TMI Blog2010 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... (T)]. - The Appellant are manufacturers of processed knitted fabrics of man made fibre/yarn, chargeable to Central Excise Duty under sub-heading 6002.93 of the Central Excise Tariff. The dispute pertain to rate of duty on the processed knitted fabrics of man made yarn/fibre during the period from 1-9-02 to 31-3-03. During this period, while the Appellant were clearing these fabrics on payment of concessional rate of duty of 12% ad valorem Sl. No. 16 of the table annexed to the exemption Notification No. 14/02-C.E., dated 1-3-02, while according to the Department, the concessional rate of duty was not applicable for the reason that the processed fabrics had been made out of the fabrics on which the appropriate central excise duty and AED (GSI) had not been paid as per the condition of the exemption, as in terms of Sl. No. 14 of the table annexed to the Notification No. 14/02-C.E., dated 1-3-02, unprocessed fabrics are fully exempt from duty and accordingly the Appellant was liable to pay the duty at the tariff rate of 24% ad valorem. It is on this basis that a show cause notice dated 1-10-03 was issued to the Appellant for (a) demand of differential duty of Rs. 13,21,097/- fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. (4) Tribunal's judgment in case of CCE, Ludhiana v. Prem Industries reported in 2009 (242) E.L.T. 588 = 2009 (168) ECR - 133 (Tri.-Del.) is applicable to the facts of this case. (5) The appellant during the period of dispute, were entitled to deemed Cenvat credit of 66.67% of aggregate of duties of excise as per Notification No. 6/2002-C.E. (N.T.) dated 1-3-02. If the contention of Department is accepted net duty payable after allowing the deemed Cenvat credit would be Rs. 4,40,367/-. If the benefit of cum duty is extended, the differential duty payable would be about Rs. Four Lakhs as against the duty demand of Rs. 13,21,099/-. (6) Since in this case, dispute is only about interpretation of exemption notification, there is no justification for imposition of penalty. 2.2 Shri B.K. Singh, the learned Jt. CDR defending the impugned order, emphasised that since the unprocessed knitted fabrics from which the processed fabrics had been manufactured, were fully exempt from duty vide Sl. No. 14 of the table annexed to the Notification No. 14/02-C.E., the condition for concessional rate of duty for processed fabrics is not satisfied and therefore the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e condition for exemption is intended to have been satisfied if the processed knitted fabrics are manufactured from duty paid textile fibres or yarn, as a result of which, for the same product i.e. processed knitted fabrics of man made fibre/yarn, there would be two rates of duty if the Department's view is accepted and the rate of duty would depend upon whether the manufacture is a composite mill/manufacturer engaged in processing as well as weaving/knitting of fabrics in the factory or is an independent processor while there was no intention to make such differentiation on the part of Government. 4. In Sl. No. 16 of the table annexed to the Notification No. 14/02-C.E., the condition for concessional rate of duty for the goods covered by this serial No., "processed knitted fabrics of man made fibre/yarn being one of items covered by this serial as under - "If made from textile fabrics, whether or not processed, on which the appropriate duty of excise leviable under 1st Schedule to the said Central Excise Tariff Act and Additional Duties of Excise (Goods of Special Importance) Act, readwith any notification for the time being in force, or the additional duty of customs le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of nullifying the condition for concessional rate of duty in Sl. No. 16 that the unprocessed knitted fabrics must have suffered the appropriate Excise duty and AED (GSI). 5.1 As regards the question (1) above, Hon'ble Supreme Court in case of CCE, Vadodara v. Dhiren Chemical Industries reported in 2002 (139) E.L.T. 3 (S.C.) has held that the goods not liable to excise duty or on which excise duty is nil, cannot be said to be the "goods on which appropriate duty of excise has been paid." 5.2 As regards the question (2) above, if the processed fabrics has been manufactured in a composite mill starting from spinning of yarn from fibre, weaving/knitting of grey fabrics from yarn and thereafter processing of grey fabrics or by a manufacturer engaged in processing of fabrics alongwith weaving or knitting of fabrics within the same factory, in term of Explanation-VII, the condition for concessional rate of duty for processed fabrics will be deemed to be satisfied if the yarn or fibre from which the processed fabrics have been manufactured, is duty paid. But Explanation-VII does not cover "independent processor". The question now arises as to whether in case of independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be presumed to be duty paid for the purpose of concessional rate of duty on the processed fabrics. 6. In the present case, the show cause notice seeks to deny the concessional rate of duty on processed knitted fabrics of man made yarn/fibre under Sl. No. 16 of the table annexed to the Notification No. 14/02-C.E. only on the ground that the unprocessed knitted fabrics is fully exempt from duty under Sl. No. 14 of the table annexed to the same notification. However, the exemption to "unprocessed knitted fabrics of man made yarn/fibre" under Sl. No. 14 is not an unconditional exemption. It is a conditional exemption subject to condition that the unprocessed fabrics has been made out of duty paid yarn/fibre and no Cenvat credit of duty paid on inputs or capital goods has been taken under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2002. Therefore just because "unprocessed knitted fabrics other than of cotton" are covered by Sl. No. 14 of the table annexed to the notification with nil rate of duty against this serial No., it cannot be presumed that the same would always be fully exempt from duty. If the appellant are an independent processor engaged in unprocessed fabrics acq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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