2001 (11) TMI 767 - AT - Central Excise

Summary

Issues:
1. Liability to pay duty on molasses produced by a Khandsari Sugar Factory.
2. Eligibility for exemption to small scale industry for procurers of Khandsari molasses.
3. Interpretation of legal fiction regarding the liability of the procurer.
4. Application of legal principles in extending legal fiction to areas beyond its intended purpose.

Issue 1:
The case involved appeals by Revenue against a common order passed by the Commissioner (Appeals) in favor of two distillery units engaged in manufacturing alcohol using Khandsari molasses. Rule 7A of the Central Excise Rules, 1944 imposed duty on molasses procured from Khandsari sugar factories. The issue was whether the procurer of such molasses is liable to pay duty and if they qualify for small scale industry exemption. Reference was made to a previous Tribunal decision for guidance.

Issue 2:
Following an amendment in Rule 9, the burden of duty liability on Khandsari molasses was shifted to the procurer instead of the manufacturer. The legal fiction created deemed the procurer as the manufacturer of molasses. However, this fiction did not extend the small scale industry exemption to procurers using molasses for non-excisable alcohol production. The Tribunal held that the legal fiction was limited to duty collection purposes and could not grant exemptions beyond its scope.

Issue 3:
The appellant argued for reconsideration of the legal fiction interpretation based on Supreme Court decisions. The court clarified that legal fictions must be limited to their intended purpose. Extending the fiction to grant exemptions to small scale industries would go against the legislative intent behind the rule amendments. The court emphasized that the legal fiction only applied to duty collection and not to exemptions.

Issue 4:
The court rejected the appellant's argument to extend the legal fiction beyond its intended scope. Referring to previous decisions, the court emphasized that legal fictions should not be stretched to areas unintended by the legislation. The court found no reason to deviate from the previous Tribunal decision and set aside the Commissioner (Appeals) order, restoring the adjudicating authority's orders.

In conclusion, the judgment clarified the liability of procurers for duty on Khandsari molasses and the inapplicability of small scale industry exemptions to such procurers. The court emphasized the limited scope of legal fictions and upheld the decision based on established legal principles and legislative intent.