Custom, Excise & Service Tax Tribunal
Coimbatore Polytex P. Ltd vs Cce, Coimbatore on 16 September, 2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH
CHENNAI
Appeal Nos.E/1066/2004 & E/1065/2004
(Arising out of Order-in-Original No. 13/2004 dated 13.5.2004 passed by the Commissioner of Central Excise Coimbatore)
For approval and signature:
HonbleShri P.K. Das, Judicial Member
HonbleShri Mathew John, Technical Member
1. Whether Press Reporters may be allowed to see the Order for Publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether the Members wish to see the fair copy of the Order?
4. Whether order is to be circulated to the Departmental authorities?
1. Coimbatore Polytex P. Ltd.
2. L. Sayee Mohan, Company Secretary Appellants
Vs.
CCE, Coimbatore Respondent
Appearance Shri C. Saravanan, Advocate for the Appellants Shri Parmod Kumar, JC (AR)for the Respondent CORAM :
HonbleShri P.K. Das, Judicial Member HonbleShriMathew John, Technical Member Date of Hearing : 13.05.2013 Date of Pronouncement : 16.09.2013 Final Order No.40366 & 40367/2013 Per P.K. Das Both the appeals are arising out of a common order and therefore both are taken up together for disposal.
2. The appellant No. 1, M/s. Coimbatore Polytex Pvt. Ltd. (earlier known as M/s. Premier Polytronics Pvt. Ltd.), is a 100% EOU engaged in the manufacture of Cotton Knitted Fabrics falling under sub-heading No. 6003.92 of the CETA, 1985. The appellant No. 2 is the Company Secretary and Authorized Signatory of the appellant-company.
3. On 4.1.2001, the officers of Head Quarters, Preventive Unit, Coimbatore visited the factory premises of the appellant-company to conduct verification of physical stock and stock as per records of goods procured free of duty by the appellant and also to verify whether the goods cleared by the appellant 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 buyers premises and recorded statements of a few buyers as well as the appellant No. 2 on different occasions.
3.4 A Show Cause Notice dated 13.9.2002 was issued by the Commissioner of Central Excise, Coimbatore proposing demand of duty and imposition of penalty on the ground that 1,71,700 number of needles found short were cleared into DTA without obtaining permission from the Assistant Commissioner of Central Excise and without payment of duty. It was further alleged that the appellant cleared fabrics of good quality at nil rate of duty in the guise of Rejects and such clearances were notin compliance with the conditions stipulated in the notification and specifically mentioned in the permission letter of Development Commissioner and the Assistant Commissioner.
4 By the impugned order, the Commissioner confirmed the demand of Rs.2,91,370/- involved on the imported needles, Rs.5,24,296/- involved on indigenously procured needles and Rs.83,15,372/- on good quality fabrics cleared as rejects along with interest. He also imposed penalty of Rs.2,91,370/- under Section 112(a) of the Customs Act,1962 for clearance of the imported needles, Rs.5,24,296/- and Rs.83,15,372/- under Rule 173Q of the Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. He also imposed a penalty of Rs. One lakh under Rule 209A of the erstwhile Central Excise Rules, 1944 on appellant No.2 who is the Company Secretary of the appellant-company.
5. The learned counsel on behalf of the appellant submits that by Show Cause Notice dt. 13.9.2002, demand was raised for the period October 1997-December 2000 on the following issues:-
S. No. Goods on which duty demanded Amount
1.
Rejected Fabric 83,15,372
2. Local Needle 5,24,296
3. Imported Needle 2,91,370 Total 91,31,038 5.1 Regarding the demand of Rs.83,15,372/-, the learned Advocate submits that in the show-cause notice, in para 18, it is mentioned that the appellant inspected all rolls of fabric manufactured and wherever faults such as yarn fault, knitting fault and contamination fault were noticed the same were recorded. But the notice alleged that such goods were also being exported and non-exportability of the goods cleared as rejects to DTA was not established. Further it is alleged that the rejected fabrics were not stamped as Rejects (refer para 11, 21 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 rejects upto 5% of the value of production may be sold in Domestic Tariff Area (DTA). Sale of rejects above 5% may be approved by the Development Commissioner in consultation with the local customs authority. In this case, rejects was only about 2% and, therefore, permission of Development Commissioner was not required.
5.5 He also submits that as per the definition of Rejects in the Handbook of Procedures, it is the domain of the manufacturer to ascertain rejectsand the Department cannot determine the standard of Rejects. He also submits that rejects of 5% would be based on value of production as referred to in para 9.9 (a) of Policy.
5.6 It is submitted that there is no restriction on the sale of Rejects in DTA as per Appendix 42 of the Handbook of Procedure. There is no iota of evidence that they have cleared good quality of fabric and no additional consideration flowing to the appellant directly or indirectly.
5.7 Regarding demand on local needles, he submits that the needles procured by them had suffered duty which was paid subsequently by their suppliers, M/s.Lakshmi Automatic Looms and hence duty demanded from them is not sustainable. He submits that they have procured local needles duty-free under CT-3 certificates in terms of Notification No.1/95-CE dated 4.1.1995. He submits that subsequently duty was recovered from the suppliers end and therefore demand is not sustainable. He drew the attention of the Bench to Larger Bench decision in the case of Lakshmi Automatic Loom Works Ltd. Vs CCE, Trichy - 2008 (232) ELT 428 (Tri.-LB) wherein it has been held that a manufacturer could not supply inputs on which credit was taken by the manufacturer to 100% EOU under CT-3 certificate issued under notification 1/95-CE dated 04-01-95 and they were required to pay duty. Incidentally, in the present case, the Lakshmi Automatic Loom Works supplied the materials to them who paid duty consequent to the said decision.
5.8 Regarding the demand of duty on imported needles, ld. counsel submits that he is not seriously contesting the demand of duty, but, he submits that duty would be quantified only at the depreciated value. He submits that goods were cleared under the cover of invoices and therefore duty could be demanded only on the invoice value.
5.9 Regarding imposition of penalty, he submits that entire demand is barred by limitation. In this context, he submits that the demand was raised on the same goods by four show-cause noticesduring the period 11.1.99 to 23.3.2000 and lastshow-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 Honble 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. Commissioner of Central Excise, the appellant failed to establish that rejects were an unavoidable feature on account of flaws of technology, technique or material deployed in manufacture.
6.1 He also submits that Commissioner has given a finding that not only good quality fabrics were cleared as rejects but also the invoices were not stamped as Rejects. The Show Cause notice alleges that the goods were not stamped as Rejects. When the appellant raised the contention that it was not necessary to stamp the goods but it was sufficient if the invoice were the adjudicating authority gave a finding that even invoice was not stamped in the case of fabrics sold to M/s Lohar Knitting Mills, Tirupur. This cannot be held to be a finding beyond the scope of the Show Cause Notice. He also submits that similar materials cleared for export were mostly of the same nature as that of rejects and therefore Revenue rightly adopted the value of export goods.
6.2 He also submits that it is evident that they sold the materials claimed as rejects in the form of running length weighing about 10-24 kgs. But the reject materials are always sold in pieces and therefore, the said goods werenot Rejects.
6.3 He drew the attention of the Bench to para17 of the impugned order that fabrics of good quality so accounted in RG-1 was converted as Rejects immediately after obtaining the permissions for selling rejects at concessional rate of duty in domestic tariff area. Thus the same quality of the fabrics which were meant for export were cleared to DTA. He reiterates the findings of the Commissioner at para-37 of the order and submits that sale of rejects was against permission, from MEPZ and jurisdictional Assistant Commissioner which had expired. He also points out the fact the dealers with whom investigations were conducted stated that they did not get all the material for which invoices were issued in their name .
6.4 Regarding demand of duty on local needles, Ld. AR submits that the goods were received duty free under CT-3 certificates on the condition that it will be used by them for the specified industrial purpose. Instead they had removed it without permission of the department or intimating the department. He submits that stand taken by the ld. advocate that the supplier had paid duty is without any evidence.
6.5 Regarding imported needle, he submits that those goods also were 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 canbe 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 subject to the following:-
(a) Rejects upto 5% of the value of production may be sold in the Domestic Tariff Area (DTA). Sale of rejects above 5% may be approved by the Development Commissioner concerned in consultation with the local customs authority. These sales shall be subject to payment of applicable duties.
Text of Handbook of Procedures 1997 2002 Rejects:-
9.22 Unless specifically prohibited in the LOP/LOI, EOU/EPZ/EHTP/STP units may be permitted sale in the DTA of rejects upto 5% of production or such percentage as may be approved by the Development Commissioner in consultation with the local customs authority subject to payment of applicable duties and 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, wastes 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.
Appendix 42: Guidelines For Sale of goods in the Domestic Tariff Area (DTA) by EOU/EPZ Units Sale of Rejects (IV) Sale of rejects in the DTA, as provided for in para 9.9 (a) of the Export and Import Policy and para 9.22 of the Handbook of Procedures may be made with the prior permission of Development Commissioner of the EPZ concerned.
Export & Import Policy 1997 2002 (As on 1st April 2000) 9.9 DTA Sales:
The entire production of EOU/EPZ/EHTP/STP units shall be exported subject to the following:-
(a) Unless specifically prohibited in the LOP/LOI, rejects may be sold in the domestic Tariff Area (DTA), on prior intimation to the customs authority. Such sales shall be counted against DTA sale entitlement under para 9.9(b) of the Policy. Sale of rejects shall be subject to payment of duties as applicable to sale under para 9.9(b).
(b) DTA Sale upto 50% of FOB value of exports may be made subject to payment of applicable duties and fulfilment of minimum NFEP prescribed in Appendix 1 of the Policy. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors 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 feature on account of flaws of technology, technique or material deployed in manufacture. It is seen from the impugned order that the appellant No. 2 in his statement dated 26.12.2001 stated that the inspection of knitted fabrics was carried out by the production officer in their factory on the machine itself to identify the various types of physical flaws such as oil stain, needle line (damage due to needles) and fabric holes. The adjudicating authority observed that the buyers had purchased the fabrics which had defects like needle holes, needle lines and small bits. It is also observed that the buyers had filed their quotation for procurement of the reject fabrics. So it was found that the appellant cleared the reject/defect fabrics into DTA and it was purchased by the buyers and the finding of the adjudicating authority that such defect fabrics were also exported as prime fabric quality is not acceptablebecause the extent of defects in the goods exported and that in goods sold in DTA are not fully on record to make a comparison.Further it is open to the manufacturer to sell rejects in local market, after the policy relaxation was allowed, rather than export the goods which may affect his reputation regarding quality.
8.1 The other parameter is that the reject must be invoiced and stamped by the manufacturer as Rejects at the time of clearance into the DTA. The learned counsel submits the invoiceswere stamped as Rejects as per Policy and there is no requirement of stamping the goods as Rejects. We find that clause (ii)(b) of Para 9.22, Handbook of Procedures provides that Reject must be invoiced and stamped by the manufacture as Rejects at the time of clearance into DTA. The words in clause (i) of para 9.22 the term rejects shall cover the products if read with the clause that rejects must be invoiced and stampedof clause (ii)(b) of para 9.22, make it clear that reject productsmust be invoiced and stamped by the manufacturer as Reject at the time of clearance into DTA. So we are unable to accept the submission of the learned Advocate that rejectsneed be stamped as Rejects on the invoice only. In our view, the productsmust be stamped as Rejects on the product. The adjudicating authority observed that the word Reject was not stamped in all the invoices. On the other hand, the learned Advocate submits that they placed all the invoices 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 Export-Import Policy provides that prior permission of Development Commissioner of the EOU is required for sale of rejects in the DTA. In the present case, the Development Commissioner by letter dated 22.7.1997 had given permission to clear the rejects for a value not exceeding Rs.93.37 lakhs in DTA in terms of paragraph 9.9 (a) of the Policy read with Para 9.22 of the Handbook of Procedures, Volume I and also Appendix 42 (IV) subject to the following conditions:-
(a) all applicable duties etc. should be paid
(b) The term Rejects shall cover the products which have definite defects and are not exportable and shall include sub-standard products but not by-products
(c) Rejects must be invoiced and stamped by you as Rejects at the time of clearance into the Domestic Tariff Area.
(d) You must certify that the Rejects were on unavoidable feature on account of flaws of technology, technique or material deployed in manufacture.
(e) You should submit to this office, the details of the sales of Rejects effected in the Domestic Tariff Area, as and when effected. A copy of the relevant Central Excise Return shall be sent to this office immediately on clearance of the Rejects into the Domestic Tariff Area, on payment of duty.
9. The Assistant Commissioner, Coimbatore by letter dated 22.8.1997 also granted permission for clearance of the rejects. We are unable to accept the finding of the adjudicating authority that the condition stipulated in Appendix 42 (IV) revealed that the DTA sales entitlement shall be availed of within one year of the accrual of the entitlement.
10.1. We find that the appellant was permitted to clear reject for a value not exceeding Rs.93.37 lakhs against 5% of the ex-factory value of production. The appellant actually cleared reject knitted fabric of total value Rs.63.92 lakhs. The learned Advocate in his written notes stated that the value of physical exports during the relevant period as under:-
YEAR Value in lakhs of Rupees 1996 97 1807.32 1997 98 1522.65 1998 99 1157.55 1999 2000 515.04 10.2. During investigation, the buyers had stated that they have purchased the defect/reject knitted fabrics. Admittedly, the stocks of reject materials were mentioned in separate folio in RG-I. Appellant No.2 in his statement stated that Rejects were certified by the production officers in the factory on the machine itself. The learned Advocate 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 mentioned in the sanction letters of the Development Commissioner and Assistant Commissioner of Central Excise were not complied.
10.4. In the matter of proving that the values were not acceptable,the burden heavily rests on Revenue. In the matter of proving eligibility to exemption the burden rests heavily on the appellant.
10.5. It is on record that the appellant had a system of inspecting goods and recording defects of each batch and defective goods were being recorded in the RG-1 as rejects, that they had sought permission from Development Commissioner as also Assistant Collector of Central Excise for sale of rejectsin DTA and the authorities had no doubts about the appellants claim that wastenecessarily arises in manufacture of their goods. Investigation conducted with buyers supported the case of appellant that the goods sold to the buyers, whoever could be identified, were rejects. Against such facts the evidences presented by Revenue namely that the goods were sold in rolls rather than in pieces, that goods accounted as good quality upto a particular date was accounted later as rejects cannot prove the case of Revenue. Appellant has explained how the defects can arise in major part of a roll due to thickness or thinness of yarn rather than for bits. It is quite possible that the appellant had not accounted defective goods as rejects separately till they got permissions to sell such goods in DTA at concessional rate of duty because such separate accounting would not have served any purpose. Revenues argument that some of the buyers who bought the rejects did not get the full quantity billed in their name can only create a doubt but cannot prove that the goods were not actually rejects. This is especially so because the goods were sold through brokers who were not examined to find out their version. Revenues argument that in the past the appellant had been exporting defective goods and hence appellant should have exported the impugned rejects also is not an acceptable argument because possibility of such export depends on the market conditions and it is for the manufacturer to decide the quality of the goods to be exported without affecting his reputation. Revenues interest is safeguarded through the maximum permissible limits for rejects and net foreign exchange to be earned. These safeguards were not contravened. So the arguments advanced by 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 section 25 of the said Customs Act, on the like goods produced or manufactured outside India if imported into India, subject to the following conditions, namely :-
(a)?such finished products, if manufactured and cleared by a unit other than a hundred per cent. export-oriented undertaking or a unit in a free trade zone, are wholly exempt from the duties of excise or are chargeable to Nil rate of duty; and
(b)? the finished products, rejects and waste or scrap are allowed to be sold in India under and in accordance with the provisions of sub-paragraphs (a), (b), (c), (d) or (f) of paragraph 9.9 or of paragraph 9.20 of the Export and Import Policy, 1 April, 1997 - 31 March, 2002.
10.7. Condition (b) of the above notification is particularly relevant which makes a reference to the conditions prescribed in Export Import Policy for clearance of wastes and rejects to DTA. One of the conditions is that Rejects must be invoiced and stamped by the manufacturer as Rejects at the time of clearance into the Domestic Tariff Area. This condition cannot be read to mean that Rejects should be invoiced and invoices should be stamped as Rejects. This condition has only one principal clause with the subject rejects. The construction of the condition canvassed is to include another subject namely invoice into the sentence which is not acceptable at all. By appellants admission in statements recorded, the evidences gathered from purchasers of the goods and the appellants arguments during hearing, the position that emerges is that the goods were not stamped as Rejects. Thus one of the conditions in the exemption notification was not complied with, in respect of the rejects fabric cleared to DTA. An exemption notification is to be strictly interpreted and the burden of proving eligibility is on the person claiming. In such a situation we are of the view that the appellant was not eligible for the exemption notifications which were subject to complying with the conditions prescribed in the Export Import Policy for sale of rejects in Domestic Tariff Area. This finding is not withstanding our finding that revenue has not proved that the goods were other than rejects because for claiming the exemption the goods being rejects is not a sufficient condition.
10.8. We have considered the plea of time bar from the appellant for this part of the demand. We are of the view that the 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 from the records of the appellant but without extending the benefit of exemption in notifications of the type discussed above will survive.
11.1 Regarding the demand of Rs.5.24,296/- on local needle, the appellant received the needle without payment of duty under C.T -3 certificate vide Notification No.1/95-CE dated 4.1.1995 from M/s. Lakshmi Automatic Loom, and claimed that the supplier had paid duty. The adjudicating authority observed as under:-
The needles had been procured duty free by the assessee in terms of Notification No. 1/95-CE dated 4.1.1995 and clearance of the same should have been in terms of clause (C) of para 6 of the said Notification as per which: (C) such clearance of goods (other than those specified in clauses (a) (b) above made be allowed on payment of excise duty leviable on such goods, on the full value at the time of their clearance from the factory of manufacture and at rates in force on the date of payment of such excise duty. The assessee has misinterpreted the conditions stipulated in para 6(C) of Notification No.1/95 CE dated 4.1.95 that the sale value was the relevant factor for the purpose of payment of duty. It is pertinent to note that the general principles in terms of para 6(C) of the above said Notification clearly indicates that the full purchase value should be taken into account for the goods cleared from the 100% EOU. Therefore, the purchase value of the needles taken into account in the notice for demanding duty is correct and in order. 11.2 It is noticed that the issue before the Larger Bench of the Tribunal in the case of Lakshmi Automatic Looms (supra) was whether, during the period March, 1996 to May, 1998, a manufacturer of final product, who procured inputs and availed MODVAT credit thereon, was entitled to remove the inputs as such, without reversal of the credit or payment of equivalent amount of duty, to a 100% EOU under CT-3 certificate in terms of Notification No. 1/95-CE dated 4.1.1995.
11.3 The Larger Bench held that the inputs cleared as such by the appellants to 100% EOUs cannot be deemed to have been manufactured by the appellants; the supplies (which are deemed exports) cannot be treated on par with export under bond for the purpose of Rule 57F. There is no warrant or justification to extend the instructions dated 31.12.1996 issued by the Ministry/Board to cover supplies to 100% EOU which are treated 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 commission for duty evasion and hence rendered himself liable for penal action. We find that Appellant No. 2 is an employee of the company.He was not making any personal gain out of the duty evaded. So after considering the facts and circumstances of the case, it is not justified to impose penalty on appellant No. 2 since penalty is imposed on the appellant company who was the beneficiary of the duty evaded.
14. In view of the above discussion, we order as follows,-
(i)the demand of duty of Rs.83,15,372/- is to be re-determined by adopting the values as per invoices of the appellant but without extending benefit of notifications of the type 13/98-CE. Consequent interest and penalty under 11AC equal to duty as re-determined will be payable;
(ii) Duty demand of Rs.2,91,370/- on imported needles is upheld along with interest and penalty;
(ii) Rs.5,24,296/- is along with interest and penalty in respect of local needle, the adjudicating authority is directed to examine as stated above.
15. Appeal No. E/1066/2004 is disposed of in the above terms.
16. Appeal No. E/1065/2004 filed by L Sayee Mohan is allowed.
(Pronounced in open court on 16.9.2013)
(Mathew John) (P.K. Das)
Technical Member Judicial Member
Rex
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