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In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act,1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 11/2001-Central Excise, dated the 1st March, 2001, published in the Gazette of India vide number G.S.R. 136 (E), dated the 1st March, 2001, except as respects things done or omitted to be done before such supersession, the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), specified in the corresponding entry in column (2) of the said Table, from so much of the aggregate of, 

(a) the duty of excise specified in the First Schedule to the said Central Excise Tariff Act; and

(b) the duty of excise specified in the First Schedule to the said Additional Duties of Excise (Goods of Special Importance) Act, (hereinafter referred to as the 'aggregate duty') as is in excess of an amount calculated at the rate specified in the corresponding entry in column (4) of the said Table, subject to the relevant conditions specified below the said Table, and referred to in the corresponding entry in column (5) of the said Table:

and, Rule 8(3) of the Central Excise Rules, 2002:

"If the assessee fails to pay the amount of duty by due date, he shall be liable to pay the outstanding amount along with interest at the rate specified by the Central Government vide notification under section 11AB of the Act on the outstanding amount, for the period starting with the first day after due date till the date of actual payment of the outstanding amount."

5. The assessee herein opted for exemption under notification no. 14/2002 under which grey fabrics, not subjected to any process, were chargeable to nil rate of duty subject to the condition that the said fabrics were made from textile yarn on which appropriate duty of excise stood paid and no credit for duty paid on inputs had been taken under CENVAT Credit Rules, 2002. However, the assessee was not in a position to ascertain the variety and quantity of yarn entering into the manufacture of export production of "grey fabrics" and grey fabrics meant for home consumption. The assessee was not in a position to pay duty on yarn at spindle stage. Therefore, they opted to pay duty on yarn on deferred basis at the time of clearance of grey fabrics for home consumption along with interest at the rate prescribed under Section 11AB of Central Excise Act, 1944 read with Rule 8(3) of Central Excise Rules, 2002. According to the Department, the assessee was liable to pay duty at the rate of 12% under item 2 of the table to notification no. 14/2002-CE. According to the Department, the assessee had failed to comply with twofold conditions mentioned in item 1 of the table to the said notification, namely, payment of duty on yarn at the spindle stage and, secondly, no credit of duty paid on inputs had been taken under CENVAT Credit Rules, 2002. In other words, according to the Department, the assessee had failed to pay duty on yarn at the spindle stage and, secondly, it had taken credit for the duty paid on inputs under CENVAT Credit Rules, 2002, therefore, according to the Department, the assessee was not entitled to claim nil rate of duty as, according to the Department, the assessee had failed to comply with the aforestated twofold conditions mentioned in item 1 of the table to the said notification. According to the Department, the assessee herein had specifically applied for clarification from the Department as to whether the assessee was entitled to claim nil rate of duty under the said Notification since it was not in a position to ascertain the variety and quantity of yarn going into the manufacture of grey fabrics. This request for clarification was expressly turned down by the Department and despite refusal by the Department to the request made by the assessee to pay duty on yarn at the time of clearance of grey fabrics, the assessee reversed the CENVAT credit, which, according to the Department, contravened the provisions of the said notification. Accordingly, the assessee was held liable to pay duty at the rate of 12% under item 2 of the table to notification no. 14/2002-CE and, consequently, a demand was raised for differential duty for the period 13.3.2002 to 15.9.2002 on the ground that the assessee had failed to pay the duty on the yarn at the spindle stage. The demand was confirmed by the Deputy Commissioner. However, in appeal, the Commissioner (A) allowed the assessee the payment of duty on yarn at the time of clearance of grey fabrics instead of payment of duty on yarn at the spindle stage. In this connection, the Commissioner (A) relied upon Trade Notice No. 40/96. This order of the Commissioner (A) has been confirmed by the Tribunal, hence, the Department has come to this Court by way of this civil appeal.

7. Shri Atul Setalvad, learned senior counsel appearing on behalf of the assessee submitted that Spring Mills is a composite mill, meaning thereby that there is a spinning section where yarn is spun from cotton and a weaving section where grey fabrics is woven from such yarn. Learned counsel submitted that in certain cases it become difficult for a manufacturer to know at the spindle stage whether grey fabrics were to be exported or cleared for home consumption. According to the learned counsel, a manufacturer could pay duty on yarn in such cases not when the yarn stood cleared but when the fabric was cleared. It is under these circumstances that an option was given over the years under trade notice no. 40/96 allowing the assessee to defer payment of duty on yarn from spindle stage to the grey fabrics clearance stage subject to payment of interest for such deferment. Learned counsel submitted that trade notice no. 40/96 did not flow from Rule 49A of the 1944 Rules. The said trade notice was based on certain unforeseen difficulties in the operations. It was issued taking into account the trade representations. Learned counsel submitted that till today the said trade notice has not been revoked. Learned counsel further submitted that there was no difference whatsoever between item no. 1 and item no. 2 of the table to notification no. 14/2002-CE. Both dealt with grey fabrics. However, item no. 1 attracted nil rate of duty on fulfilment of twofold conditions, namely, payment of duty by the assessee for claiming exemption and that assessee should not have taken credit for duty paid on inputs under CENVAT Credit Rules, 2002. Learned counsel submitted that yarn is an input used in the manufacture of grey fabrics. Learned counsel urged that the said notification no. 14/2002-CE was an exemption notification. Learned counsel submitted that exemption was in respect of grey fabrics. Learned counsel submitted that duty was payable on yarn, however, in certain circumstances, the assessee was entitled to claim deferment of duty from spindle stage to the stage of clearance of grey fabrics subject to payment of interest under Section 11AB of Central Excise Act, 1944 read with Rule 8(3) of Central Excise Rules, 2002. Learned counsel submitted that in the present case it is not in dispute that duty on yarn became payable at the spindle stage, however, the assessee has deferred the payment to the stage of clearance of grey fabrics and, therefore, it cannot be said that the assessee has not complied with the first condition of item no. 1 to the table attached with the notification. Similarly, learned counsel submitted that the assessee, in the present case, has reversed CENVAT credit and the assessee has not taken credit on account of such reversal. Learned counsel submitted that whenever duty is paid on the input (yarn) the assessee is entitled to credit under the CENVAT Credit Rules, 2002, however, availment of credit takes place later on when the assessee makes adjustments of duty paid on input against duty paid on final product (grey fabrics). In the present case, before the account could be debited and before the assessee could avail of CENVAT credit, the assessee has reversed CENVAT credit which would amount to the assessee not taking credit for duty paid on input (yarn). Learned counsel submitted that the assessee was free to reverse the credit before utilization of such credit. In the circumstances, it was urged that both the conditions of item no. 1 of the table to the notification stood fulfilled and, therefore, the assessee was entitled to claim the benefit of exemption at nil rate of duty in this case.