TMI Blog2007 (6) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... dla. 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 on cotton yarn and on open end cotton yarn as shown below, alleging that the applicant wilfully su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t maintained records to the satisfaction of the revenue to show that the production of open end yarn is manufactured out 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last hearing) as to whether full and true disclosure of duty had to be made at the admission stage or later. As regards the 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 des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be complied with by the applicant and the Revenue as well:- (i) The applicant to submit the following to the Revenue by 16-6-2006: (a) Name and address of the suppliers of indigenous cotton. (b) Copies of bills/invoices under which the applicant received the indigenous cotton from the suppliers. (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 Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from domestic cotton and production register for yarn produced from imported cotton) and It is also maintaining separate records for recording waste generated out of domestic cotton and wasted generated out of imported cotton separately (viz. register of waste out of domestic cotton and register of waste out of imported cotton). 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid SCN, has arrived at Rs. 1,15,34,689/-. The Revenue s allegations that no material transactions took place and no raw cotton had been sold by M/s. KC to the applicant and only fake transactions were made by fabricating the sale invoices of raw cotton are based on only assumptions and presumptions. There were no fake invoices during the period from 1-4-2000 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e generated and later used as a raw material for the manufacture of open end yarn by the applicant. The Revenue s allegations that (a) no separate records have been maintained in respect of open end yarn manufactured out of waste of imported cotton and open end yarn manufactured out of indigenous cotton, (b) the waste manufactured in 100% EOU is not allowed 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The applicant has manufactured finished goods partially using imported stock and partially using indigenous raw materials. However, regarding first period, since the Revenue could not establish the claim properly in the absence of sufficient documentary evidences, no duty can be demanded for the first period. But for the second period, the entire amount has been correctly demanded and needs 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out of domestic cotton have not been taken into account while computing the duty in respect of the 1st show cause notice and further referred to the audited balance sheet as at 31-3-2001, tax audit report for the year 2000-2001, supporting working papers of the audited balance sheet which was audited as on 11-7-2001 much before the search by the department on 14-12-2001 wherein it was found that the applicant had the stock of domestic cotton of 262.099 M.T., 189.096 M.T. yarn manufactured out of domestic cotton, cotton WIP of domestic cotton of 135.233 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Articles) Act, 1978 has been exempted vide Notfn. 55/91-C.E. dated 25-7-1991. Supreme Court decision in the case of Nahar Industrial Enterprise Others [2004 (170) E.L.T. 518 (S.C.)] and also the Circular No. 384 dated 20-3-1998 refer. The demand of Rs. 1,15,34,689/- under Show Cause Notice dated 31-1-2005, therefore, gets reduced to Rs. 43,80,428/- straightaway while the duty liability admitted is only Rs. 10,75,782/-. 24.1 While going through Page-4 of the Show Cause Notice dated 31-1-2005 on para 3.2, it is seen that the show cause notice reproduced 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d duty by also including the DTA despatch of December, 2001 and total negative stock of cotton yam is calculated at 117.361 tons (being total of the negatives of October, 2001, November, 2001 and December, 2001) as shown and reflected on page no. 16 of the Annexure C of the Settlement Application of the applicant. 25.5 The calculations were verified and found correct. In view of this, the investigation has arrived at the finding that the additional duty offered by the applicant is correct. The Commission accepts this report of the Commissioner (Investigation) of the Commission. 25.6 The Commission therefore, finds that for the Show Cause Notice dated 31-1-2005 the additional duty liability works out to only Rs. 10,75,782/- as against the demand of Rs. 1,15,34,689/-. 26. The Show Cause Notice dated 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-appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods are to be/being used in the manufacture of a different final product or not. 2. The matter has been examined. It is clarified that benefit of afore-mentioned notification may be allowed to units importing as well as indigenously procuring raw materials, provided the unit is able to satisfy the jurisdictional Central Excise authorities beyond doubt that the inputs used in the manufacture of goods to be sold in DTA are manufactured out of indigenous raw materials only by way of maintenance of records, physical scrutiny/verification and the manufacturing process etc. The jurisdictional Assistant Commissioner, keeping in mind the nature of goods produced, may get the input-output norm fixed by a Cost Accountant so as to ensure that imported inputs, if common, are not used for manufacture for final products 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 input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported materials, batch-wise production and despatch registers in respect of the quantity manufactured and sold in DTA etc. The jurisdictional officers would thus need to satisfy themselves that the goods under DTA sale have been manufactured wholly out of indigenous raw materials. The Circular referred to above even enjoins the jurisdictional officers to get the input-output norm fixed by the Cost Account so as to ensure that imported inputs, if common, are not used in the manufacture of the final products to be cleared in DTA. But the intention is certainly not to insist upon separate machinery, separate godowns and separate branches of manufacturing process (which would amount to establishing a separate factory within the factory) before extending the benefit of the above-said Circular. 3. Pending cases/disputes may be decided on the basis of above instructions. Wide publicity may 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 ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder export promotion schemes. The circular is related to import and export to eliminate procedural difficulties to count the export performances smoothly. The Circular does not apply to DTA clearances and in any case would not have any say in the interpretation of an exemption Notification. 26.7 Their contention is that cotton waste having appeared in the C.X. Tariff under TI 5202, is a distinct and commercial commodity and therefore the cotton waste that got generated while producing/manufacturing open end yarn should be taken as a raw material of indigenous manufacture and as that raw material has been used in the manufacture of yarn that was cleared to DTA, benefit of concessional duty under Notification 8/97-C.E. ought to be extended to such clearances. 26.8 We do not accept the argument of the applicant. The fact of cotton waste being included in the C.X. Tariff under TI 5203 cannot be 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 manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.L.T. 518 (S.C.) of the period 1-4-2003 onwards, Notification No. 24/2003 dated 31-3-2003 applies. The duty payable therefore worked out to be Rs. 2,85,69,946/-. 27. Show Cause Notice dated 21-7-2005 has sought the duty in terms of Sr. No. 2 of Notification 23/03-C.E., dated 31-3-2003 as against, the claimed Sr. No. 3 of the same Notification. Sr. No. 3 of Notification 23/03 and Notification No. 8/97-C.E. talk of the same exemption. Notification No. 8/97 was rescinded and Notification No. 23/03 took effect from 1-4-2003. The duty demand is for Rs. 25,91,989/- for the goods cleared to the DTA during the period 1-12-2004 to 31-3-2005. The applicant has admitted a duty amount of Rs. 16,22,952/-. The grounds taken by the applicant are the same as in the other Show Cause Notice like Additional Duty not leviable, part-benefit of the Notification and cotton waste generated during manufacture of yarn be 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 ge ..... X X X X Extracts X X X X X X X X Extracts X X X X
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