| SooperKanoon Citation | sooperkanoon.com/31624 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Tamil Nadu |
| Decided On | Jul-18-2003 |
| Judge | S Peeran, R K Jeet |
| Reported in | (2003)(89)ECC503 |
| Appellant | Super Associates and Superfil |
| Respondent | Cce |
Super Associates and imposing mandatory penalty on them and penalty under Rule 173Q (1) of Central Excise Rules, 1944. There is also separate penalty imposed on M/s. Superfil Products Ltd. This order of the Commissioner has been passed in de novo proceedings in terms of Tribunal's remand order passed in the appellant's own case by final order No. 572 & 573/2001 dated 27.4.2001. The Tribunal in the remand order had held that the order passed by the Commissioner was erroneous in nature and had violated the principles of natural justice. The Tribunal also noted that the Commissioner had not referred to the section notes and tariff notes and the terms of the notification involved in the matter and had also not categorically examined the evidence on record pertaining to time-bar. The appellants had contended that raising of duty demand on them does not arise as "doubling of yarn" did not amount to manufacture till the date of passing of Finance Bill, 1995. The Tribunal also going by this submission, had held that this was the position of law in terms of the Finance Bill and, therefore, the Commissioner had committed an error in confirming the duty till the date on which tariff note (3) to chapter 54 was introduced. The assessee had also submitted that they had received the single yarn for the process of doubling from M/s. Superfils Products under Rule 57F (2) on job work basis and returned the same under cover of documents, therefore, the question of raising demand on them did not arise. The Tribunal noted that the Commissioner had not entered into any finding on this aspect and, therefore, the matter was required to be examined from the original records and findings recorded on this aspect, Appellants had also contended that M/s. Superfil Products Ltd., who were supplying the single yarn for the purpose of doubling, had paid duty on the yarn and cleared the same to M/s. Porritts & Spencers and M/s. Dinesh Mills Ltd., who had given them two certificates to that effect. The Tribunal noted, after extracting both the certificates that, it indicated that "Nylon Monofilament yarn is not "Twine" as argued by the DR and that the Commissioner himself in his finding portion had clearly laid down that appellants were converting 330D Nylon monofilament yarn to 330D multifilament yarn. It noted that when the Commissioner had arrived at this finding, then it was difficult to accept DR's argument that appellants had cleared the product as "twine" as held by the Commissioner in para-4. The Tribunal had held that it is difficult to accept the Commissioner's finding as it is contradictory to his own findings and the allegations made in the show cause notice that appellants were doing the conversion work of monofilament yarn into mulfifolded yarn. It was noted that such a contradictoroy findings are not acceptable and requires to be set aside for the purpose of reconsideration of this issue, so that actual facts are brought on record. The Commissioner was directed to examine as to whether multifolded yarn received by the co-noticee i.e. Superfils Products were duty paid. If this be the position and that the same was going into the manufacture of first intermediary product, namely, 'fabrics', then the notification is clearly attracted and the proceedings are required to be dropped. The question was referred back for de novo consideration. However, the plea of the assessee that even if the department does not consider occurrence of intermediary product as 'fabric', which, according to the Tribunal, is not sustainable as, prima facie, a clear product had arisen and it is captively consumed.
The Tribunal observed that the sample of fabrics manufactured out of multifilament yarn was shown to the Bench and it was found to have all the characteristics of a fabric. However, the Tribunal noted that the Commissioner should re-examine the issue and observed that merely because department wishes to confirm duty, then they cannot suddenly take a stand in this very case that intermediate product is not a fabric. It was recorded that such a finding had also not been recorded in the Commissioner's order. It was noted that fabric which comes into existence had undergone further process of 'needling' to bring into existence the goods, namely, 'felts'. The Tribunal noted the argument of DR that both "fabric" and "felt" are different products. It observed that even going by this argument, the Revenue's case appears to fall to the ground because "fabric" had already come into existence. It was observed that Multifilament yarn, had been cleared which, according to appellant, is duty paid and cleared for manufacture of this intermediate product, namely, "fabric" before it underwent the process of manufacture of 'felt'. Therefore, the Tribunal noted that even going by the definition of "Fabric" and "Felt" appearing in S.B. Sarcar Book of "Words & Phrases" and the judgments referred to by DR, both the items are recognised as different items. The Tribunal also noted that the issue was settled by the judgment of Porritts & Spencer (Asia) Ltd v. State of Haryana, 1983 ELT 1607 (SO wherein it had been held that "fabric and felts" fall within the same category of Textiles'. The bench also noted that even in the case of Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan and Ors., 1980 ELT 383 (SC), the Apex Court had answered the question, as to "what is fabric"? in terms of the definition appearing in various dictionaries and held that the product fell within that definition. The Tribunal noted the judgment of Porrits & Spencer (Asia) Ltd. v. State of Haryana (supra) wherein it was held that "dryer felts" fall within the category of 'textiles' and are to be treated as "Fabrics". The same view was expressed in the case of Mysore Paper Mills Ltd. v. CC Madras, 1992 (38) ECC 45 (T) : 1992 (39) ECR 110. The Tribunal drew attention of the learned Commissioner and directed him to re-examine the issue on merits in the light of these judgments and the Board's Circular No. 198/32/96-CX dated 19.4.96 which explained the expression "manufacture of fabrics" appearing in Sl. No. 1 of Notfn. 35/95 dated 16.3.95 which is with regard to "Emproidery Yarn", which the Tribunal noted that it applied to the facts of the case. The Tribunal noted that even in terms of tariff notes referred to and the explanatory notes, there is clear clarification about "fabric and felt" which was not appreciated in the matter and the Ld. Commissioner was directed to re-examine the point de novo. The Tribunal also directed the Commissioner to re-examine the plea of time-bar in the light of correspondence of the appellants from 1991 onwards and re-determine the case.
2. The Commissioner, after due hearing, passed the impugned order. On due consideration, he has accepted the plea that Note (3) to Chapter 54 was introduced on 26.5.95 and, therefore, the demand from 23.2.94 to 25.5.95 is not sustainable.
3. As regards the question of eligibility of exemption under Notification No. 35/95, the Commissioner has noted that the Apex Court in the Case of Filterco & Anr., 1986 (24) ELT 180, comprising of five Judges re-examined the issue and in terms of this, held that the non-woven compressed woollen felts are not 'fabrics'. Therefore, he held that the item in question is non-woven material and fails the test o f pliability to be regarded as a fabric as the felt in question is not as pliable as a normal fabric. He also held that regardless of the fact that at the intermediary stage a base fabric emerges on the way to become felt, he found that the ultimate product, namely, the "felt" has no characteristics of a fabric. From the visual observation of the sample, no warp or weft can be seen. Therefore, no evidence of process of weaving is available to hold that the multi-folded yarn supplied by M/s. Super Associates had been used in the manufacture of 'woven fabrics'. He also noted that in terms of the judgment of the Apex Court rendered in "the case of CCE v. Dhiren Chemical Industries, 2002 (79) ECC 1 (SC) : 2002 (139) ELT 3 (SC), the intermediary product had been cleared at NIL rate of duty and not of appropriate rate of duty and, therefore, the benefit of Notification was not available.
4. As regards the issue of time bar, the learned Commissioner admitted the letters dated 25.11.91, 9.3.93 and 1.4.94 addressed to the Superintendent Central Excise, Ponneri Range by M/s. SFPL. However, he has now held that appellants had mis-stated/suppressed the facts and, therefore, larger period was invocable.
5. We have heard Ld. Advocate Shri S. Ignatius for the appellants and Smt. R. Bhagya Devi, Ld. SDR for the Revenue.
6. Ld. Advocate submitted that the Commissioner has clearly admitted about the three letters which were addressed to the department. He also drew our attention to the letters addressed to the Superintendent by M/s. Superfil Products Ltd. on 1.4.94 giving all the particulars in the format. The same has been acknowledged by the department and replied by their letter dated 25.1.96. It was stated in the letter that duty was leviable and they should take registration and clear the goods on payment of duty failing which further action would be taken in the matter. He submitted that as on the date of this correspondents, the bonafide belief was that when the intermediate product was a 'fabric' and cleared for manufacture of 'felts', then they would be exempt under the relevant notification as 'fabric' was cleared at NIL rate of duty.
The situation that appropriate duty does not include "NIL" rate of duty was only clarified by the Apex Court judgment in the case of CCE Vadodara v. Dhiren Chemical Industries, 2002 (79) ECC 1 (SC) : 2002 (139) ELT 3 (SC) decided on 12.12.2001. The bonafide belief and the law as it stood then was that when fabric cleared as an intermediate goods at 'NIL' rate of duty was also eligible for the benefit of the notification which had the terms "appropriate rate of duty". The Larger Bench of the Apex Court in the case of Dhiren Chemical Industries (supra) decided in favour of the Revenue which will have only prospective effect. He referred to the Board's Circular No.198/32/96-CX dtd. 19.4.96. He submitted that the circular will have only prospective effect in the light of Apex Court's judgment rendered in CCE Patna v.Usha Martin Industries, 2002 (84) ECC 795 : 1997 (94) ELT 460 and Paper Products Ltd., CCE, 1999 (66) ECC 36 (SC): 1999 (112) ELT 765. He also referred to the earlier circulars which held that goods to be 'felts' not to be liable to duty as the intermediate product 'fabric' was cleared at NIL rate of duty. It is his submissions that department being fully aware of the appellants having manufactured and cleared the goods under Rule 57F (2) and all the details had been furnished by their correspondence and the department also issued letter on 13.12.1995, therefore, show cause notice dated 25.5.98 invoking larger period from 23.2.94 to 5.6.97 is squarely barred by time. He also pointed out that the Commissioner mis-read the Larger Bench judgment of the Supreme Court rendered in the case of Filterco and Anr. v. Commr.
of Sales Tax, Madhya Pradesh and Anr., 1986 (24) ELT 180 (SC). He pointed out that in this case, the Apex Court clearly held that there was no contradiction in their earlier judgments in the case of Porrits & Spencer (Asia) Ltd. v. State of Haryana,1983 ELT 1607 (SC) and that of UOI v. Gujarat Woollen Felt Mills, 1977 ELT (J 24) as held in para-15. The Apex Court had clearly held that both these cases dealt with certain varieties of 'felts'. In the Gujarat Woollen Felt Mills case, the question before the court was whether non-woven felts manufactured out of woollen fibres by machine-pressing were "woollen fabrics" for the purpose of levy of excise duty under Entry 21 in Schedule I of Central Excise Act. It was held that the expression "fabric" took in only woven material and hence non-woven felts made out of woollen fibres were not "woollen fabrics". The Apex Court in para-16 held that in the case of Porritts And Spencer (Asia) Ltd. v. State of Haryana (supra) was wholly different. In that case, it was contended that 'dryer felts' made out of cotton or woollen yarn by the process of weaving according to the warp and weft pattern and commonly used as absorbents of moisture in paper manufacturing units fell within the ordinary and common parlance sense of the word "textiles" in item 30 of Schedule B to the Punjab General Sales Tax Act, 1948 and were, therefore, exempt from tax. The Apex Court while upholding the said contention held that the expression "textiles" interpreted according to its popular sense has only one meaning, namely a woven fabric and since the dryer felts were manufactured out of cotton, woollen or synthetic yarn by the process of weaving according to the warp and weft pattern, they were undoubtedly "textiles" within the meaning of that expression in item 30 of Schedule B. The Apex Court noted in FILTERCO case in para-16 that the subject-matter of the case before them being admittedly felt manufactured by a totally different process and the wording of the Entry 6 in Schedule of the statute, with which they were concerned being also wholly different, these two decisions are of no assistance to them. Therefore, it was argued that the Tribunal in the remand order had clearly held that the judgment of Porritts & Spencers (Asia) Ltd. applied to appellant's own case as the intermediate product was 'fabric' and, therefore, the Commissioner had mis-applied the rulings. He also submitted that till the date of issuing Board's clarification i.e. upto 15.5.95, they were exempt from duty. He pointed out to Board's Circular No. 125/36/95-CX dated 15.5.1995 clarifying the matter pertaining to appropriate rate of duty not being NIL rate of duty in terms of Apex Court judgment rendered in rendered in the case of Dhiren Chemical Inds. (supra). Therefore, the appellants were liable to pay duty only from the date of this circular and that they have been paying the duty accordingly. However, earlier to this judgment and previous circulars, there was rulings that "appropriate rate of duty" included NIL rate of duty and hence they were not liable to pay any duty. He also pointed out that the demands were clearly time-barred and referred to large number of judgments in this regard. He submits that there was no suppression of facts and the Commissioner for the first time in the impugned order had introduced a new ground to hold that appellants had mis-stated the facts. He had clearly admitted the correspondence of the appellants with the department and in that light, he cannot introduce a new ground of mis-statement. There are statements recorded and all the facts were known to the department and the department had also issued a letter dated 25.1.96 in response to their letter dated 1.4.94 calling upon them to pay duty. As they were under the bonafide belief that the notification in question was applicable to them, therefore, they were not liable to pay duty. He submits that there was no mis-statement or suppression of facts. Hence the larger period was not in vocable. He clarified that the Commissioner's reliance on Nizam Sugar Factory, 1999 (114) ELT 429 is not applicable as in that case there was suppression of facts while it is not so in the present case. In view of above submissions and the judgments referred to, Ld. Counsel prayed that the appeals be allowed by setting aside the impugned order.
7. Ld. SDK reiterated the findings given by the Commissioner. She submitted that the appellants ought to have taken out licence and paid duty after informing them if they were not eligible for the benefit of notification in question in view of change in tariff as per department's letter dated 25.1.96. As they had not complied with the terms of the letter, therefore, larger period was invocable. She submitted that as they had not complied with the terms of law and hence the Commissioner's finding should be sustained and appeals should be dismissed.
8. On a careful consideration of the submissions, we notice that insofar as the merits of the case is concerned, the Tribunal in the remand order had clearly held that appellants were clearing the fabrics as an intermediate product and that the judgment of Porritts & Spencer (Asia) Ltd. (supra) would clearly apply to the facts of this case. We notice that the Commissioner has noted in the impugned order that the Apex Court in the case of Filterco (supra) has distinguished its earlier judgments. We have carefully gone through all the judgments and notice that the Commissioner has not correctly dealt with the ratio of the judgments' The Apex Court in the case of Filterco (supra) in paras-15 & 16 have clearly noted the issue and the ratio of the judgments rendered in the case of Porritts & Spencer (Asia) Ltd. (supra) and that of UOI v. Gujarat Woollen Felt Mills (supra). In terms of the judgment rendered in Porritts & Spencer (Asia) Ltd., the 'dryer felts' which are manufactured out of cotton or woollen yarn by a process of weaving according to the warp and weft pattern and commonly used as absorbents of moistures in paper manufacturing units fell within the ordinary and common parlance sense of the word "textiles".
In the present case also, the appellants are manufacturing the same product for the purpose of absorption of moisture in paper manufacturing unit. Therefore, the item being same, the benefit of notification as it stood before the amendment was brought in by the Board is applicable to the facts of the case, the reason being that appropriate rate of duty had also been considered as NIL rate of duty on which intermediate products were cleared. Only after the Apex Court held in the case of CCE v. Dhiren Chemical Industries (supra) that appropriate rate of duty referred to amount of duty which has been paid. The situation changed and the Board clarified by their Circular No. 198/32/96-CX dated 19.4.96 that the intermediate stage can be considered to satisfy the requirement of Notification No. 35/95 dated 16.3.95 only if duty has been paid thereon. In that view of the matter, it is very clear that appellants, till the date of the circular issued by Board, were not liable to pay duty and hence their contest is justified. In the impugned order, the Commissioner has clearly held that only after the amended tariff by introduction of Note (3) to Chapter 54, the process of 'doubling of fabrics' amounted to manufacture and hence he has held that demands will take effect only from the date of introduction of Note (3) to Chapter 54 and demands from 23.2.94 to 25.5.95 has been held to be not sustainable. As we have held that appellants are eligible for the benefit of Notification No.35/95 till Board had clarified vide circular dated 19.4.96, therefore, the appellants were not liable to pay duty.
9. Insofar as the aspect of time-bar is concerned, in the present case, the demands have been raised from 13.12.1995 to 5.6.97 and the show cause notice has been issued on 25.5.98. We notice that the appellants had sent three letters dated 25.11.91, 9.3.93 and 1.4.94 which have been acknowledged and replied by the Commissioner. Ld. DR pointed out to these three letters which pertained to the period prior to introduction of tariff note (3) and in any case no duty was leviable for that period and hence there is no consequence arises from these letters. However, after the tariff note (3) to chapter 54 was introduced, the appellants had filed a detailed letter and format on 1.4.94. The range Superintendent has received the same and by his letter dated 25.1.96 has acknowledged the letter dated 13.12.95 and has called upon them to pay duty in view of Note (3) to Chapter 54. Further more, products were being received under Rule 57F (2). Therefore, the department was fully aware of all the facts and there is no fact which has been mis-stated. The Commissioner in the impugned order has, for the first time, taken up a ground of mis-statement which was not in the show cause notice. The department proceeded on the basis of suppression of facts. As we have noticed that the department has responded to the appellant's correspondence there cannot be any suppression of facts.
The Commissioner has applied the ratio of Nizam Sugar Factory's case (supra) which is on a different situation. In the Nizam Sugar Factory case, there was a subsequent notice issued invoking larger period. The Tribunal, after due consideration, upheld the issue of subsequent notice invoking larger period as suppression of facts-were available on record. In the present case, there was no facts available to disclose that appellants had mis-stated or suppressed any facts. On the other hand, there was correspondence between the appellants and the department. Hence, the department was fully aware of all the facts and circumstances of the case. Therefore, it cannot be said that appellants have suppressed or mis-stated any facts for invoking larger period. The department could have proceeded to stop clearances after they wrote the letter dated 25.1.96 calling upon the appellants to pay duty. The aspect pertaining to appropriate duty not being NIL rate of duty emerged only after the Apex Court rendered its judgment in Dhiren Chemical Industries case on 12.12.2001. The position of law was that appropriate rate of duty included NIL rate of duty. Therefore, the stand taken by the appellants that they were exempt from payment of duty was based on a strong ground. On a total evaluation of facts and circumstances, we note that the demands are barred by time and appellants are not liable to pay duty. They are also not liable to be penalised by mandatory penalty or penalty under Rule 173Q(1) of C.E.Rules, 1944. In that view of the matter, the impugned order is set aside and the appeals allowed with consequential relief, if any, as per law.