M/S C.T. Cotton Yarn Ltd vs Commissioner Of Central Excise, Indore

1. The appellant challenges the decision of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in A.No.E/1715- 1716/97-D dated 19.07.2000. By the said order the Tribunal substantially dismissed the appeals filed by the appellant, but reduced the penalty imposed on the appellant by the Original Authority.

2. According to the appellant, it is a 100% export oriented unit engaged in the manufacture and export of cotton yarn. It purchases cotton from the domestic market for the manufacture of yarn. After the cotton is purchased it is subjected to carding and combing and only thereafter it is spun into yarn. According to the appellant, carding involves opening and separating out of fibres together with effective cleaning and combing is a process by which impurities and undesired short fibres are removed. During carding and combing, the fibre and noils can be separated and they are collected in one place by suction. This, according to the appellant, is a waste generated at the preparatory stage and it is cotton waste. It is impure cotton fibre.

3. Earlier, the appellant was paying duty on this cotton waste before clearing it and selling it in the Domestic Tariff Area. On finding that certain similar other manufactures were not paying duty on the waste cotton thus generated and disposed of in the Domestic Tariff Area, the appellant sought clarification from the Collector of Central Excise and Customs, Indore taking up the position that cotton waste was not dutiable. On 9.9.1993, the appellant was informed that soft cotton waste arising out of indigenous material would not attract excise duty. The appellant started clearing and selling the waste cotton without payment of duty. On 16.09.1993, the Department wrote a letter to the appellant to explain under what circumstances the appellant was clearing the soft cotton waste and selling it in the Domestic Tariff Area without payment of duty. It is the case of the appellant that based on the clarification as above, it filed a fresh clarification list dated 17.9.1993 declaring soft cotton waste as non-excisable item and it continued clearing the same without payment of duty and selling it in the Domestic Tariff Area. On receipt of the communication dated 16.09.1993 from the Department, the appellant took up the position that soft cotton waste was not liable to duty since it was only cotton waste removed from the cotton domestically purchased so as to enable the appellant to make the yarn for the purpose of export.

5. On 5.5.1997, the Commissioner of Central Excise, Indore, rejected the contentions of the appellant. He confirmed the demand under the first notice, of Rs.15,02,211.18 towards duty. He also imposed a penalty of Rs.5 lakhs on the appellant. As regards the second notice, the Commissioner found that the Department was entitled to the benefit of the extended period under Section 11A of the Act and confirmed the demand under notice dated 22.7.1996 of Rs.7,21,739.63 and also imposed a fine of Rs.2.5 lakhs on the appellant.

6. The appellant filed appeals before the Appellate Tribunal. The appellate Tribunal imposed a condition that the appellant should deposit Rs.8 lakhs towards the duty and Rs.1 lakh towards the penalty before the appeals could be heard. According to the appellant the said sum was deposited on 31.10.1997. Before the Appellate Tribunal, the appellant contended that no manufacture was involved while soft cotton waste was being produced from the cotton that was being cleaned for the purpose of making yarn for being exported and since there was no manufacture involved, no duty was leviable on soft cotton waste sold in the Domestic Tariff Area. It was also submitted that merely because the Finance Act has introduced an entry under Heading 52.02 in the first schedule to the Central Tariff Act covering cotton waste, it would not automatically mean that duty was leviable on the same. Any way, the amendment applied only to the period subsequent to the Finance Act 1995 and not before. It was also reiterated that the claim of the Department for extended period of limitation was unsustainable on the facts and in the circumstances of the case and that in any event the penalty imposed was unjustified. The Appellate Tribunal rejected the claim of the appellant mainly based on the admission of the representative of the appellant that after the 1995 Finance Act, soft cotton waste had become exigible to duty and further taking the view that since it has been specified in the first schedule to the Tariff Act as a dutiable item, the duty was payable at 50% of the rate of customs duty considering the fact that the appellant was 100% export oriented. It took the view that the Finance Act had come into force from the date of the Finance Bill. But the Tribunal, in the circumstances, reduced the penalty imposed by the Commissioner and reduced it to Rs.2.5 lakhs from of Rs.5 lakhs in respect of the period covered by the notice dated 4.12.1995 and to Rs.1.25 lakhs from Rs.2.5 lakhs in respect of the period covered by the notice dated 22.7.1996.

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 question referred to above. The parties are directed to bear their respective costs.