1. The appellants herein are a composite mill engaged in the spinning of yarn, weaving and processing of fabrics, and availing facility of Modvat credit of duty paid on inputs in terms of Rule 57A of the Central Excise Rules, 1944. Some quantity of yarn spun by the mills was being cleared on payment of duty to outside weavers who after weaving the same, returned the fabrics to the assessee for further processing and the assessees cleared such fabrics after processing, on payment of appropriate duty and at the time of clearance of such processed fabrics they availed deemed credit as per Notification 29/96-C.E., dated 3-9-1996 which was available inter alia to processed fabrics manufactured from unprocessed fabrics not woven in the same composite mill [para 5(iii) of the notification]. As the yarn was being issued on payment of duty for weaving on job work basis the assessees could have cleared the same under Rule 57F(4) after reversing 10% of the value of the yarn and taking back the equal amount of credit on receipt of the grey fabrics. Deemed credit on processed fabrics manufactured from grey fabrics not woven in the same composite mill appeared to be applicable only in respect of unprocessed fabrics received in the composite mill for processing on job work basis and not in respect of unprocessed fabrics got manufactured from outside weavers on job work basis. The department was therefore of the view that credit availed on the grey fabrics was not correct and the show cause notice dated 11-6-1999 was issued proposing recovery of deemed credit of Rs. 7,61,90,667/- availed during the period 11-9-1996 to 30-4-1999. Penal action was also proposed. The Commissioner of Central Excise confirmed the demand by disallowing the credit and ordering its recovery under Rule 57F of the Rules read with the proviso to Section 11A (1) of the Central Excise Act, 1944 together with interest and also imposed a penalty equal to duty under Rule 57-I(4) of the Rules read with Section 11 AC of the Act. While holding that there was no irregularity in the procedure followed by the assessees in removing the yarn on payment of duty, on the issue of availability of deemed credit he held as under: "11. Now coming to the main issue of availability of deemed credit under Notification No. 29/96-C.E. (N.T.), dated 3-94996. I find that after introduction of Modvat credit to yarn, fibres and fabrics, deemed credit has also been allowed to processed fabrics manufactured out of unprocessed fabrics not woven in the same composite mill. This has been provided in lieu of duty paid on fibres yarn used in the manufacture of unprocessed fabrics because unprocessed fabrics is not subjected to any duty. Thus in case of processing of unprocessed fabrics received from an outside weaver deemed credit has been allowed because in such a case, outside weaver being manufacturer of unprocessed fabrics (exempted) is not entitled to avail any credit of duty paid on yarn or its inputs.
Whereas in case of a composite mill, the manufacturer avails of credit of duty paid on yarn fibres and other inputs also and, therefore, no deemed credit is available to them on processed fabrics manufactured by them from their own manufactured unprocessed fabrics. However, there are cases where composite mills also receive unprocessed fabrics from outside weavers, who have not availed any credit on their inputs, for processing of fabrics and, therefore, in such a case deemed credit is allowed to composite mills also because when composite mill removes/clears the processed fabrics to the said weaver they are required to clear it on payment of duty though they had not availed any credit on inputs of yarn. However, in the instant case it is observed from records that the assessee had already availed credit on fibres yarn and other inputs and when they have cleared yarn to the outside weavers on payment of duty for converting it into unprocessed fabrics, the ownership continued to remain theirs. They have not sold the yarn. In fact they have cleared it for getting the unprocessed fabrics manufactured on job work basis only. Thus, in the instant case the assessee have manufactured processed fabrics from that unprocessed fabrics, on the inputs (Fibres) of which, they had already availed Modvat credit. As such they are not eligible for availing deemed credit on such processed fabrics. It has also been clarified by the Government vide Para 5.2 of Boards Circular No. 243/77/96-C.X., dated 3-9-1996 issued on the same date on which the Notification 29/96-CE(NT) was issued that benefit of deemed credit will be inapplicable to manufacturer who avails any credit of duty under any Notification issued under Sub-rule (1) of Rule 57A of the said rules except in case of a composite mill, who is eligible for credit of actual duty paid on various inputs as well as credit on deemed basis in respect of fabrics processed on job works basis. In view of the above, as in this case the fabrics has not been processed on job work basis but instead the assessee have got unprocessed fabrics woven on job work basis, they are not eligible for deemed credit in terms of the provisions of Notification No. 29/96-CE(NT), dated 3-9-1996. Held accordingly." 2. We have heard Shri Prakash Shah, learned Counsel and Shri Uma Shankar, learned SDR.3. Notification 29/96-CE provides that duty of excise under the Central Excise Act, 1944, additional duty under Section 3 of the Customs Tariff Act, 1975, or the additional duty of excise under Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 shall be deemed to have been paid on certain inputs specified in the notification and that in case of a composite mill, it shall be equivalent to the amount calculated at the rate of: (a) 40 per cent, of the duty of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944), read with any notification for the time being in force, on the final products of cotton (not containing any other textile material) declared herein, (b) 60 per cent, of the duty of excise leviable under the Central Excises and Salt Act, 1944 (1 of 1944), read with any notification for the time being in force, on the final products other than of cotton (not containing any other textile material) declared herein, The notification also provides for different method of calculation in the case of a manufacturer other than a composite mill.
4. The fourth para of the notification states that provisions of the notification shall not apply to a manufacturer (other than a composite mill) who avails any credit in respect of inputs -- under any notification issued under Sub-rule (1) Rule 57A of the Central Excise Rules. The Explanation (1) to the notification defines "composite mill" and it is not in dispute that the appellants falls within this definition. From a careful reading of the notification we do not find anything therein to support the stand of the department in the show cause notice that the benefit of deemed credit under the notification is available only in respect of unprocessed fabrics received in a composite mill for processing on job work basis. Further para (4) of the notification which has been relied upon to deny the benefit is not attracted to the appellants as they are admittedly a composite mill.
Proceeding further, the denial of deemed credit on the ground that the appellants took actual credit of duty paid on fibre which was contrary to para 4.5 of CBEC circular No. 243/77/96-CX., dated 3-9-1996, is contrary to the subsequent clarification in the form of Trade Notice No. 16/99 dated 16-3-1999 of the Mumbai Commissionerate. As per this clarification, the restriction under paragraph 4 of the deemed credit notification as regards prohibition of availing actual credit of duty on inputs is to be construed as limited to those inputs which are specified and are also used for the manufacture of the final products specified in the notification. In the present case actual credit of duty was availed on fibre (specified input) but the fibre was used for manufacture of yarn which is not a specified final product in Notification 29/96. Therefore the restriction in paragraph 4 is not applicable as far as the appellants are concerned.
5. In the light of the above discussion we hold that the benefit of deemed credit under Notification 29/96 is available to the appellants.
6. In addition to our finding on the merits of the case we hold that the demand is barred by limitation. The charge against the appellants is that they did not intimate the department that they were getting unprocessed fabrics woven from outside weavers on job work basis and that the processed fabrics are manufactured by them (appellants) from their own unprocessed fabrics. Our analysis of the notification has already shown that there is no stipulation thereunder that deemed credit facility is available only in respect of unprocessed fabrics received in a composite mill for processing on job work basis only.
Therefore there was no duty or obligation cast upon the appellants to make such disclosure and therefore the appellants are not guilty of suppression or concealment of any material facts with intention to evade payment of duty, hence extended period is not attracted against them.
7. In the result we set aside the demand and penalty, and allow the Appeal.