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2023 (12) TMI 472 - AT - Central Excise100% EOU - eligibility for benefit of exemption available under Notification No. 8/97-CE dated 01.03.1997 and Notification No. 23/2003-CE dated 31.03.2003 to pay duty on DTA clearance of ‘Open End Yarn’ - case of the revenue is that ‘Open end yarn’ was manufactured by the appellant out of imported raw cotton hence not eligible for exemption - suppression of facts or not - time limitation. HELD THAT:- The appellant has manufactured Ring Spun Yarn and Open End Yarn. The Ring Spun Yarn was manufactured out of imported raw cotton as well as locally procured raw cotton and in the process of production of the same, cotton waste was generated. The open end cotton yarn was manufactured from cotton waste. The sole basis on which the exemption is sought to be denied by the revenue is that Open End Yarn cleared in the DTA is produced out of the cotton waste allegedly arose of the imported cotton. Whereas it is found that the Notification only provides that finished goods should be manufactured or produced from raw materials manufactured or produced in India - In the present case, cotton waste is indeed produced in India. The goods cleared to DTA in the present case are ‘Open End Yarn’ which is manufactured wholly out of cotton waste generated at the time of manufacture of Ring Spun Yarn in the factory premises of appellant. The entire quantity of imported cotton or domestic cotton used as raw materials for the manufacture of ‘Ring Spun Yarn’ and not for the ‘Open End Yarn - In the present matter imported cotton are raw material for “ Ring Spun Yarn” , it cannot be said that the same are “raw materials” as envisaged in Notification No. 8/97 for Open End Yarn. The expression “raw materials” is a material used in manufacture of goods; in the case in hand Open End Yarn is manufactured from cotton waste and not from the imported cotton. The Supreme Court in the decision in COMMISSIONER OF CENTRAL EXCISE, SURAT-I VERSUS M/S FAVOURITE INDUSTRIES [2012 (4) TMI 65 - SUPREME COURT] upheld the judgment of this Tribunal in Favourite Industries and ruled that the benefit of exemption under Notification No. 8/97-C.E. is available where raw materials supplied by another 100% EOU are used by a 100% EOU and that such raw materials or goods belonging to 100% EOU would constitute raw materials or goods produced or manufactured in India. In view of the aforesaid Apex court judgment, it is clear that goods manufactured in EOU is duly considered to be manufactured in India. In the present matter the cotton waste was manufactured in Appellant factory and the same was used for Open End Yarn accordingly the condition of the Notification stand satisfied by the appellant - It therefore, also follows that when further goods are manufactured out of such cotton waste, which is an indigenous product, such further goods viz. Open End Yarn in this case, shall be goods which are manufactured wholly out of indigenous raw material and therefore, eligible for the benefit of the Notification. Clearly, in the present matter revenue has failed to consider the provisions of Section 2(d) and Section 3 of the said Act and erred in holding that cotton waste is not manufactured product. Time Limitation - suppression of facts or not - HELD THAT:- It is on records that department was fully aware about the activity of appellant and all the facts were in the knowledge of the department at the time of issuance of first show cause notice dated 31.01.2005. In this fact when the department was in complete knowledge regarding the use of raw material and clearance of finished goods in DTA, however, the department has not raised any objection at the relevant time. Therefore, there is absolutely no suppression of fact or mis-declaration with intent to evade payment of duty on the part of the appellant. Therefore, extended period of demand cannot be invoked. Hence the demand for extended period is not sustainable on limitation also. The demand of duty is not sustainable on merit as well as on limitation. Accordingly, the impugned order is set aside - Appeal allowed.
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