Commissioner Central Excise Commissionerate vs Malwa Cotton Spinning Mills Ltd.

Ashutosh Mohunta, J.—The Revenue has impugned the order dated 4.2.2005, passed by the Customs, Excise and Service Tax Appellate Tribunal (for short ''the Appellate Tribunal'') vide which the order passed by the Commissioner (Appeals) in favour of the respondent was upheld and the appeal filed by the Revenue was dismissed.

Briefly the facts of the case are that the respondent M/s Malwa Cotton Spinning Mills Ltd. is a 100% Export Oriented Unit (EOU) engaged in the manufacturing of cotton yarn falling under Chapter 52 of the Schedule to the Central Excise Tariff Act, 1985. They manufacture cotton yarn both from the cotton which they import as well as from the cotton which they purchase from the local domestic market. The Revenue observed that during the period from December, 2000 to March 2002, the respondent had cleared cotton yarn in Domestic Tariff Area (DTA) after paying the duty leviable in terms of Notification No. 2/95-CE dated 4.1.1995 on the goods cleared into DTA by 100% EOU under para 9.9(b) of the Import Export Policy dated April 97 to 31st March, 2002. It was observed that as the respondent had not paid the proper and correct duty and also the fact that they did not maintain separate records showing that goods cleared by them in DTA were not manufactured out of imported cotton but from indigenous raw material, hence they have contravened the provisions of Section 3(1) of the Central Excise Act read with Section 12 of the Customs Act, 1962 and have rendered themselves liable for penal action. Three notices were served upon the respondent in this regard. The Additional Commissioner vide order Annexure P-1 confirmed the demands raised in the three show cause notices.

The respondent filed an appeal before the Commissioner (Appeals), who allowed the appeal vide order Annexure P-2 and held that the manufacturer has maintained separate accounts of the imported cotton (imported yarn) and the indigenously purchased yarn and it could easily be identified, whether the yarn has been produced out of the imported cotton or from indigenous raw material. It was also held that only 317.520 kgs. of yarn was manufactured out of the imported raw material, of which proper duty has already been discharged and the balance quantity has been manufactured out of the indigenous raw material and therefore, the manufacturer is liable to discharge the duty as provided under Notification No. 8/97 dated 1.3.1997 and not under Notification No. 2/95 dated 4.1.1995.

Aggrieved by the aforesaid order, the Revenue filed appeal before the Appellate Tribunal which has dismissed the same. It is against the aforesaid order that the present appeal has been filed. Counsel for the Revenue has claimed that following substantial questions of law arise in the present case:

i) Whether the Commissioner (Appeals) is empowered to admit the additional evidence produced before him by the party as per Rule 5(1) of the Central Excise (Appeals) Rules, 2001, without recording in writing the reasons for its admission as per Rule 5(2) of the Central Excise (Appeals) Rules, 2001 and without granting any opportunity to examine such additional evidence to the adjudicating authority or any other officer authorized in this behalf as per Rule 5(3) of the Central Excise (Appeals) Rules, 2001?

ii) Whether in the absence of conclusive proof/evidence that the goods for sale in DTA were manufactured wholly out of indigenous raw materials, the Tribunal has erred in granting the benefit of exemption notification to the party?

As far as first question is concerned, this point was not even argued before the Appellate Tribunal. Moreover, evidence had been led by the respondent which showed that small quantity of only 317.520 kgs. of yarn was manufactured out of the imported raw material and hence it cannot be said that the respondent has tried to gain any undue advantage.

As far second question is concerned, the Commissioner (Appeals) as well the Appellate Tribunal have both returned categorical findings of fact that the respondent had maintained separate accounts regarding the goods manufactured out of imported raw material and the goods produced from the indigenous raw material. There was also no evidence on record to show that the respondent had utilized any part of the imported raw material and had got them cleared in the DTA. Thus, in the absence of any proof on part of the Revenue that goods for sale in DTA were manufactured out of the imported raw material, the respondent cannot be held liable to pay duty in terms of Notification No. 2/95. Thus, both the questions are answered against the Revenue.

Resultantly, we find no merit in this appeal and the same is dismissed.