TMI Blog2013 (10) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the impugned rejects also is not an acceptable argument because possibility of such export depends on the market conditions and it is for the manufacturer to decide the quality of the goods to be exported without affecting his reputation - Revenues interest is safeguarded through the maximum permissible limits for rejects and net foreign exchange to be earned - These safeguards were not contravened - So the arguments advanced by Revenue to say that the goods were of good quality and its value was suppressed are not acceptable in the absence of positive evidence. Regarding Exemption Notification No.13/98 – Held that:- The condition that fabrics should have been stamped as Rejects is plain and simple to understand - If the appellants did not stamp it so it can be only due to the fact that it will affect the price it can fetch in domestic market at different levels - So it cannot be taken as an innocent mistake - The whole matter came to light only due to detailed investigation. Extended period of limitation - Held that:- The plea of the appellant that Revenue was aware of the issue is not acceptable because there is nothing on record to show that the appellant had informed R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant as Rejects were really rejects and appropriate duty thereon was paid. 3.1 The officers found a shortage of 1,71,700 numbers of needles. The appellant imported needles duty-free under Notification No.13/81-Cus. dated 9.2.1981 and Notification No. 53/97-Cus. dated 3.6.1997 and also procured indigenous needles without payment of Central Excise duty under C.T.3 certificate vide Notification No.1/95-CE dated 4.1.1995 for use in the manufacture of goods meant for export. 3.2 The said officers also examined the records and documents in respect of clearance of rejected knitted fabrics into Domestic Tariff Area (DTA) as the appellant had obtained permission from Development Commissioner, MEPZ vide letter dated 22.7.1997 and from the Assistant Commissioner of Central Excise, Coimbatore- III Division by letter dated 22.8.97 to clear 5% of the rejected knitted fabrics valued at Rs.93.37 lakhs. Goods valued at Rs.63.92 lakhs only were cleared under this permission claiming concessional rate of duty provided in notifications of the type 4/97-CE dated 01-03-97 andNotification 13/98-CE dated 02-06-98. 3.3 In a follow-up action, the said officers visited buyer s premises and recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not established. Further it is alleged that the rejected fabrics were not stamped as Rejects (refer para 11, 21 of SCN). In the adjudication order, the Commissioner proceeded (in para 34) on the basis that the word Rejects was not stamped in some of the invoices, which is beyond the scope of the show-cause notice. 5.2 He drew the attention of the Bench to the letter dated 22.7.1997 of the Development Commissioner wherein it is stated that rejects must be invoiced and stamped by the manufacturer as rejects at the time of clearance into Domestic Tariff Area. It is his contention that there is no requirement of mentioning Rejects on the fabrics and Rejects need be stamped on the invoice only. According to him the allegation made in the show-cause notice is bad in law. 5.3 He submits that they have placed 139 invoices and the Commissioner has proceeded on the basis of some of the invoices without going into the all the invoices. It is stated that 139 invoices were stamped and sold as rejects . 5.4 The adjudicating authority observed that permission letter dated 22.7.97 is valid only for one year and clearance must be done within one year and there is no permission for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice value. 5.9 Regarding imposition of penalty, he submits that entire demand is barred by limitation. In this context, he submits that the demand was raised on the same goods by four show-cause notices during the period 11.1.99 to 23.3.2000 and last show-cause notice was issued on 26.12.2001 and the present show-cause notice was issued on 13.9.2002 for extended period. He submits that on the same goods duty was demanded earlier on the differential rates of duty on clearance of reject fabrics in DTA and it is within the knowledge of the department. It is a fit case where the decision of the Hon ble Supreme Court in the case of Nizam Sugar Factor Vs CCE AP., reported at 2006 (197) ELT 465 (SC) would apply. 6. On the other hand, the learned ARon behalf of the Department reiterates the findings of the Commissioner. Regarding demand on rejects, he submits that on a plain reading of the letter of the Development Commissioner available at page 81 of the paper book would show that one of the conditions in para 9.22 of the Hand Book of Procedures 1997-02, Rejects must be invoiced and stamped by them at the time of clearance of goods to DTA as Rejects. He argues that such stamping s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocate that the supplier had paid duty is without any evidence. 6.5 Regarding imported needle, he submits that those goods also were removed from the bonded warehouse without permission from the department or intimation to the department. There is no evidence that needles were put to use before removing from the factory. Therefore no depreciated value can be allowed. 6.6 Regarding limitation, he submits that earlier SCNs dealt with the issue in so far as rate of dutyon the ground that the goods were manufactured using imported needles and not solely from indigenous goods. The SCNwas not concerned with the nature of goods. He submits that the present case was unearthed by officers during investigation and verification of records and therefore extended period of limitation would apply. 7. After hearing both sides and on perusal of records, first we take up the issue of demand of duty of Rs.83,15,372/- on the clearance of Reject fabrics as claimed by the appellant. According to Department, the appellant clearedgoods of good quality in the guise of rejects. There is no dispute that Export and Import Policy 1997 2002 permitted clearance of rejects in DTA sales as under:- Expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le duties and fulfilment of minimum NFEP prescribed in Appendix 1 of the Policy. No DTA sale shall be permissible in respect of motor cars, alcoholic liquors and such other items as may be stipulated by Director General of Foreign Trade by a Public Notice issued in this behalf. Handbook of Procedures to EXIM Policy w.e.f 1.4.2000 9.22 Rejects:- EOU/EPZ/EHTP/STP units may be sell in the DTA rejects as per para 9.9(a) of the policy subject to the following conditions: (i) The term rejects shall cover the products which have definite manufacturing defects and are not exportable as per declaration of the unit concerned and shall include sub-standard products but not spares, tools, waste/scrap/remnants and by-products. (ii) The following parameters shall be kept in view for determining rejects . (a) The unit must certify that the rejects were an unavoidable feature on account of flaws of technology, technique or material deployed in manufacture; (b) Rejects must be invoiced and stamped by the manufacturer as Rejects at the time of clearance into the Domestic Tariff Area. 8. On perusal of the EXIM Policy and Handbook of Procedures 1997-2002, we find that EOU is per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating authority observed that the word Reject was not stamped in all the invoices. On the other hand, the learned Advocate submits that they placed all the invoices stamped with the word Reject , which were not examined by the adjudicating authority. At any event, it is seen from the impugned order that the invoiced values of the rejects cleared were lower than the value of goods exported. 8.2 The demand of duty is for the period October 1997 to December 2000. The adjudicating authority observed that the appellant had maintained combined accounting of standard quality fabrics as well as rejects till October 1997 in their RG- I records and subsequently started maintaining separate folios for the rejects in the RG-I. It leads to a conclusion that the appellant had transferred good quality fabrics from folio for good quality fabrics to folio for rejects in the RG-I. We do not find any force in the finding of the adjudicating authority, insofar as RG I is an important record of Central Excise maintained under Rule 53 of the erstwhile Central Excise Rules, 1944. It is authenticated by the Central Excise officer and therefore such record cannot be discarded by mere presumption and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efect/reject knitted fabrics. Admittedly, the stocks of reject materials were mentioned in separate folio in RG-I. Appellant No.2 in his statement stated that Rejects were certified by the production officers in the factory on the machine itself. The learned Advocate emphasized that they have placed 139 invoices stamped with rejects and the adjudicating authority had not examined all the invoices. This submission has not much relevance because there is no meaning in inspecting the copies of invoices retained by the appellant because it can be stamped at any point of time and it is the copy of the invoice meant for the buyer that is relevant. In many cases the buyers themselves could not be located. At any rate our finding is that stamping should have been necessarily made on the fabric which was admittedly not done. 10.3. On perusal of the Show Cause notice and its annexure for arriving at the demand of Rs. 83,15,372/-we find that the demand of duty of Rs.83,15,372/-is on account of two factors, namely,- (i) On account of Revenues contention that the value of the goods cleared to DTA as rejects should be the same as value of similar goods exported, since according to Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the quality of the goods to be exported without affecting his reputation. Revenues interest is safeguarded through the maximum permissible limits for rejects and net foreign exchange to be earned. These safeguards were not contravened. So the arguments advanced by Revenue to say that the goods were of good quality and its value was suppressed are not acceptable in the absence of positive evidence. 10.6. The second issue is about exemption notification claimed for rejects cleared into DTA. Notification13/98-CE dated 02-06-98 is reproduced below for ready reference: In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the finished products, rejects and waste or scrap specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), produced or manufactured, in a hundred per cent. export-oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India, from so much of the duty of excise leviable thereon under section 3 of the said Central Excise Act, as is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has not proved that the goods were other than rejects because for claiming the exemption the goods being rejects is not a sufficient condition. 10.8. We have considered the plea of time bar from the appellant for this part of the demand. We are of the view that the condition that fabrics should have been stamped as Rejects is plain and simple to understand. If the appellants did not stamp it so it can be only due to the fact that it will affect the price it can fetch in domestic market at different levels. So it cannot be taken as an innocent mistake. The whole matter came to light only due to detailed investigation. The plea of the appellant that Revenue was aware of the issue is not acceptable because there is nothing on record to show that the appellant had informed Revenue that the fabrics are not being stamped as Rejects while claiming exemption under notification of the type 13/98-CE. The show cause notice issued was for the reason that they were seen to be using imported needles obtained from another manufacturer and claiming said exemption meant for goods manufactured solely from indigenous goods. When a new fact which has been suppressed from Revenue came to light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants; the supplies (which are deemed exports) cannot be treated on par with export under bond for the purpose of Rule 57F. There is no warrant or justification to extend the instructions dated 31.12.1996 issued by the Ministry/Board to cover supplies to 100% EOU which are treated as deemed exports for certain purposes under EXIM Policy. The appellants are not entitled to remove the inputs without reversal of the credit or payment of equivalent amount of duty. 11.4. The learned Advocate submits that the supplier of needles had already paid duty as per Larger Bench decision. We find that it is appropriate that the adjudicating authority should examine the demand of Rs.5,24,296/- on local needle in the light of Larger Bench decision and the submission of the appellant that duty was paid by the supplier. 12. As regards the other demand of Rs.2,91,370/- on imported needles, we agree with the submission of the learned AR that the officers during their visit detected shortage of needles and no proof of its use before removal is adduced. The goods obtained under specific bond for specified end use were cleared as rejects without permission from the department. Therefore the depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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