. With reference to the Counsel's reliance on the Supreme Court's judgment in the TELCO case, ld. SDR submitted that the equitable principle applied in that case was not necessarily applicable to another case.
6. We have carefully considered the submissions. Nylon Filament Yarn of denierage 210±4% with low tenacity was eligible for exemption under Notification No. 8/96-CE dated 23.7.1996. Prior to 23.7.1996, the appellants were manufacturing Yarn of denierage 210 with high tenacity. They have claimed that, through change of process parameters, they could manufacture yarn of denierage 210 with tolerance limit of ± 4% after every draw of test samples. But they never intimated any such "change of process parameters" to the Department, nor did the test report on the next sample prove their claim. Consecutive test reports showed denierage of yarn above 224, which was higher than 210+4% prescribed for exemption from duty. It was on this basis that periodical show-cause notices were issued to the party. When the test reports were contested by the party, the samples were got re-tested by the Chief Chemist, CRCL, New Delhi, at their instance. The Chief Chemist confirmed the Chemical Examiner's test results. Again samples were also got tested, at the expense of the assessee, at the National Test House, Madras. The NTH also reported denieraged higher than 210 + 4%, Noticeably, the three laboratories produced concurrent results as to denierage of the yarn manufactured by the assessee during the period of dispute. These reports were accepted by the assessee at the lower appellate stage. Therefore, we reject the present challenge to the test results relied on by the lower authorities. According to these test results, the yarn samples drawn from time to time during the period of dispute did not satisfy the requirement for the benefit of the exemption Notification.
7. The question now is whether, on the basis of test report on a sample drawn from the production stock of a particular day, duty could be demanded from that date to the date of taking of the next sample. A similar question was considered by the Hon'ble High Court of Madras in the case of Ramalinga Choodambikai Mills Ltd. (supra) and it was held that, on the basis of the result of test on a sample of yarn drawn on a particular date, duty could be demanded upto the date of taking of the next sample. The relevant paragraph of the High Court's order is reproduced below:
7. The second ground of attack is that the result of the test reports can be applied only to the quantity of yarn manufactured on the date when the sample was taken and not for the entire period between 14.9.1966 to 20.10.1966. The contention of the petitioner is that it cannot be assumed that the count of yarn manufactured by the petitioner on subsequent days was the same as one found on 14.9.1966 and that the test report based on a sample of 840 yarns cannot be taken to represent the entire 38638.2 kgs. produced during the period. It must be remembered that the department cannot be expected to take samples every day and for every bale. It is seen that a sample is taken periodically at regular intervals and the test results of such a sample is taken to govern production of yarn made by the petitioner till the next drawl of the sample. If the petitioner's contention is accepted that the sample drawn on particular day can be taken to represent a count of yarn produced only on that day, it becomes necessary for the department to take the same sample every day or even every hour to be more accurate. Such a procedure is quite impossible to be followed and it will also lead to unnecessary waste of time. If the petitioner in a particular case shows that after the taking of the sample the machinery has been attended to and the yarn produced is of a different count that the one produced on the day when the sample was taken the officers cannot base the test results on the sample for the entire goods manufactured during the period till the next sample is taken. But in this case the petitioner has not shown that anything has been done between 14.9.1966 and 20.10.1966 to produce a lesser count of yarn than the one represented by the sample taken on 14.9,1966. We are not therefore inclined to accept the petitioner's contention that the test reports cannot be taken to represent the count of yarn for the entire quantity manufactured between 14.9.1966 and 20.10,1966.
We have already noted that the appellants could not prove their claim that, after each sampling, they had changed process parameters to ensure that the denierage of yarn manufactured was within 210± 4% tolerance limit. They did not notify any change of process parameters to the Department during the material period. Had they, in fact, succeeded in changing denierage of their yarn by any method after any sampling for test by the Department, the results of test on the next sample of yarn would have vindicated it, But this never happened. It is also curious to note that the appellants did not bother to test samples on their own and confront the Department with their own test results during the material period, despite their claim that their laboratory was better-equipped than the Government's laboratories. Thus the appellants could not substantiate their claim of having altered denierage of yarn after every sampling done by Department. On these facts, the above ruling of the High Court is squarely applicable to the present case. We find that the above decision of the High Court was taken note of by the Hon'ble Supreme Court while dealing with the SLP filed by the department against the High Court's judgment in Cambodia Mills Ltd. (supra). The Hon'ble High Court held to the same effect in the case of BojaraJ Textile Mills Ltd. (supra) In this case, a sample of cotton yarn was drawn on 30.12.1974 and the next sample was drawn on 22.4.1975. Duty was demanded for the period from 28.12.1974 to 21.4.1975. This demand was sustained by the High Court after rejecting the assessee's contention that the Chemical Examiner's report on the sample drawn on 30.12.1974 could not be any basis for assessment of yarn manufactured after that date. In the case of Laxmi Vishnu Textiles Mills (supra), the Tribunal followed the High Court's judgments in Ramalinga Choodambikai Mills (supra) and Bojaraj Textiles Mills (supra) and held that demand of duty on the basis of test report need not be restricted to the batch from which sample was drawn. Ld. Advocate has relied on contra decisions rendered by the Tribunal in Kiran Spinning Mills (supra) and Basantlal B. Lekhadia (supra). Among the three decisions rendered by co-ordinate Benches of the Tribunal, Laxmi Vishnu Textile Mills (supra) is the latest and the same alone has taken into account the High Court's ruling and we would follow the same. Accordingly, we hold that duty can be demanded from the assessee for the entire period of dispute on the basis of the test reports on the samples of Nylon Filament Yarn drawn from time to time during the said period.
8. Coming to abatements, we note that the lower authorities have already excluded from levy that quantities of yarn which was removed from the appellants' factory for export, As regards the yarn removed from the factory to job workers for conversion into fishing net twine, we find that the assessee themselves pleaded before the lower appellate authority that it was not possible to correlate the twine (which was claimed to have been exported during the period of dispute) to the yarn cleared from their factory during the period of dispute. The appellants have not been able to establish such correlation before us, either. In this scenario, there is no question of applying any equitable principle as in Telco case. We are not a court of equity either. However, the appellants do have a case insofar as their claim for abatement of duty from sale price in determination of assessable value of yarn is concerned. They are entitled to this benefit under Section 4(4)(d)(ii) of the Central Excise Act as per the judgment of the Apex Court in the case of Maruti Udyog Ltd. (supra). The appellants have also claimed the benefit of input duty credit on Nylon chips. Substantial part of this claim was rejected by the original authority and this decision was upheld by the Commissioner (Appeals) without any reasoning. It appears from the order-in-original that the assessee had paid duty on the chips (manufactured by them and cleared for captive consumption in the manufacture of yarn) only upto October 1996 and, that too, under protest. They had contended that the chips were not dutiable and, alternatively, that the item was eligible for the benefit of an exemption Notification. This dutiability issue was decided against the party by the jurisdictional Commissioner (adjudicating authority). The party's appeal to the Tribunal against the Commissioner's order was allowed by remand for de novo adjudication. When the order-in-original in the instant case was passed, the above issue was pending before the Commissioner for de novo adjudication. Neither side has told us as to the Commissioner's decision if any. If his decision is against the assessee, their protest will get dislodged and the payment of duty on chips will be reckoned to be in order, in which event credit of such duty will be available to the party vis-a-vis the demand of duty on yarn.
9. in the result, we allow this appeal only to the extent of (a) allowing abatement of duty from sale price in terms of Section 4(4)(d) (ii) of the Central Excise Act and (d) allowing Modvat credit of the duty paid on chips during June-October 1996 subject to the appellants protest (relating to the payment of duty on chips) being vacated in accordance with law. The impugned order is set aside to this extent only. It is upheld in all other respects. The original authority shall accordingly requantify the duty to be paid by the assessee. It shall, while doing so, verify the appellants' complaint of duplication of demand vide para (4) of this order.
(Order pronounced in open court on 6.4.2005)