Full Judgment
2. The appellents are engaged in the manufacture of cotton yarn falling under Item No. 18A of the erstwhile Central Excise Tariff. The appellants were charged with for having manufactured and removed 3.685 M.T. and 9.993 M.T. of cotton yarn in 1977 and 1978 respectively without accountal in the R.G. 1 register without determination and payment of excise duty and without observing any Central Excise formality and accordingly the show cause notice was issued for the recovery of the duty amounting to Rs. 5,908.90 (Rs. 1591.92 for the year 1977 and Rs. 4,316.98 for the year 1978) and to impose penalty under Rule 173-Q. The show cause notice was duly answered denying the duty liability. The Collector who adjudicated the proceedings after considering the reply to the show cause notice and submissions held that company could not establish the fact that difference 3.685 M.T.and 9.993 M.T. of cotton yarn was less than 3 meters in length and on the ground that they were saleable yarn he confirmed the demand in addition to imposing the penalty of Rs. 10,000/-under Rule 173-Q of the Central Excise Rules.
3. Shri A.N. Sharma learned Advocate appearing for the appellants submitted that while manufacturing finished cotton yarn for weaving and hosiery purposes waste yarn (hard waste) are derived from spindle point i.e. Ring frames while yarn is spun and reeled in bobbins. Thereafter there again arises waste yarn (hard waste) during the winding and reeling of the said yarn. He said that the waste yarn (hard waste) arising at reeling and winding (i.e. at finished stage) are being accounted for R.G. 1 after actual weight whereas the waste yarn (hard waste) arising our of the Ring frame have short length of less than 3 meters and being entangled mass not capable of being disentangled without considerable labour and not accounted for in the R.G. 1 but nevertheless they are account in private records and same is reflected in the balance-sheet since sale value of waste cotton was shown therein. He submitted that R.G. 1 stage has not reached in respect of the hard waste and further they were of short length were exempted from duty under Notification No. 172/72 dt. 24-7-1972 as amended by Notification No. 139/77 dt. 18-6-1977. He submitted that without going into the contraversy whether the respondents were required to record small percentage in R.G. 1 or not but neither goods were removed clandestinely not suppressed the facts in view of the fact the off waste cotton was clearly shown in the audited balance-sheet. He contended that the demand was barred by time since the show cause notice was issued on 29-8-1980 for the period 1977 and 1978. The facts were neither suppressed nor they were specifically alleged in the show cause notice and furthermore there was no intention to...the decision of the Tribunal in the case of Raj Nigam v. Collector of Central Excise reported in 1989 (42) E.L.T. 618 and also the decision of the Supreme Court in the case of Chemphar Drugs & Liniments v. Collector of Central ExcisePadmini Products v.Collector of Central Excise.. He said that there is huge difference in between sale value of good yarn and waste as can be seen from the balance-sheets and since they were relied upon by the Department, it ought to have arrived at the proper conclusion that only waste cotton was not entered in R.G. 1. Without going into controversy whether they were required to be accounted in R.G. 1 or not but demand was hit by limitation as the value was clearly shown in the respective balance-sheets.
4. On the other hand while countering the arguments Shri M.K. Jain learned SDR submitted that it is a clear case of suppression of facts since it was not accounted in R.G. 1 though it was dutiable and small percentage is not the criteria since the substantial value was not shown in the relevant statutory record. These figures were not declared but these were ascertained from the balance-sheets and burden is on them to prove that they were of short length while claiming exemption in terms of exemption notification. He preferred to reiterate the findings given in the impugned order since this issue was rightly considered as can be seen from the findings of the Collector and accordingly the Department was justified in raising the demand as well as imposing the penalty.
5. We have considered the submissions made by the both sides with reference to the facts and perused the records. As can be seen from the facts that production of cotton yarn as well as cotton waste and sale value thereof was shown in the respective balance-sheets. The case of the Department is that cotton waste was liable to be accounted in R.G.1 since cotton waste was also subjected to duty. It is not free from doubt whether cotton waste as such manufactured by the appellants was subjected to duty since Notification No. 172/72 exempts cotton waste of short length. Undoubtedly it was for the party to prove that cotton waste was of less than 3 meters of length to claim exemption in terms of Notification. But the main point to be considered in this case not the duty liability but time barring issue. There is some force in the arguments advanced on behalf of the appellants that they...the type of cotton waste manufactured by them and they have not suppressed the facts since the value of cotton waste was shown in the respective balance-sheets. We agree with the appellants' Counsel that it cannot be said in the instant case the goods were removed clandestinely in view of the fact that value of the goods was shown in the balance-sheets and reflected in private accounts maintained by them. In the facts and circumstances of the case particularly taking into consideration that value of the item was shown in the balance-sheets and in the absence of specific allegations of suppression of facts as argued by the appellants' Counsel, we are of the view that the Department was not justified in invoking the larger period. In the view we have taken we set aside the impugned order and accordingly appeal is allowed.