Indoworth India Ltd. vs Commissioner of Customs and Central Excise

Whether the CESTAT was justified in directing the appellant-assessee to make pre-deposit of duty of Rs. 5 crores for entertaining the appeal against the orders-in-original dated 31st December, 2008 and 28th August, 2009 is the question of law raised in this appeal. The appeal is admitted on the above question of law and taken up for final hearing by consent of both the parties.

The assessee is a 100% Export Oriented Unit engaged in the manufacture of All Wool Yarn, Wool Poly Yarn, Acrylic Yarn, Acrylic Wool Yarn, and Wool silk Yarn falling under Chapters 51 and 55 of the Central Excise Tariff Act, 1985.

During the years 2003-04 to 2007-08 the assessee cleared the aforesaid goods in domestic tariff area by availing the benefit of concessional rate of duty as per Notification No. 23/2003 dated 31st March, 2003. Subsequently, various show cause notices were issued to the assessee by invoking the larger period of limitation on the ground that the assessee availed the benefit of Notification No. 23/2003 dated 31st March, 2003 by suppressing the material facts. The assessee opposed the claim by filing detailed reply.

By two orders-in-original dated 31st December, 2008 and 28th August, 2009, the adjudicating authority confirmed the demand of duty amounting to Rs. 74 crores with interest and also imposed penalty. Challenging the aforesaid orders, the assessee filed an appeal before the CESTAT with an application seeking waiver of pre-deposit of the duty demand confirmed by the orders-in-original.

By an order dated 13th May, 2010 the CESTAT directed the appellant to make pre-deposit of Rs. 5 crores on the ground that the assessee had admitted that the duty demand amounting to Rs. 5.64 crores would be within the period of limitation and the balance amount alone would be time-barred.

On an appeal filed by the assessee, this Court set aside the order dated 13th May, 2010 and directed the Tribunal to decide the matter afresh and in accordance with law by considering the financial hardship pleaded by the assessee.

Thereafter, the Tribunal heard the matter afresh and passed the impugned order dated 1st November, 2010 confirming the pre-deposit of Rs. 5 crores for entertaining the appeal.

Challenging the aforesaid order, the assessee has filed the present appeal.

The basic dispute in the present case is, whether the revenue is justified in contending that the assessee had suppressed material facts and thereby invoking the larger period of limitation for demanding the duty. During the period 2003-04 to 2007-08 the assessee cleared the final products by availing the benefit of Notification No. 23/2003, whereunder, it was obligatory to manufacture the final products by procuring the raw material indigenously. In other words, the benefit of the said notification was not available if the imported inputs were used in the manufacture of the final product as raw materials.

In the present case, the assessee had imported Selbana (anti-static oil) and Katex (coning oil) which were used in the manufacture of the final product. According to the revenue, failure on the part of the assessee to disclose user of the aforesaid imported raw materials in the manufacture of the final product constituted suppression of facts thereby disentitling the assessee to the benefit of Notification No. 23/2003 and that the revenue was entitled to recover the differential duty by invoking the larger period of limitation. According to the assessee, the imported goods were not used as raw materials but were used only as consumables. Rejecting the contention of the assessee, the Adjudicating Authority confirmed the demand by invoking the larger period of limitation.

The question, therefore, to be considered is, whether there is any merit in the contention of the assessee, that the imported materials were not the raw material required in the manufacture of the final products?

From the materials placed before the Adjudicating Authority, it is seen that the anti static agents are used as processing aids to reduce friction, control static charge build up and to increase cohesion between the fibers and not as raw materials as such. It is further seen that the consumption of "Selbana" is only 0.02% of the wool i.e. in 100 kgs of wool only 200 gms. of "Selbana" is consumed. Similarly, coning oil is used as processing aid and not as raw materials in the manufacture of the final product.

The Apex Court in the case of Vanasthali Textiles Industries Ltd. Vs. Commissioner of Central Excise, Jaipur, Rajasthan, has held that consumables are the inputs which are used in the manufacturing process but are not identifiable in the final product by reason of the fact that it gets consumed in the manufacturing process. In the present case, since the approximate consumption of imported ''Selbana'' is only 0.02%, it may be that the assessee formed a belief that the same was consumable and not a raw material in the manufacture of the final product.

Moreover, it is not in dispute that in the present case, the plant, machinery and building belonging to the assessee have already been taken over by the Asset Reconstruction Company (India) Ltd. in the year 2007. Apart from the above, the assessee has also been declared as a sick unit under the Sick Industrial Companies Act, 1985.

In these circumstances, in our opinion, in the facts and circumstances of the present case, the issue involved in the present case being highly debatable, it is a fit case for grant of full waiver of pre-deposit. Accordingly, the impugned order of the CESTAT dated 1st November, 2010 is quashed and set aside and the Tribunal directed to hear the appeal on merits without insisting on pre-deposit and without being influenced by this order as the observations made herein are prima facie observations. Appeal is disposed of accordingly with no order as to costs.