2008 (7) TMI 654 - AT - Central Excise

Summary

Issues:
- Duty demand on appellants M/s. Fenner India Ltd. (FIL) for movement of cotton yarn to job worker under Rule 96E without payment of duty.
- Whether impugned clearances of yarn qualified for movement without duty payment.
- Applicability of duty payment considering conversion of yarn into knitted fabrics and subsequent export.
- Compliance with Notification No. 47/94-C.E. (N.T.) dated 22-9-94 for clearance of cotton yarn for manufacturing knitted fabrics without duty payment.

Analysis:

1. Duty Demand on Appellants:
The Tribunal upheld the sustained demand of duty on FIL for the movement of cotton yarn to a job worker under Rule 96E without payment of duty. The impugned clearances of yarn were deemed ineligible for duty-free movement due to the job worker's facility not meeting the definition of a factory as per the rule. The duty demands were based on this non-compliance with the rule.

2. Conversion of Yarn and Export:
FIL argued that since the knitted fabrics manufactured from the yarn were eventually exported, and there was no evidence of diversion for home consumption, no duty should be payable. Citing precedents like Affan Shoes Pvt. Ltd. case and GTN Textiles Ltd. case, FIL contended that duty liability is deferred until goods enter the domestic market. The Tribunal agreed, emphasizing that the demands were not sustainable as the goods were not diverted for home consumption, aligning with the principles laid down in the cited cases.

3. Compliance with Notification No. 47/94-C.E.:
FIL also argued that the impugned demands were not valid as cotton yarn could be cleared for manufacturing knitted fabrics without duty payment and subsequent export under Notification No. 47/94-C.E. (N.T.). The Tribunal found merit in this argument, indicating that if FIL had followed the procedure under the notification, the confirmed liability would not have arisen. The decision in GTN Textiles Ltd. case further supported the position that duty payment was not required for goods exported, strengthening FIL's case.

In conclusion, the Tribunal vacated the impugned orders and allowed the appeals, emphasizing that the demands were raised due to procedural failures rather than actual liabilities. The decisions in the cited cases and the compliance with relevant notifications played crucial roles in determining the outcome in favor of FIL.