TMI Blog2013 (1) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... ause Notices department had sought clarification as to whether DTA clearances of soft cotton waste would attract duty. It is absolutely clear that the Department was aware of the fact about emergence of soft cotton waste in course of manufacture of cotton yarn from ginned cotton and clearance of soft cotton waste into DTA. Department with changes in tariff structure of Chapter 52 by introducing a new heading 5202 for cotton waste w.e.f. 16/3/95, the position with regard to duty on DTA clearance of soft cotton waste changed, the department should have advised the appellant accordingly and even if it is held that w.e.f. 16/3/95 the DTA clearance of soft cotton waste attracted duty, the non-payment of duty cannot be attributed to fraud, willful misstatement, suppression of facts on contravention of provision of Rules with intent to evade the payment of duty. We, therefore, hold that in respect of both the show cause notices only normal limitation period would be available. In favour of assessee - Excise Appeal No.1715-1716 of 1997 - A/723-724/2012-EX(BR) - Dated:- 25-6-2012 - Ajit Bharihoke And Rakesh Kumar, JJ. Appellant Rep by: Shri Ajay Agarwal, Adv. Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is manufactured. Here the cotton waste is generated during the process of manufacture of yarn. In other words, when cotton purchased in the domestic market is used for manufacture of yarn by initiating the process of manufacture, at an intermediate stage, the so called cotton waste is produced, which is a marketable commodity and which is regularly marketed. Therefore, one of the twin tests, namely, that the commodity which is produced is marketable and is regularly marketed as a product, is satisfied. 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 is shown as an item bearing nil duty, since the appellant is a 100 per cent export oriented 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of the decided cases. In this situation, we think it appropriate to set aside the order of the Tribunal and remand the appeals filed by the appellant to the Tribunal for a fresh decision. We think that this aspect needs to be reconsidered by the Tribunal afresh and a fresh decision taken. We, therefore, set aside the order of the Tribunal on this aspect and direct the Tribunal to decide the appeals afresh based on the finding to be rendered on this question. All contentions including whether the department could invoke the extended period of limitation are left open. 11. Thus, the appeals are allowed in part, the orders of the Tribunal are set aside and the appeals filed by the appellant before the Tribunal are remanded for a decision afresh on the questions referred to above. The parties are directed to bear their respective costs." 1.4 In denovo proceedings the Tribunal vide Final order No. 384-385/07-EX dated 27/6/07 allowed the appeals with consequential relief, holding that soft cotton waste is not a manufactured item, as it is a residue left after separation of unusable material from the cotton. 1.5 Against this judgment, the Department filed an appeal to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. When the aforesaid decision was pointed out to the counsel appearing for the respondent, he has stated that the aforesaid decision has no relevance to the facts of the present case and in support of his contention, he sought to rely upon the decision of this Court in Krishi Utpadan Mandi Samiti, Kanpur and Others v. Ganga Dal Mill Co. and Others reported in (1984) 4 SCC 516. He has specifically referred to paragraph 18 of the said judgment and particularly to the following observations: ".......In our opinion, the Court has strained the language to reach an unsustainable conclusion, holding that cotton waste is not the processed form of cotton but it is a by-product quite different form of cotton though containing cotton fibre which cannot be used as ordinary cotton. As its name indicates, cotton waste appears to be droppings, stripping and other waste product while ginning cotton. It cannot be said to be a by-product of cotton but it is cotton nonetheless minus the removed seed. In other words it is residue of ginned cotton. We, therefore, find it difficult to agree with the view of the High Court that cotton waste is not comprehended in the item "cotton ginned and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Sales Tax, Bombay vs. BPCL (supra) is not applicable to this case as - (a) the said decision was in respect of a Sales Tax statute and not concerned with Central Excise Act, (b) the issue in that case had nothing to do with the issue of manufacture and (c) this decision does not consider the earlier binding decision of the Apex Court in case of Krish Utpadan Mandi Samiti vs. Ganga Dal Mills Co. and others reported in (1984) 4 SCC - 516, that soft cotton waste is a part of raw cotton which has been separated from it to have better quality of yarn, that in this regard the appellant place reliance on the Apex Court's judgment in case of Krish Utpadan Mandi Samiti vs. Ganga Dal Mills Co. and others (supra), wherein it has been held that "cotton waste" is covered by the entry "cotton ginned and unginned", that looked at from another angle, cotton waste being waste, does not emerge as a result of manufacture since no one would produce any such inferior thing by treatment through human efforts, that in this regard, reliance is placed on judgment of Hon'ble Delhi High Court in case of Modi Rubber Ltd. vs. Union of India reported in 1987 (29) E.L.T. 520 wherein it was held that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed the relevant information from the department and that in view of this, there is no infirmity in the impugned order. 5. We have carefully considered the submissions from both the sides and perused the records. 6. The point of dispute is as to whether DTA clearances of "soft cotton waste" would attract duty in terms of proviso to Section 3 (1) of Central Excise Act, 1944, readwith exemption Notification No. 2/95-CE. Under Section 3 (1), duty is leviable on all "excisable goods, (excluding goods produced or manufactured in SEZ), produced or manufacture in India, at the rate set-forth in 1st Schedule to Central Excise Tariff Act, 1985. Under proviso to Section 3 (1), duty on DTA clearance of a 100% EOU shall be the aggregate of duties of customs leviable on like goods produced or manufacture outside India, if imported into India and when the rate of customs duty on like goods is ad-valorem, the assessable value of the goods produced or manufactured by the 100% EOU and cleared into DTA shall be determined under Section 14 of the Customs Act, 1962. Notification No. 2/95-CE provides a concessional rate of duty of 50% of the rate specified in proviso to Section 3 (1) in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material obtained in course of carding and combing of ginned cotton. The Department has not produced any evidence to show that 'soft cotton waste' is a product commercially distinct from cotton with different character and usages - the Department's decision to treat the same an excisable is based only on the fact that during the period of dispute, tariff heading 5202 covered "cotton waste", which by itself, in view of Apex Court's judgment in case of CCE, Chandigarh vs. Markfed Vanaspati and Allied Industries reported in 2003 (153) E.L.T. - 491 (S.C.), would not make this product excisable. 6.1 Hon'ble Supreme Court, in case of Krishi Utpadan Mandi Samiti, Kanpur and others vs. Ganga Dal Mill Co. and others reported in (1984) 4 SCC - 516, while considering the question whether legume, whole grain, when notified as a "specified agricultural produce" within the meaning of this expression as defined in Section 2 (t) of the U.P. Utpadan Mandi Adhiniyam, 1964, would also comprehend its split folds or parts, commercially called Dal, so as to enable Mandi Samiti to levy market fee under Section 1 of the Act on the transaction of sale of Dal of legumes specified in the schedule to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n course of which some cotton waste and yarn waste was also generated. On the purchase of raw cotton, purchase tax was paid by the assessee. Cotton waste was sold on which sales tax was paid. Here also, the dispute was as to whether the assessee can be said to have manufactured cotton waste, so as to be eligible for set off of purchase tax paid on cotton contained in the cotton waste sold. 6.2.3 In this background the Apex Court held that when by-products, residues and waste and scrap arise in course of manufacture of main product regularly and continuously and are also sold regularly from time to time, intention can be attributed to manufacturer to manufacture and sell not only the main product but also the subsidiary products. 6.2.4 The above judgment only answers the question that when a manufacture manufactures a product 'A' for sale, and in course of manufacture of product 'A', an inevitable and unavoidable waste product 'B' also arises, which is also sold regularly alongwith the main product, whether the manufacturer can be said to have intention to manufacture waste product B also. The above question has been answered in the affirmative. But the question as to whether Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, Hon'ble Supreme Court in case of Union of India vs. Ahmedabad Electricity Co. Ltd. reported in 2003 (158) E.L.T. 3 (S.C.) has held that - "the onus to show that particular goods on which excise duty is sought to be levied have gone through the process of manufacture in India is on the Revenue. 7. Coming to the question of limitation, the details of the show cause notices and the period for which duty is sought to be recovered are as under. Sl. No. SCN date Period of demand Amount (Rs.) 1. 04/12/95 01/5/95 to 31/7/9 15,02,211/ 2. 22/07/96 16/3/95 to 30/4/9 7,21,739/- 7.1 The normal limitation period during the period of dispute was 6 months from the 'relevant date'. The longer limitation period of 5 years from the relevant date under proviso to Section 11A (1) could be invoked only in those case where there was allegation that non-levy, short levy, short payment or enormous refund of duty was due to fraud, wilful misstatement, suppression of facts or contravention of any provision of Central Excise Act, 1944 or of the rules made thereunder with intent to evade the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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