2002 (1) TMI 436 - AT - Central Excise

Summary

Issues:
Limitation of duty demand, Conversion of yarn into cones, Manufacture of final products, Allegations of fraud or misrepresentation, Invocation of extended period of limitation, Bona fide belief of the appellants, Applicability of Section 11AC penalty, Legal sustainability of penalty imposition.

Analysis:
1. Limitation of Duty Demand: The appellants contested the duty demand raised through a show cause notice dated 8-11-99, arguing it was time-barred as it pertained to the period 1-4-95 to 31-3-96, while the notice was issued later. The Counsel relied on precedents to support this claim, emphasizing the lack of evidence for fraud or misrepresentation by the appellants during that period.

2. Conversion of Yarn into Cones: The Commissioner found that the conversion of yarn into cones constituted manufacture as per Note 3 of Chapter 51 of the CETA, following the precedent set by the Tribunal in a related case. The appellants did not contest this finding, focusing instead on the limitation issue.

3. Allegations of Fraud or Misrepresentation: The Counsel argued that there was no evidence of fraud, collusion, or wilful misstatement by the appellants to evade duty payment. The lack of specific allegations in the show cause notice regarding intentional evasion supported the contention that the extended period of limitation could not be invoked.

4. Bona Fide Belief of the Appellants: The appellants operated under a bona fide belief that the cones were not excisable, as there was no indication from the visiting officers during the factory visit that the cones were subject to duty. The disclosure made by the Director of the company during the visit further supported this belief.

5. Applicability of Section 11AC Penalty: The Tribunal noted that no penalty under Section 11AC could be imposed on the appellants for the duty period from 1-3-95 to 31-3-96, as this section was not in effect during that time. The penalty imposed was deemed legally unsustainable and set aside.

6. Judgment: Considering the facts, legal precedents, and absence of evidence supporting intentional evasion, the Tribunal ruled in favor of the appellants. The duty demand for the specified period was deemed time-barred and set aside, along with the penalty under Section 11AC. The impugned order of the Commissioner was overturned, and the appeal of the appellants was allowed with consequential relief under the law.