| SooperKanoon Citation | sooperkanoon.com/32939 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Nov-05-2003 |
| Judge | A T V.K., P Bajaj |
| Reported in | (2004)(164)ELT64TriDel |
| Appellant | Commr. of C. Ex. |
| Respondent | Pashupati Spinning and Weaving |
2. The learned SDR has contended that the benefit of Notification No.25/97-C.E., dated 7-5-97 is not available to the respondents as they had cleared sewing thread in the form of hanks and that the Commissioner (Appeals) has wrongly observed that the said notification is applicable to such clearances of the sewing thread. Therefore, the impugned orders passed by the Commissioner (Appeals) in both the appeals, deserve to be set aside.
3. On the other hand, the learned Counsel has contended that the learned Commissioner (Appeals) after examining the sample of the sewing thread in hanks, had allowed the benefit of the above said notification rightly to the respondents. He has also contended that the definition of the sewing thread as set out in Section Note 3 of Section XI cannot be made applicable to the case of the respondents especially when the above said notification did not so require. Therefore, the impugned orders passed by the Commissioner (Appeals) are perfectly valid in both the appeals.
4. We have heard both sides and gone through the record. The bare perusal of the Notification 25/97-C.E., dated 7-5-97 shows that the concessional rate of duty provided therein can be availed by the assessee on the clearances of sewing thread. The expression 'sewing thread' no doubt had not been defined in the notification itself. But since the notification had been issued providing concessional rate of excise duty, for ascertaining the essentials of the 'sewing thread', reference has to be made to its definition as provided in Section Note 3 of Section XI of the Schedule, to the CETA. The bare perusal of this Section Note leaves no doubt that one of the conditions for the purpose of qualifying as sewing thread, is that multiple (folded) or cabled yarn, must be put on a support (e.g. reels and tubes) and it should be dressed for use as sewing thread. The respondents in the instant case, had cleared the thread/yarn in the form of hanks only and as such it cannot be concluded that it had been put on support before clearing the same from the factory by the respondents. The observations of the learned Commissioner (Appeals) that it did not matter if the respondents were not putting the thread on support like reels and tubes as the same had been mentioned in Section Note 3 of Section XI of the Schedule by way of example, cannot be taken to be legally correct.
Section Note 3 of Section XI prescribes the conditions, which must be satisfied before any thread can be declared as sewing thread and one of the most important conditions laid down is that the thread must have been put on support e.g. reels and tubes besides the other condition that it should also be dressed for use as sewing thread. The respondents cannot be said to have put the thread on support such as reels or tubes by only tying the thread in hanks, with little pieces of yarn at different places, as observed by the learned Commissioner (Appeals). His observations in this regard are totally erroneous and against the conditions laid down in Section Note 3 to Section XI of the Schedule for considering the thread as sewing thread. A sample of sewing thread in hanks had also been produced before us during the course of arguments and we noticed that it had been only tied at certain places with pieces of yarn. It had not been put on any support like reels or tubes. It was in the form of hanks only. Such a thread did not fall within the definition of 'sewing thread' as given in the above said Section Note. The end-use of the thread could not be a criteria for holding it to be a 'sewing thread' so as to allow the benefit of the notification in question to the respondents, as has been done by the learned Commissioner (Appeals), when conditions for accepting a particular thread as sewing thread had been specifically set out in Section Note 3 of Section XI, referred above. The end-use of the thread had been nowhere mentioned therein as one of the conditions for treating a thread as a sewing thread. The principal condition mentioned therein is that it must have been put on support (e.g. reels and tubes) and should be dressed for use as sewing thread. This condition in the present case, does not stand satisfied as the thread had been cleared in the form of hanks, by the respondents. Therefore, the benefit of the Notification No. 25/97, dated 7-5-97 for claiming concessional rate of duty is not available to the respondents. The duty demand in both the appeals with penalty was rightly confirmed against the respondents by the adjudicating authority through the orders-in-original. The Commissioner (Appeals), in our view, has erroneously reversed those orders, by misinterpreting the definition of sewing thread provided by Section Note 3 of Section XI of the Schedule appended to the CETA. Therefore, the impugned orders passed by him in both the appeals cannot be sustained and deserves to be set aside.
5. The contention of the learned Counsel that for the purpose of interpreting the notification in question, Section Note/Chapter Notes of the Tariff cannot be looked into and are not even relevant, cannot be accepted being wholly misconceived. The notification in question under which the respondents have claimed exemption (25/97) had been issued by exercise of power under Section 5A of the Central Excise Act.
The effective rate of duty payable on the sewing thread at the time of clearance by a manufacturer, is mentioned in the Tariff and it is the payment of that duty in full, which had been exempted/reduced through the notification. Therefore, before a manufacturer can claim the benefit of the exemption notification, he has to satisfy that the goods stand covered by a particular Heading/sub-heading of the Tariff. The Chapter Notes/Section Notes of the Schedule, form part of the Tariff and they have to be read along with a particular Tariff entry in order to ascertain the true character/description of the goods, in respect of which the manufacturer has sought the benefit of the exemption notification. To say that the Chapter Notes and Section Notes are not relevant for interpreting the exemption notification issued under the Central Excise Act, would not be legally justiciable. In the instant case, the concessional rate of duty under the notification in question, has been extended to the sewing thread only. In order to ascertain whether thread manufactured and cleared by the respondents and in respect of which they have claimed concessional rate of duty under the exemption notification, as a sewing thread or not, reference has to be made to the provisions of Chapter Heading 55.09 and Section Note 3 of Section XI appended thereto. The thread cleared by the respondents as observed above, does not satisfy the definition of the sewing thread as given in Section Note 3 of Section XI of the Schedule. The ratio of law laid down in (i) Keltron Power Devices Ltd. v. Collector of Customs -1987 (28) E.L.T. 93, (ii) Khoday Brewing & Distilling Industries Ltd. - 1997 (90) E.L.T. 336, (iii) S.S. Appliances (P) Ltd. v. Collector of Customs - 1998 (100) E.L.T. 429, (iv) CC v. Maruti Udyog Ltd. and Sipani Automobiles Ltd. v. CC - 1997 (72) ECR 948, (v) Nippon Precision Bearing Ltd. v. CC -1997 (90) E.L.T. 57; and (vi) CC v. Hotline Wittis Electronics Ltd. - 2003 (151) E.L.T. 305 relied upon by the Counsel, is not attracted to the case of the respondents, as the issue involved therein was quite different than the one involved, in their case.
Similarly, the ratio of law laid down by the Apex Court in Union of India v. Wood Papers Ltd. - 1990 (47) E.L.T. 500 (S.C.) is not of any avail to the respondents in the light of the facts and circumstances discussed above. The exemption notification has to be interpreted strictly and this proposition of law is well settled.
6. No benefit of law laid down in CCE, Chandigarh v. Food Specialities Ltd. (decided vide Final Order No. E/56/96-D) can be availed by the respondents as in that case, the interpretation involved was of the term "put up in unit containers". The wrapping of the goods around the noddle cakes was taken to be put up in the unit container. But, such is not the position in the case in hand, in the light of the facts and circumstances detailed above. The principal law laid down by the Apex Court in the case of Porrits & Spencer (Asia) Ltd. v. State of Haryana - 1983 (13) E.L.T. 1607 (S.C.) = AIR 1979 SC 300 also does not in any way advance the case of the respondents. In that case, it has been only observed that Section Note should be interpreted having regard to the newly developing materials/methods and processes and must not be restricted to the kind of support mentioned as example. But in the present case, the thread manufactured and cleared by the respondents does not fall within the definition of sewing thread as prescribed by Section 3 Note of Section XI as observed above.
7. In appeal No. E/1383/03, the issue of limitation is also involved.
In this appeal the duty demand has been raised for the period May, 97 to April, 98 and show cause notice was served on the respondents on 31-5-2000. The learned Counsel has contended that the respondents filed declaration under Rule 173B with the Department from time to time since 7-5-97 and claimed the benefit of Notification 25/97 and the correctness of that declaration was never disputed by the Department.
Therefore, there was no suppression of facts by them from the Department and as such, the demand is time-barred. But in our view, this contention of the Counsel cannot be accepted. In the declaration the respondents only disclosed that they would be clearing the sewing thread. They did not disclose the form in which they would be clearing.
They intentionally suppressed this material fact from the Department by not stating in the declaration that they would be clearing the thread in the form of hanks. Similarly in their RT 12 returns, this fact was never disclosed by them. Rather they kept the Department in dark by not disclosing about the form of clearance of thread by them. Therefore, in our view, the extended period has been rightly invoked against them.
The ratio of law laid down in Densons Pultretaknik v. CCE - 2003 (155) E.L.T. 211 (S.C.) is not attracted to the case of the respondents, as it had been observed therein, that merely claiming classification under a different heading doses not amount to suppression of facts. But in the instant case, they had claimed the benefit of the notification by suppressing the facts. Similarly the ratio of law laid down in Cadilla laboratories P. Ltd. v. CCE - 2003 (152) E.L.T. 262 and New Decent Footwear Industries v. Union of India - 2002 (150) E.L.T. 71 referred by the Counsel, are not applicable to the case of the respondents for the reasons detailed above.
8. In this very appeal, the Counsel has also contested the imposition of penalty under Section 11AC. He has contended that the respondents acted under a bona fide belief that the thread cleared by them was covered by the exemption notification in question and as such, no penalty could be imposed on them. But we are unable to subscribe to the contention of the learned Counsel. The respondents had suppressed the material facts from the Department and the extended period has been rightly invoked against them. Therefore, for the purpose of imposing penalty, the provisions of Section 11AC stands attracted. The respondents cannot be said to have acted in a bona fide manner. Rather, they acted with a mala fide intention with a view to evade payment of duty and claimed exemption under the notification in question wilfully, though knowing fully well that the same was not available to them. The ratio of law laid down in Cement Marketing Co. of India v. Assistant Commissioner of Sales Tax - 1980 (6) E.L.T. 295 (S.C.) wherein it has been observed that penalty should not be imposed where the assessee had raised a bona fide contention, is not attracted to the case of the respondents for the reasons detailed above. However, keeping in view the facts and circumstances and the issue involved, the penalty imposed on the respondents is reduced to Rs. 1 lakh.
9. In view of the discussion made above, in both the appeals, the impugned orders are set aside. In appeal No. E/459/03, the order-in-original is restored in toto, while in appeal No. E/1383/03, the original order regarding confirmation of duty is restored fully, but in respect of penalty, the same is modified by reducing it to Rs. 1 lakh. Both the appeals of the Revenue accordingly stand allowed.