1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR. :: ORDER :: Messrs Sulzer Processors Pvt. Ltd. Versus The Commissioner of Central Excise-II & Anr. D.B. Central Excise Appeal No.9/2010 Date of Order :::: 3rd May 2010. PRESENT HON'BLE THE CHIEF JUSTICE MR. JAGDISH BHALLA HON'BLE MR. JUSTICE DINESH MAHESHWARI Mr.Rishabh Sancheti for the appellant REPORTABLE BY THE COURT: (per Dinesh Maheshwari J.) This appeal under Section 35-G of the Central Excise Act, 1944 is directed against the final order dated 13.08.2009 whereby the Customs, Excise and Service Tax Appellate Tribunal, New Delhi [‘the Tribunal’] has dismissed the appeal [Excise Appeal No.3308/2004 – Ex(BR)] filed by the appellant-assessee against the order dated 31.03.2004/06.04.2004 as passed by the Commissioner, Central Excise, Jaipur-II [‘the Commissioner’] insofar relating to the demand of duty and interest while affirming the finding that the appellant was not eligible to avail of the special procedure of Compound Levy Scheme under Notification No. 32/2001. Briefly put, the relevant facts and the background aspects of the matter are that by way of Notification No. 16/2001, the Central Government introduced, with insertion of Section E-XA containing Rules 96-ZNA to 96-ZND in the Central Excise Rules, 1944, a 2 special procedure [referred to as ‘the Compound Levy Scheme’/’the Scheme’] for discharge of liability for Excise Duty leviable on production, by specified process, of the specified goods [referred to as ‘the said goods’] by an ‘independent processor of textile fabrics’, on payment of the amount to be calculated per Rule 96-ZNC ibid. The appellant-assessee, Sulzer Processors Private Limited, Bhilwara made an application in the prescribed manner to the prescribed authority i.e., the Commissioner, Central Excise, Jaipur-II on 01.05.2001, seeking to avail of the said special procedure. While the application so made by the appellant was pending consideration, the aforesaid Rules of 1944 came to be rescinded but and however, the Central Government continued with the Compound Levy Scheme by issuing Notification No. 32/2001 dated 28.06.2001 under the Central Excise (No.2) Rules, 2001. This Notification No.32/2001, while retaining the basic features of the abovementioned Section E-XA provided, inter alia, the procedure for dealing with the pending applications too. For their relevance and implications, apposite it shall be to take note, at this stage itself, of some of the provisions contained in the said Notification No. 32/2001, particularly the opening paragraph, and paragraph 7 and part of paragraph 8 as under:- “In exercise of the powers conferred by rule 15 of the Central Excise (No. 2) Rules, 2001, (hereinafter referred to as "the said Rules") the Central Government, hereby, specifies the processed textile fabrics falling under heading Nos. 52.07, 52.08, 52.09, 54.06, 54.07, 55.11, 55.12, 55.13 or 55.14, or processed textile fabrics of cotton or man-made fibres, falling under heading Nos. or sub-heading Nos. 58.01, 58.02, 5806.10, 5806.40, 6001.12, 6001.22, 6001.92, 6002.20, 6002.30, 6002.43, or 6002.93 (hereinafter in this section referred to as the "said goods") of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), manufac- tured or produced by an independent textile processor exclusively with the aid of a hot-air stenter (hereinafter referred to as "independent textile processor"), and notifies the rate of excise duty as - 3 (a) in the case of a processing factory whose average value of processed fabric is up to and including Rs. 30 per sq. mtr., Rs. 2.5 lakhs per chamber per stentor per month; and (b) in the case of a processing factory whose average value of processed fabric exceeds Rs. 30 per sq. mtr., Rs. 3 lakhs per chamber per stentor per month, installed in the processing factory, irrespective of whether such stentor or chamber is in use or not, or is in working condition or not. 2 to 6 xxxx xxxx xxxx 7. (1) The independent textile processor, who is engaged exclusively in the manufacture or production of the said goods, shall make an application prior to the commencement of commercial production, in the form specified in the APPENDIX to this notification, to the Commissioner of Central Excise for the purpose of availing of the special procedure for payment of excise duty as contained in this notifica- tion. The Commissioner of Central Excise, on such application being made, shall grant permission, subject to such conditions and limitations as laid down in this notification, so as to cover the period commencing from the date of making the application and ending on the 31st March, 2002. Pending grant of such permission by the Commissioner of Central Excise, the independent textile processor may avail the provisions of this notification on a provisional basis. But if such application is rejected by the Commissioner of Central Excise, then the independent textile proces- sor shall not be eligible to avail of the provisions of this notification from the date of making the application and shall discharge the duty liability as per the provisions contained elsewhere than in this notification and the duty, if any, paid under the provisions of this notification, shall be adjust- ed against the duty payable on such goods. Explanation I. - For the purposes of this notification, "inde- pendent textile processor" means a manufacturer who undertakes bleaching, dyeing or printing or any one or more of these processes with the aid of power or steam and who also has the facility in his factory (including plant and equipment) for carrying out heat setting or drying, with the aid of power or steam exclusively in a hot air stentor and who has no proprietory interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics, on or after the 1st day of May, 2001. Explanation II. - For the removal of doubt, it is hereby de- clared that the provisions of this notification shall not apply to an indepen- dent processor who carries out heat setting or drying with the aid of an open-air stenter installed in his factory. (2) Notwithstanding anything contained in sub-paragraph (1), in respect of a processing factory existing as on 1st May, 2001, the appli- cation made by an independent textile processor, on or before the 20th May, 2001, to the Commissioner of Central Excise under sub-rule (2) of rule 96ZNA for availing the special provisions contained in section E-XA of the Central Excise Rules, 1944, for the period on and from 1st May, 2001 to 31st March, 2002, shall be deemed to be an application made under sub-paragraph (1). If such application had been granted by the Commissioner of Central Excise on a date prior to 1st day of July, 2001, the same shall be deemed to have been granted under sub-paragraph (1), subject to all the conditions and limitations as laid down in this notifi- 4 cation. Otherwise, the Commissioner shall dispose of the application as if it is an application made under sub-paragraph (1). Explanation. - For the removal of doubts, it is hereby de- clared that a processing factory, of an independent textile processor, ex- isting on 1st May, 2001 and in respect of which no application was made under rule 96ZNA of the Central Excise Rules, 1944, on or before 20th May, 2001, shall not be eligible to avail of the benefit of this notification. Provided further that an application made prior to the com- mencement of commercial production by an independent textile proces- sor, commencing production for the first time in a new processing factory coming into existence after the 1st May, 2001 but prior to 1st July, 2001, under the proviso to sub-rule (2) of rule 96ZNA of the Central Excise Rules, 1944, so as to cover the period up to the 31st March, 2002, shall also be deemed to be an application under sub-paragraph (1) and shall be disposed of under that sub-paragraph. If such application had been granted by the Commissioner of Central Excise under rule 96ZNA of the Central Excise Rules, 1944, so as to cover the period up to 31st March, 2002, such disposal shall be deemed to be the disposal of the application under sub-paragraph (1), subject to all the conditions and limitations as laid down in this notification. 8. (1) The original value of the investment in the plant and machinery installed in the factory of the independent textile proces- sor of the said goods, as on the 1st March, 2001 or on the 1st of May, 2001, whichever is higher, for a factory existing as on 1st May, 2001, of the independent textile processor or on the date of making the application under rule 96ZNA of the Central Excise Rules, 1944 or paragraph 7 of this notification, as the case may be, in the case of an independent textile processor commencing production for the first time in a new factory com- ing into existence after the 1st of May, 2001, shall not exceed three crore rupees, irrespective of whether such plant and machinery is in use or not, or in working condition or not, and the independent textile processor shall declare the original value of investment in such plant and machinery installed in his factory, on the dates mentioned above, in the prescribed format duly certified by a Chartered Accountant or Cost Ac- countant. The Commissioner of Central Excise may require any such documentary evidence as he considers appropriate in respect of such original value before granting the application. (2) If any additional plant and machinery is installed by the in- dependent textile processor at any point of time, he shall intimate the same to the Commissioner of Central Excise within seven days of such installation and the original value of investment in plant and machinery to- gether with the original value of investment in such additional plant and machinery shall not exceed three crore rupees. Where such original val- ue of investment exceeds the limit of three crore rupees, the provisions of this notification shall not apply from the first day of the month in which such investment exceeded the said limit of three crore rupees. xxxx xxxx xxxx” (emphasis supplied) Further, by way of Notification No. 41/2001, as issued on 21.09.2001, the Central Government proceeded to insert an 5 Explanation under paragraph 8(1) supra. The said Notification No. 41/2001 reads as under:- In exercise of the powers conferred by rule 15 of the Central Excise (No. 2) Rules, 2001, the Central Government, being satisfied that it is neces- sary in the public interest so to do, hereby makes the following amend- ment in the notification of the Government of India in the Ministry of Fi- nance (Department of Revenue), No. 32/2001-Central Excise, dated the 28th June, 2001, namely:- In the said notification, in paragraph 8, after sub-paragraph (1), the fol- lowing shall be inserted, namely:- ‘Explanation.- For the removal of doubt, it is hereby clarified that "the original value of the investment in the plant and machinery installed in the factory of the independent textile processor", shall be the original value as determined in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India on Accounting for Fixed Assets.’ Its application for availing the Compound Levy Scheme having remained pending, the appellant proceeded to discharge the duty liability in accordance with the said Scheme as permitted by Rule 96- ZNA(2) ibid. As per clause (2) of paragraph 7 of Notification No. 32/2001, the application made by the appellant was required to the dealt with as if made under this Notification and hence, the Commissioner proceeded to deal with the same in his detailed order dated 20.09.2001. The learned Commissioner, at the outset, pointed out the following four pre-condition to be fulfilled by the applicant to avail the said Compound Levy Scheme:- “2. As per the provisions laid down in Rule 96 ZNA to 96 ZND of Central Excise Rules, 1944 inserted vide Notification No.16/2001 (NT) dated 30.4.2001, following four pre-conditions are to be fulfilled by a manufacturer of specified processed textile fabric to avail the compound levy scheme under the said rules: (i) He should undertake bleaching, dyeing or printing or any one or more of these processes with the aid of power or steam. (ii) He should have the facility in his factory (including plant & equipment) for carrying out heat setting or drying with the aid of power or steam exclusively in a Hot Air Stenter. (iii) He should not have proprietary interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics. (iv) The Original value of investment in the plant & machinery 6 installed in the factory as on 1.3.2001 or 1.5.2001 shall not exceed three Crore rupees, irrespective of whether such plant and machinery is in use or not, or is in working condition or not.” (emphasis supplied) The Commissioner pointed out that there were doubts regarding fulfillment of the conditions (i), (ii), and (iv) by the appellant-assessee, that the inquiries were caused by the department, and that the opportunity was extended to the appellant to adduce necessary evidence. After observing that there was no dispute as regards condition (iii), as the assessee was not having proprietary interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics, the learned Commissioner proceeded to take up the issues relating to the other conditions. As regards condition (i) supra, after a thorough analysis of the process being carried out by the appellant and after dealing with the contentions urged on its behalf, the learned Commissioner recorded the findings that none of the processes specified in the Notification for availing Compound Levy Scheme was carried out on fiber/top dyed fabric although one or more specified processes were carried out on piece dyed fabrics. The learned Commissioner said,- “7.5. All the above facts lead to an inevitable conclusion that fiber/top dyed fabrics do not undergo the process of bleaching or dyeing. It is in fact illogical to say that fully dyed fabrics is subjected to the process of bleaching, since it would not serve any purpose to remove colour from a fully dyed piece of fabrics. It is also an admitted fact that printing of fabrics is not being carried out by the assessee on any type of fabrics, as per their own submission. Thus I am satisfied that none of the processes specified in the Notification for availing Compound Levy System is carried out on fiber/top dyed fabric. Whereas one or more specified processes are carried out on piece dyed fabrics only.” (emphasis supplied) 7 Thus, the very basic condition regarding the nature of activity/process was held not fulfilled by the appellant-assessee. In the face of this fundamental adverse finding on the nature of activity, a request came to be made on behalf of the appellant that the unit may be allowed to avail the Scheme in relation to ‘piece dyed fabrics’ and the other goods may be subjected to ad valorem rate of duty but the same was declined by the Commissioner with the observations that the Scheme could not be extended to the part goods being manufactured by the assessee. The Commissioner said,- “7.6. A request was made that the unit may be allowed to avail provision of the Compound Levy Scheme in respect of piece dyed fabrics and other goods namely Fiber/Top Dyed fabrics may be subjected to Ad-valorem rate of duty. However I am of the view that provisions of the present Compound Levy Scheme cannot be extended to the part goods being manufactured by the assessee. Thus on this ground I hold that the assessee do not fulfill this pre condition to be eligible to avail the Compound Levy Scheme under Rule 96 ZNA of the Central Excise Rules, 1944.” The learned Commissioner, thereafter, dealt with the pre- condition (ii) regarding the facility in the factory for carrying out heat setting or drying with the aid of power or steam exclusively in a Hot Air Stenter; and disagreed with the contention urged on behalf of the department that the Scheme would not be available to the appellant for the process of drying of fabric being not carried out exclusively in a Hot Air Stenter. The Commissioner referred to the explanation in the Rules and said,- “8.6 ..…Thus the explanation I does not lay down an absolute condition that both the process of heat setting and drying must be carried out exclusively in a hot air stenter is covered under the scheme. In view of this I hold that this condition as laid down under explanation-I to Rule 96ZNA appears to be fulfilled by the assessee.” 8 The learned Commissioner, thereafter, adverted to the pre- condition (iv) about the value of investment in the plant and machinery and, while observing that it was the total investment made on installation of plant and machinery in the factory that was relevant, found that the assessee had shown the figure of investment at Rs.2,59,15,459/- but an additional investment of about Rs.80,00,000/- was not included in relation to various machineries/equipments. The appellant-assessee relied upon the guidelines issued by the Ministry of Industries on 10.12.1997 in support of its case, particularly regarding exclusion of certain items in computation of the value of investment in plant and machinery but the learned Commissioner found the said guidelines inapplicable for computation of investment for the purpose of the Compound Levy Scheme in question; and held the appellant ineligible for the total investment in the plant and machinery installed in the factory being about Rs.339.15 lacs while saying,- “9.4 The figures of value of investment furnished by the assessee in their application ASP-I were got verified. As per the books of accounts and the ‘Summary of ledger of Capital Accounts Work in progress’ of the assessee, the total investment in plant and machinery installed in their factory works out to be Rs.339.15 lacs which is much above the prescribed investment limits of rupees three Crores. Thus the assessee does not fulfill this condition laid down in sub-rule (1) of rule 96ZNB, to be eligible for the special procedure of compound levy scheme.” (emphasis supplied) Accordingly, the Commissioner found the appellant ineligible to avail the Compound Levy Scheme particularly for not fulfilling the aforesaid pre-conditions (i) and (iv); and rejected the application with the following order:- “10. In view of the above findings I hereby hold that the assessee does not fulfill the above conditions at para 2 (i) & 2 (iv) to be 9 eligible for the special procedure of compound levy duty scheme prescribed for independent textile processors engaged in the manufacture of specified textile fabrics. Therefore in exercise of the powers conferred under sub-rule (2) of Rule 96ZNA (now Rule 15 of Central Excise Rules, 2001 read with Notification No.32/2001 – CE dated 28.06.2001), I hereby reject the application of M/s. Sulzer Processors (P) Ltd., Bhilwara opting therein to avail special procedure of compound levy duty scheme.” (emphasis supplied) Aggrieved by the aforesaid order dated 20.09.2001 as passed by the Commissioner, the appellant approached the Tribunal in appeal; and before the appeal came up for hearing, the Hon’ble Gujarat High Court rendered a decision in the case of Mangal Textile Mills Pvt. Ltd. & Anr. Vs. Union of India: 2002 (49) RLT 265 (Guj.) while considering the issue regarding investment in the plant and machinery in the relation to the said Notification No. 32/2001. In the said case, the Gujarat High Court held, with reference to the certificates given by the Chartered Accountants, that the assessee fulfilled the requisite conditions on the quantum of investment; and it was also observed that the Chartered Accountants’ certificate showing the capital investment should be accepted unless displaced by the opinion of professional expert. While considering the appeal preferred by the present appellant alongwith the appeal preferred by another similarly circumstanced assessee, the learned Members of the Tribunal referred to the aforesaid decision in Mangal Textile Mills and observed that when the authority did not accept the certificate issued by the Chartered Accountant on the ground that the criteria adopted by him was incorrect, the appellant should have been allowed an opportunity to produce the certificate in accordance with the 10 requirements of law. On and for this reason alone, the Tribunal proceeded to set aside the order passed by the Commissioner; and remanded the matter for de novo consideration regarding availability of the Scheme to the appellant after affording reasonable opportunity of hearing. The considerations adopted and the directions issued by the Tribunal in the common order dated 09.04.2002 could be noticed as under:- “4. We have heard both sides and gone through the impugned order. In our view the issue regarding the investment of the appellants in the units deserves to be re-examined. According to the appellants their investment is less than Rs.3 crores. The certificate issued by their respective Chartered Accountant had not been accepted by the adjudicating authority on the ground that the criteria adopted by him for preparing the certificate was incorrect, but in that event the adjudicating authority should have allowed an opportunity to the appellants to produce the certificate in accordance with the requirement of the law from the Chartered Accountant instead of out-rightly rejecting their claim for the benefit of the Compounded Levy Scheme. Therefore, in our view the matter deserves to be re-examined especially in the light of the ratio of the law laid down by the Gujarat High Court in the case referred to above. 5. Consequently, the impugned order in both these appeals is set aside and the matter is sent back to the adjudicating authority for de novo consideration regarding the availability of Compounded Levy Scheme benefit to the appellants after affording reasonable opportunity of hearing to both the sides with a liberty to the appellants to produce evidence, if any, in support of their case.” Pursuant to the remand order aforesaid, the Commissioner took up the matter for consideration afresh. The department had not accepted the facts and figures stated in the certificates sought to be relied upon by the appellant; and a Cost Accountant was deputed to carry out special audit. The Cost Accountant submitted the report dated 30.12.2003 opining that value of investment by the appellant on plant and machinery was Rs.3,58,10,250/- as on 01.03.2001; and was to the extent of Rs.3,73,69,369/- as on 01.05.2001. A copy of 11 the report received from the Cost Accountant was supplied to the appellant and at request, the appellant was permitted to cross- examine the Cost Accountant concerned. After taking note of the submissions made on behalf of the appellant and the material placed on record, the Commissioner proceeded to decide the matter over again by the impugned order dated 31.03.2004/06.04.2004. The learned Commissioner in the first place took note of the significant fact that the adjudicating authority while passing the earlier order had held that in the manufacture of fibre dyed/top dyed fabrics, the processes of bleaching, dyeing or printing were not being undertaken by the assessee and as such, the special procedure scheme did not apply. The Commissioner noted the fact that though the Tribunal had remanded the matter with reference to the ratio in Mangal Textile Mills (supra) but without any specific observation regarding the aforesaid finding on the process undertaken; and also found that no new argument had been advanced from the side of the assessee in this regard. While putting the record straight, the Commissioner proceeded to reiterate the earlier findings thus: “I find that the Hon’ble Tribunal had made no specific observations with regard to point relating to applicability of special procedure to fibre dyed/top dyed fabric, and therefore, in the absence of any new arguments from the assessee in this regard to controvert the findings of my predecessor in his said order dated 1.10.2001, I reiterate the findings of my predecessor, being in agreement with him on this issue.” (emphasis supplied) Thereafter, the Commissioner referred extensively and in detail to the material available on record including the cross- examination of the Cost Accountant; and found the report