Full Judgment
2. Appellant is manufacturing nylon yarn of various deniers including nylon yarn of 210 denier which is exempted from payment of duty vide different notifications during the years 1996-97 to 2000-2001. The period with which we are concerned is from October 96 to March 2001.
The main raw material/input for the manufacture of nylon yarn is Caprolactam which is being procured by the appellants from the market on payment of excise duty. By certain process, caprolactam is converted into nylon chips from which 210 denier yarn is processed. Appellant was clearing nylon yarn 210 of denier without payment of duty as it was exempted. It, therefore, reversed credit taken on caprolactam. Under notice dated 22.5.2001 the appellant was required to show cause as to why the central excise duty amounting to Rs. 34,00,048 should not be demanded under proviso to Section 11-A of the Central Excise Act, 1944.
It was contended in the show cause notice that the appellant was evading central excise duty by wrongly availing the exemption under Notification No. 67/95-CE dated 16.3.95 on nylon chips manufactured and captively used in the manufacture of exempted final product namely nylon yarn of 210 denier. Since the final product was exempted from payment of duty, intermediate product namely nylon chips were chargeable to duty with effect from 1.3.94 as Notification No. 85/91-CE dated 30.8.91 which granted exemption to polyamide chips if used in the nylon filament yarn, was rescinded by Notification No. 63/94-CE dated 1.3.94. Before the Commissioner, assessee contended that it is entitled to the benefit of the ratio of the decision of this Tribunal in J.K.Synthetics v. CCE, Jaipur 2000 (122) ELT 38. On the above basis, it is entitled to recredit of the amount reversed.
3. It was also contended that value of nylon chips for the purpose of calculation of duty amount for the period of five years was wrongly taken relying on two bills issued in August 2000, The rate of chips in one year cannot be made basis for the entire period of five years. It was also contended that appellant was not selling chips regularly. Only small quantity was sold occasionally and entire production was consumed in the manufacture of nylon yarn. Therefore, submission of the assessee before the Commissioner was that the value has to be made on the basis of the costing. Assessee also submits that demand is barred by limitation.
4. The above contentions raised by the assessee were not accepted by the Commissioner. The duty demand to the extent of Rs. 34,00,048 was confirmed and penalty of equivalent amount was imposed. It was also ordered that assessee will be liable to pay interest under Section 11AB.5. Before us, learned counsel for the appellant mainly raised two contentions, one on the basis of decision in J.K. Synthetics and other on valuation. In J.K. Synthetics Ltd. where the facts are similar, this Tribunal held that when the chips are found liable to duty, reversal of credit on caprolactum was not in order. Re-credit of amounts reversed, should be effected and the duty on polyamide chips can be discharged against such credit at the option of the appellants We do not find any reason to deny the same treatment to the appellant before us. On going through the order impugned, it is not seen on what ground the appellant herein was denied the benefit of reoredit of the amount reversed. It is submitted before us that the modvat credit reversed would come to an amount of Rs. 32,00,000. This is a matter to be verified by the Commissioner to whom we are remanding the case after taking the view that the appellant is entitled to the benefit of the ratio of the decision in J.K. Synthetics Ltd. 6. On the question of valuation also, we find merit in the contention raised on behalf of the appellants. The price of nylon chips at the rate of Rs. 105 as evidenced by two bills of the month of August 2000, cannot be relied on for valuation of nylon chips for the entire period of five years. During the period when there is no contemporaneous bill available, the Assessing Authority has to value the goods on the basis of costing method. We, therefore, direct the Assessing Authority to redetermine the value of nylon chips in the light of the above observations.
7. The penalty imposed is also set aside. After finalizing the demand of duty, as directed above, it will be open to the Assessing Authority to decide whether penalty is liable to be imposed and if so, to what extent. The liability to pay interest under Section 11AB will be limited to the duty liability ultimately decided on recomputation,