TMI Blog2000 (5) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... njoyed full exemption from central excise duty under notification no. 24/95-CE dated 16-3-1995. Both M/s. OWM and M/s. NSM were using exempted woollen worsted yarn in hank form and were converting the same into cone yarn for use in the manufacture of knitted fabrics. Under Note 3 of Chapter 51 of the Central Excise Tariff, conversion of any form of yarn into another form of yarn amounted to manufacture. It was alleged in the show cause notice dated 3-10-1996 issued to M/s. OWM, 373, Industrial Area A Ludhiana, that M/s. OWM had manufactured yarn of cones and had cleared the same for captive consumption without payment of central excise duty. Duty of Rs. 4,25,08,574/- was demanded for the period 16-3-1995 to 30-4-1996 invoking the extended period of limitation. The provisions of Section 11AC of the Central Excises Act, 1944 (hereinafter referred to as the Act ) were invoked by way of addendum issued on 6-11-1997. In the second show cause notice dated 2-12-1996 issued to M/s. NSM, 427, Industrial Area A Ludhiana, similar allegations were made for the period 1-5-1996 to 22-7-1996 and demand of duty of Rs. 3,22,740/- was made. Show cause notice dated 30-12-1996 was issued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. NSM and four by the Revenue were heard together on 27-4-2000, when Shri Harbans Singh, Advocate, with Shri N.D. Jain, Director, appeared for OWM and NSM. Shri R.S. Sangia, JDR, with Shri V.M. Udhoji, JDR, represented the Revenue. Shri Harbans Singh, Advocate, submitted that NSM had two units - one was a spinning unit and the other was engaged in the manufacture of knitted fabrics. Similarly, OWM had two units - one was a composite unit engaged in spinning and weaving, while the other unit was only manufacturing fabrics. Woollen yarn in hank form enjoyed exemption from duty. The units availed of the exemption and used yarn so cleared under exemption in the manufacture of knitted fabrics. While making the yarn fit for use in the manufacture of knitted fabrics, some support was necessary to the hank yarn. Hank yarn was without any support. The yarn in hank was wound on cone in a loose manner only for its use captively. It was his submission that the units were not converting hank yarn into cone yarn and that no cone yarn in marketable form came into existence. He referred to Note 3 to Chapter 51 of the Central Excise Tariff and submitted that the units were not converting ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd M/s. NSM were engaged in the manufacture of hank yarn which enjoyed full exemption from the payment of Central Excise duty under Notification No. 24/95-CE dated 16-3-1995. Such hank yarn was used in the manufacture of knitted fabrics. Before its use in the manufacture of knitted fabrics, hank yarn was converted and was wound on the cones. The noticee were clearing the exempted hank yarn to another unit and were also using the same for the conversion of cone yarn. Whether captively consumed or cleared to the other sister concern, in all cases the hank yarn was rewound on cones as the hank yarn was not usable in the power looms. The adjudicating authority had held that the process employed by the notices for conversion of yarn received in hank form into yarn in the form of cones amounted to the process of manufacture and the duty of Central Excise was chargeable on such conversion of yarn from exempted hank yarn to dutiable cone yarn. 7. Under Finance Bill 1995 (Bill No. 12 of 1995) effective from 16-3-1995, in Chapter 51 of the Central Excise Tariff relating to wool, Note 3 was substituted vide Item No. 21 in Part 1 of the Forth Schedule to the Finance Bill 1995 [refer page B- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSM, four show cause notices had been issued. In appeal No. E/3065/98-D show cause notice was issued on 3-10-1996 and the period involved was 16-3-1995 to 30-4-1996; in appeal No. E/3066/98-D the show cause notice was issued on 2-12-1996 and the period involved is from 1-5-1996 to 22-7-1996; in appeal no. E/3067/98-D the show cause notice was issued on 30-12-1996 and the period involved is from 16-3-1995 to 22-7-1996. Both the noticees have pleaded that in case their submission with regard to the process of manufacture and the exemption from the payment of Central Excise duty are not accepted, even then the major portion of the demand will be hit by time-bar inasmuch as, according to them, in the facts and circumstances of the case, there was no justification for invoking the extended period of limitation. 13. Now we will examine this aspect of the matter. Both the noticees were registered with the Central Excise Department since the year 1992. The registration No. of OWM was 133-R-VII/LDH/92 and that of NSM was 12-R-VII/LDH/92. They were maintaining Central Excise statutory records. The yarn account was maintained by NSM for the years 1994-95, 1995-96 and 1996-97 and the photo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne yarn when the hank yarn had already enjoyed exemption from the payment of duty. They had further submitted that they were not undertaking the processing of twisting and texturising and thus could reasonably have a view that they were not required to pay any Central Excise duty when the support was provided to hank yarn to make it suitable for manufacturing knitted fabrics. We may also refer to Notification No. 35/95-CE dated 16-3-1995 which had been referred to in the Trade Notice dated 16-3-1995, referred to above. Under this notification dated 16-3-1995, the yarn (other than sewing thread) double or multifold including cabled yarn falling under Chapters 51, 52, 54 and 55 enjoyed exemption if the yarn was - (i) meant for use in the manufacture of fabrics; and (ii) manufactured out of yarn falling within chapters 51, 52, 54 and 55 on which the appropriate duty of excise has already been paid. The noticees have submitted that the yarn in their case was meant for use in the manufacture of fabrics and the hank yarn out of which the yarn in their hand had been cleared under exemption. It was their plea that the payment of NIL duty was also the payment of appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts have relied upon the following decisions in support of their contention that there was no justification for invoking the extended period of limitation :- (1) CCE, v. Chemphar Drugs Liniments, 1989 (40) E.L.T. 276 (S.C.) - extended period of five years was applicable only when something positive other than mere inaction or failure on the part of the manufacturers is proved; (2) Padmini Products v. CCE, 1989 (43) E.L.T. 195 (S.C.) - extended period of five years was inapplicable for mere failure or negligence of the manufacturer to take out licence or pay duty when there was scope for doubt that goods were not dutiable; (3) Associated Cement Companies Ltd. v. CCE, 1989 (40) E.L.T. 159 (T) -extended time limit was not to apply in case of bona fide belief that duty is not leviable. Demand beyond six months s period was not upheld; (4) Executive Engineer, KSEB, Kerala v. CCE, Kochi, 1997 (92) E.L.T. 264 (T) when appellant was under bona fide belief that operations carried out by them might not amount to manufacture, suppression of facts with intent to evade payment of duty was not established. 18. We, therefore, consider that the extended period of limitation was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade thereunder with intent to evade payment of duty, then the person liable to pay duty as determined under Sub-section (2) of Section 11A shall in addition to the duty be liable to pay interest at such rate not below 10% and not exceeding 30% per annum as is for the time being fixed by the Central Board of Excise Customs. Such interest was payable from the first date of the month succeeding the month in which the duty ought to have been paid under the Act or the Rules made thereunder but for the provisions contained in sub-section (2) of Section 11A till the date of payment of such duty. These provisions with regard to the payment of interest came into effect from 28-9-1996. No retrospective effect had been given to these provisions. In fact, for the removal of doubts it had been declared in sub-section (2) of Section 11AB that the provisions of sub-section (1) of Section 11AB shall not apply to cases where the duty became payable before the date on which the Finance (No. 2) Bill, 1996 received the assent of the President. The Central Excise Duty is payable on the date and time when the excisable goods are removed from the factory or the warehouse. The word Payable connote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11-AC of the Act could be levied even when the adjudication proceedings have been completed after 28-9-1996. We may also refer to the Tribunal s decision in the case of Sonia Engg. Works v. CCE, New Delhi, 1998 (29) RLT 630 (CEGAT), wherein the Tribunal had held that the penalty and interest were not imposable in case the duty liability pertained to the period prior to Section 11AC came into force. Thus, we consider that the mandatory penalty under Section 11AB (sic) of the Act could not be imposed. In the facts and circumstances of the case, we also consider that penalty under Section 173Q of the Rules was also not justified. We set aside the same. 23. Both M/s. OWM and M/s. NSM have submitted that if on merits their pleadings are not acceptable, then the demands should be restricted to the normal period of limitation and the benefits treating their prices as cum-duty prices should be extended to them. In appeal No. E/3067/98-D, the benefit of Modvat credit has also been claimed. We have analysed the matter in considerable detail and have come to a finding that in the facts and circumstances of the case there was no justification for invoking the extended period of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Central Excise, Chandigarh. Amount of duty determined as per A/O Rs. 68,41,473.00 I. If abatement of duty contents is reduced from Assessable Value, Margin of profit is taken to be 0.79% instead of 10% as taken in the A/O and credit of Modvat on input i.e. wool top is allowed - then the amount of duty comes to Rs. 39,06,280.94 (Reference Annex. A of write-up) If extended period of limitation is not permissible II then the amount of duty comes to Rs. 3,23,263/- (Reference Annex. B of write-up) Appeal No. E/3068/98-D - M/s. Oswal Woollen Mills Ltd., Unit No. 5, Industrial Area A, Ludhiana. v. Commissioner of Central Excise, Chandigarh. Amount of duty determined by A/O Rs. 22,46,823.00 I. If abatement of duty content is reduced from Assessable Value and Margin of profit is taken to be 0.79% instead of 10% as taken in A/O.- then the amount of duty comes to Rs. 18,46,370/- (Reference Annex. A of write-up) If extended period of limitation is not permissible II. then the amount of duty comes to Rs. Nil (Reference Annex B of write-up) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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