9911796707
TMI Blog2007 (6) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... . The applicant for its 100% EOU, is registered with the office of the Development Commissioner, Kandla. The applicant commenced its commercial production from 15-6-94 and is continuously operating as 100% EOU since then. 3. The applicant produces (a) 100% Ring Spun Cotton yarn from cotton at ring spinning section and (b) open end cotton yarn from the waste of cotton generated. Waste generated out of ring spinning yarn is used as raw material for manufacturing of open end cotton yarn. The applicant has another facility of producing open end cotton yarn for which there is a separate set of machines and these machines are in a separate identified area within the 100% EOU. 4. The facts relevant for this order are that the applicant has cleared its products i.e. cotton yarn/open end cotton yarn in DTA by wrongly availing the concessional rate of duty under Notification No. 8/97-C.E., dated 1-3-1997. As such a case of contravention of the provisions of Notification No. 8/97-C.E., dated 1-3-97 against the applicant was booked by the Revenue. 5. On the basis of investigations carried out, the Department issued three Show Cause Notices having identical issues, demanding duty liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of indigenous raw material. The period covered for the show cause notice No. 2 is from 1-4-2000 to 30-11-2004 while show cause No. 3 covers the period from 1-12-2004 to 31-3-2005. 9. The department has sought to deny exemption available under Notification No. 8/97 in respect of DTA despatches of Open End Yarn. The basis on which the Show Cause Notice No. 2 dated 15-2-2005 & No. 3 dated 21-7-2005 have been issued is that, the applicant has not maintained separate registers to show production of open end yarn out of the waste of imported cotton and open end yarn manufactured out of the waste of domestic cotton, in terms of notification No. 8/97. It is alleged in the Show Cause Notices Nos. 2 and 3 as referred above that the applicant has not maintained separate records to identify the use of waste derived out of imported cotton and domestic cotton used in the manufacture of Ring Spun Yarn. 10. The department's view is that Notification No. 8/97 requires that there should be separate records for availing the benefit of the said notification in respect of the finished goods manufactured out of indigenous raw material and sold in DTA. As the applicant has not maintained separate re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue's allegations in respect of the aforesaid Show Cause Notices, he submitted that (i) the applicant had procured source materials from domestic market, i.e. from various traders including KC and SVE. (ii) that the applicant fabricated the invoices of KC and SVE and shown the source materials as a receipt from them, are unconvincing since the Revenue has verified invoices of only KC and not those of other suppliers nor they have any other evidence except the statement of an employee of KC. (iii) that the applicant had, however, accepted the demand relating to KC. He also mentioned that it was an admitted fact in the Show Cause Notice that no discrepancy had been found at the time of search and stock verifications. (iv) that the applicant has kept separate accounts head-wise in order to distinguish finished goods under distinct raw materials' heads and further submitted that a major portion of the demand is relatable to duty leviable under the Additional Duties of Excise [Textiles and Textile Articles] Act, 1978 which are completely illegal as the DTA despatches of yarn by 100% EOU do not attract Addl. Excise Duty (in short AED) in view of the decision of the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (c) Details of payment made to suppliers and the mode thereof. (d) Documents towards transportation of the goods from the suppliers premises to the applicants premises with transporting vehicle particulars. (ii) The Revenue and the applicant to hold a joint sitting as per their mutual convenience, within 10 days from 16-6-2006 to sort out their differences in regard to the duty liability. (iii) The Revenue to submit a report within 30 days from today (i.e. 14-6-2006) on the final duty liability after giving admissible deductions with a copy to the applicant, who shall submit its comments thereon, if any, by 24-7-2006. 16.2 Accordingly the Revenue submitted their comments vide report dated 3-8-2006 and the applicant submitted its rejoinder. After going through the report and the rejoinder, the Bench, in view of the alleged differences between the Revenue and the applicant, marked the case to the Commissioner (Investigations), for further enquiry and investigation under the Act. The Commissioner (investigation) investigated the matter thoroughly and submitted his report dated 10-3-2004. In his report, the Commissioner (Investigation) squarely held that with respect to SCN No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on). Ø Admittedly the applicant is maintaining separate records to show issue of waste out of domestic cotton for production to open end yarn and issue of waste out of imported cotton for production of open end yarn separately (viz. waste receipt and issue register for waste out of domestic cotton and waste receipt and issue register for waste out of imported cotton). Further, that- (i) Once the open end yarn is manufactured the applicant does not have any records to identify segregation of open end yarn produced out of imported cotton waste and open end yarn produced out of domestic cotton waste. (ii) However, percentage (%) recovery of open end yarn out of waste of imported cotton and out of waste of domestic cotton is same. (iii) Further it was found on records that actual waste generated has also been within the range of wastage norms specified in the LOP (i.e. 30% as fixed by the Development Commissioner) and concluded that duty admitted by the applicant in respect of the open end yarn manufactured out of waste of imported cotton is by using the percentage of waste of imported cotton used for issue to manufacture open end yarn to the total. 16.4 As the recovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2000 to 31-3-2001 and there was no evidence to substantiate that there were any bogus invoice dealings during the said period. Moreover there are several other domestic suppliers from whom the applicant had purchased raw cotton, but in the SCN the Revenue has mentioned only about the verification of records of M/s. KC and not other suppliers. The said Show Cause Notice refers to the statement of Mr. Rajedra Prasad Sharma recorded during investigations which cannot be relied upon since he was a lower level executive. Moreover Mr. Sharma retracted the said statement afterwards. In view of this, the applicant has not admitted the duty demand of Rs. 64,61,926/- for the period of 2000-01. 17.1 As regards other period, i.e. from 1-4-2001 to 30-11-2001 involving duty demand of Rs. 50,72,764/- duty has been calculated for the whole of the quantity of the cotton yarn despatched into DTA, assuming everything is dispatched from yarn produced from imported yarn. The ld. Advocate further argued that the demand of Rs. 50,72,764/- which the Revenue demanded in its SCN is in respect of all the despatches into DTA. But the SCN has completely ignored the fact that the applicant as on 1-4-2001 had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be held as indigenously manufactured, are on the basis of a technical point and further referring to the process of generating cotton waste submitted that the applicant maintains separate record of yarn manufactured out of imported cotton and yarn manufactured out of indigenous cotton. The applicant also maintains separate records for waste generated out of imported cotton and waste generated out of indigenous cotton separately. When the open end yarn finely is manufactured, the applicant do not maintain separate register of open end yarn manufactured out of the waste of imported cotton and out of waste of indigenous cotton . Reliance was placed on the various case laws as below and he further stated that the benefit of Notification No. 8/97 is available in respect of DTA dispatches of 100 EOU because it is produced out of waste manufactured in India. (a) Cosco Blossoms Pvt. Ltd. v. CC, Delhi [2004 (164) E.L.T. 423 (Tribunal)] (b) Favourite Industries v. CCE Surat-I [2003(156) E.L.T. 802 (Tribunal)] (c) Sarthi Textiles v. CCE, Surat [2004 (167) E.L.T. 308 (Tribunal)] (d) Vanasthali Textiles Inds.Ltd. v. CCE, Surat [2004 (164) E.L.T. 468 (Tribunal)] (e) Ghodela Impex v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be paid by the applicant for a number of reasons. In addition to above, the Revenue conceded that demand of duty of Rs. 57,58,516/- [(under additional duty (AEOTTA)] was not sustainable and therefore the said demand was not pressed upon. Referring to the report of the Commissioner (Investigations), the ld. Consultant submitted that the said report lacked objectivity. In the said report many issues were not investigated thoroughly. He further referred to Show Cause Notice dated 30-1-2005 and submitted that opening balance of raw cotton as on 1-4-2001 was 262 099 MTs, cotton receipt was 445.335 MTs and cotton yarn manufactured during the year 4/2001 to 11/2001 was 480.838 MTs and when 445.335 MTs of cotton is not received it is not possible to manufacture 480.335 MTs from 262.099 MTs. It means that the said quantity of 480.838 MT shown as manufactured and 480.838 MT cleared in DTA on payment of duty by availing Notification No. 8/97 had actually been manufactured from imported cotton and lastly referring to the Show Cause Notice No. 2 and Show Cause Notice No. 3, the ld. Advocate argued that the benefit of the aforesaid notification should not be extended to the applicant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.233 MT, yarn WIP out of domestic cotton of 2.716 MT and yarn manufactured out of domestic cotton of 134.804 MT. Accordingly the applicant had 461.849 MT of finished stock of open end yarn and prayed for settlement of the case. 22. We have gone through the case records and oral submissions made during the hearing held on 4-4-2007. There are three Show Cause Notices involved in this case, dated 31-1-2005, 15-2-2005 and 21-7-2005 totally demanding a duty amount of Rs. 4,68,67,877/- and the duty admitted by the applicant totally is Rs. 92,05,416/-. Show Cause Notice dated 31-1-2005 demands duty as per Notification 2/95-C.E. dated 4-1-95. Show Cause Notice dated 15-2-2005 demanded duty as per Not. 2/95-C.E. dated 4-1-95 and Show Cause Notice dated 21-7-2005 demands duty vide Sr. No. 2 of Notification. 23/03-C.E., dated 31-3-2003. The first two Show Cause Notices deny the benefit of Notification 8/97-C.E., dated 1-3-97 and the third Show Cause Notice denies the benefit of Sr. No. 3 of Notification 23/03-C.E., dated 31-3-2003. 23. The 100% unit manufactures Ring Spun Yarn out of Raw cotton and open end yarn manufactured out of cotton waste generated while manufacturing Ring Spun cotto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced certain figures from the excise records. 24.2 It has reproduced following figures for the period from 1-4-2001 to 30-11-2001; (a) opening Balance of raw cotton (b) cotton received as receipt (from Kirti Corporation) (c) cotton issued to production (d) production of cotton yarn (e) despatch of cotton yarn (f) production of cotton waste for the period from 1-4-2001 to 30-11-2001 (Kirti Corporation). 24.3 However, the said show cause notice has not pointed out the following figures; (a) Opening balance of cotton yarn (b) Opening balance of cotton WIP, which is at the winding section (c) Opening balance of yarn WIP which is at the packing section 24.4 In view of this, the figures mentioned in the show cause notice are incomplete. 25. Upon the direction of this Commission, investigation of the records of the applicant as well as in respect of various submissions and Chartered Accountant's Certificate and the Balance Sheet as on 31-3-2001 was carried out by Commissioner (Investigation) of the Commission. It was found that the figures stated in SCN were incomplete and incorrect. Besides, the credit for opening stock of cotton yarn, yarn WIP, cotton WIP and cotton yarn ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15-2-2005 demands duty amount of Rs. 3,27,41,199/- which includes a duty amount of Rs. 41,71,253/- towards the Additional Duty of Excise (Textiles and Textile Articles) Act, 1978. The SCN proposes to deny the benefit of Notification No. 8/97-C.E. and would like to apply the Notification No. 2/95-C.X. It also proposes to levy penalty and interest against the applicant and the co-applicants. It is the contention in the Notice that the Open End Yarn manufactured out of the raw material-Cotton Waste is not proved to have been manufactured/produced out of wholly indigenous raw material and therefore, benefit of Notification No. 8/97-C.X. cannot be extended. The period involved in the SCN is 1-4-2000 to 30-11-2004. 26.1 Notification No. 8/97-C.E. dated 1-3-1997 exempts finished products etc. produced or manufactured, (in a 100% EOU or FTZ) wholly from the raw material produced or manufactured in India and allowed to be sold in India from so much of the duty of excise leviable thereon under Section 3 of the Central Excise Act of 1944 as is in excess of an amount equal to the duty of excise leviable on a DTA unit. 26.2 Two Circulars (1) 442/8/99-C.E. dated 4-3-1999 and (2) 85/2001 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts to be cleared in DTA. In case of common inputs or final products, adequate precautions should be taken and unless it is conclusively proved the goods for sale in DTA are manufactured wholly out of indigenous raw materials, benefit of notification should not be allowed. 3. In case where inputs/final products are common, manufacturing lines are not separate or if the inputs/final products are difficult to identify, in spite of the above, benefit of the notification should be denied in such doubtful cases to avoid misuse of the exemption notification." "Circular : 85/2001-Cus. dated 21-12-2001 F. No. 305/141/2001-FTT EOUs/FTZ units - Applicability of Notification No. 8/97-C.E.- Clarifications: Sub :- Applicability of Notification No. 5/97-C.E. (SIC - 8/97) dated 1-3-97 - Clarification reg. I am directed to invite your attention to the Board's Circular No 442/8/99-C.E., dated the 4th March, 1999 [999 (106) E.L.T. T17] on the above subject The Circular clarifies that the benefit of Notification No. 8/97-C.E., dated 1-3-1997 will be allowed to the units using imported as well as indigenously procured raw materials provided the unit is able to satisfy the jurisdictional office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given by issue of a Public Notice in this regard. 4. Difficulties, if any, faced in the implementation of the above instructions, may be brought to the notice of the Board at an early date. Kindly acknowledge receipt of this Circular." 26.3 At the outset, we note that the applicants have admitted that they maintained a single Register of open end yarn manufacture. Separate record of indigenous and imported cotton were maintained only up to the stage of waste. Thereafter, these wastes were issued for manufacture of open end yarn and the identity of the waste was lost, it cannot be said as to whether the yarn was out of wholly indigenous cotton waste. 26.4 However, the applicant has adopted two lines of arguments. One, that proportionate weightage be given for the yarn manufactured out of indigenous cotton while denying proportionately for the yarn manufactured out of imported Cotton. Two, Cotton Waste which is the raw material used for manufacture of the Open End Yarn, is Cotton Waste that is produced/manufactured in India. A separate classification for Cotton Waste under T A.5202 in CX Tariff proves that it is a distinct, commercial item and therefore even though the Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construed to mean that it is a manufactured product. The Apex Court in C.T. Cotton Yarn Ltd. v. CCE, India, 2006 (202) E.L.T. 385 (S.C.) has said "It is by now established that merely because a commodity is included in the Schedule, it will not be eligible to duty unless a process of manufacture is involved when that product emerges. Here Heading 52.02 has been brought in the Schedule by the Finance Act, 1995. Though it shows as an item bearing nil duty, since the appellant is a 100% EOU manufacturing entity it will be liable to duty as provided in the proviso to Section 3(1) of the Tariff Act. Therefore, the question involved, is whether a process of manufacture is involved, when the cotton waste is generated during the process of converting domestically purchased cotton into exportable yarn manufactured by the appellant". The Apex Court therefore, remanded the case back to the Tribunal to consider the question as to whether cotton waste is dutiable as a manufactured product. In view of this, Apex Court decision, the contention of the applicant fails. 26.9 Moreover, even if the cotton waste is taken as a manufactured product, that still would not entitle it to get the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as indigenous raw material. 27.1 We have for the other SCN, not accepted the above points excepting for the Addl. Duty portion. We have found that the part benefit of the Notification cannot be extended as requested by the applicant. We could not also take the cotton waste generated during manufacture of yarn to be indigenously manufactured/produced raw material for the sake of an exemption Notification which has to be strictly interpreted. 27.2 However, the Show Cause Notice dated 21-7-2005 does not indicate any demand towards Additional Duty and therefore, the applicant's request to deduct to this extent the Show Cause Notice amount is unfounded. We, therefore, find that the total duty demand of Rs. 25,91,989/- is payable. 27.3 In conclusion, out of the total duty demand of Rs. 4,68,67,877/-, an amount of Rs. 57,58,516/- gets excluded due to the Additional Duty factor, another amount of Rs. 55,66,998/- gets excluded as conceded by the Revenue as not demandable for the period 2000-2001 of the Show Cause Notice dated 31-1-05. For the Show Cause Notice dated 31-1-05, as against a demand of Rs. 1,15,34,689/-, the settled duty comes to Rs. 10,75,782/- only. 28. The duty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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