Case Law Details
Rishabh Polyester Vs Commissioner of Central Excise (CESTAT Mumbai)
CESTAT Mumbai held that Cenvat credit can be availed for clearance of dyed yarn, if the duty is paid at the doubling stage.
Facts- M/s Shree Rishabh Polyester, aggrieved by order for recovery of ₹ 1,41,391 under section 11A of Central Excise Act, 1944, along with interest thereon under section 11AB of Central Excise Act, 1944, for having claimed the benefit of notification no. 6/2002-CE dated 1st March 2002, restricting liability to ₹ 9 per kg as Cenvat and ‘additional excise duty’ to 15% thereon instead of Cenvat at 16%, ‘special excise duty’ of 16% and ‘additional excise duty’ at 15% thereon, on clearance of ‘dyed yarn’ without complying with condition therein and imposition of penalty of ₹ 5000 under rule 27 of Central Excise Rules, 2002, preferred appeal before the first appellate authority. Dismissal thereto, by order of Commissioner of Central Excise (Appeals) has led to bringing the present dispute before us.
Conclusion- Held that subject to condition that yarn emerging therefrom is exempted from duty, it is only required that the finished goods should have been manufactured either out of duty paid ‘textured yarn’ or ‘twisted yarn’ and that Cenvat Credit on such inputs had not been availed. It is not the case of Revenue that credit had been availed.
Tribunal in re Shreekar Polyester Pvt Ltd has held that the appellants contended that even if the duty is paid at the doubling stage, Cenvat credit can be availed for clearance of dyed yarn and in effect there would be revenue neutrality. In these circumstances, the appellant’s interpretation of condition 19(ii) appears to be correct.
FULL TEXT OF THE CESTAT MUMBAI ORDER
1. M/s Shree Rishabh Polyester, aggrieved by order for recovery of ₹ 1,41,39 1 under section 11A of Central Excise Act, 1944, along with interest thereon under section 11AB of Central Excise Act, 1944, for having claimed the benefit of notification no. 6/2002-CE dated 1st March 2002, restricting liability to ₹ 9 per kg as CENVAT and ‘additional excise duty’ to 15% thereon instead of CENVAT at 16%, ‘special excise duty’ of 16% and ‘additional excise duty’ at 15% thereon, on clearance of ‘dyed yarn’ without complying with condition therein and imposition of penalty of ₹ 5000 under rule 27 of Central Excise Rules, 2002, preferred appeal before the first appellate authority. Dismissal thereto, by order1 of Commissioner of Central Excise (Appeals), Mumbai Zone – I, has led to bringing the present dispute before us.
2. Narrating the contours of the dispute, Learned Counsel for appellant submitted that the continuity of the dispute after 2nd December 2016 is attributable only to unforeseen error inasmuch as the appeal had been listed along with others, viz., that of M/s Shreekar Polyester Pvt Ltd2 and M/s Raj Synthetics3, that had arisen in identical circumstances but, in the order of the Tribunal disposing those off, the reliefs sought in their appeal had not been dealt with. She contended that, as the same circumstances inform this dispute, the reasoning in that decision4 should apply here.
3. Learned Authorized Representative submitted that the facts differed in the present matter inasmuch as the finished goods had not been manufactured from duty paid ‘textured yarn’ or ‘draw-twisted yarn’ but from ‘twisted yarn’ emerging as an intermediate product on which duty liability had not been discharged and thus not compliant with condition
‘31. (i) manufactured out of textured or draw-twisted yarn, falling under Chapter 54 of the First Schedule on which the appropriate duty of excise under the First Schedule, the special duty of excise leviable under the Second Schedule, or as the case may be, additional duty leviable under the Customs Tariff Act, 1975 has already been paid; and
(ii) no credit under rule 3 or rule 11 of the CENVAT Credit Rules, 2002 has been availed in the process of dyeing, printing, bleaching or mercerising in the manufacture of dyed, printed, bleached or mercerised yarn.’
in notification claimed to be applicable to appellant.
4. We are not entirely convinced with the submission of Learned Authorized Representative. It is clear from the decision of the Tribunal in re Shreekar Polyester Pvt Ltd that
‘The fact of the case is that the respondents are engaged in the manufacture of Dyed Polyester Filament Yarn falling under Chapter No. 54, during relevant period of dispute they availed exemption of Notification No. 6/2002-CE dated 01.03.2002 (Sr. No. 126 with condition No. 31), accordingly, cleared the finished goods i.e. Dyed Polyester Filament Yarn on payment of specific basic excise duty of Rs. 9/- per Kg. + 15% on BED as additional Excise duty (T & TA). For the purpose of manufacture of the aforesaid goods the respondent purchase the texturised yarn on payment of appropriate duty which is subsequently twisted and thereafter dyed. The exemption notification was proposed to be denied on the ground that for the manufacture of Dyed Polyester Filament Yarn though the duty paid texturised yarn was purchased but captively the same was twisted and no duty was paid on the twisted yarn therefore the condition No. 31 of the notification stand violated. The adjudicating authority denied exemption Notification and confirmed the demand of duty amounting to Rs. 26,25,454/-. Being aggrieved by the Order-inOriginal dated 24.03,2005, the respondent filed appeal before the Commissioner (Appeals) who vide the impugned order set aside the Order-in-Original and allow the appeals with consequential relief. Therefore the Revenue is before us.’
the demand did arise in similar circumstances.
5. The principle enshrined within the scheme of central excise, intended to tax all – including intermediate goods – manufacture but for convenience is excluded from levy at each of the stages subject to duty being paid at some stage by the manufacturer and subject to procedure as spelt out in rule 16A, rule 16B and rule 16C of Central Excise Act, 1944. In such circumstances, a separate notification by the Central Government, in concord with tax policy formulation, must be presumed to have a separate intent so as not to be superfluous. Hence, subject to condition that yarn emerging therefrom is exempted from duty, it is only required that the finished goods should have been manufactured either out of duty paid ‘textured yarn’ or ‘twisted yarn’ and that CENVAT Credit on such inputs had not been availed. It is not the case of Revenue that credit had been availed.
6. In identical circumstances, it has been held by the Tribunal in re Shreekar Polyester Pvt Ltd that
‘4. …….
From the above condition 31(i), it can be seen that the dyed yarn is concessionally exempted if manufactured out of texturized yarn on which duty of Excise was paid. In the fact of the present case, the Dyed Polyester Filament Yarn was manufactured out of duty paid texturised yarn. Though after purchase the duty paid texturised yarn, it is first used in the process of twisted yarn which in turn used in the manufacture of Dyed Polyester Filament Yarn. There is no dispute the dyed yarn was manufactured out of duty paid texturised yarn, accordingly the condition of notification stand complied with, merely because at the intermediate stage twisted yarn made that does not alter the duty paid character of the principal yarn i.e. texturised yarn. The judgment cited by the Learned Counsel directly covers the issue in favour of the respondent. In the case of Kejariwal Yarns Pvt Ltd. (supra) this Tribunal has held as under:-
2. We have carefully considered the submissions made by both sides. Admittedly, during the relevant period, the appellant had availed benefit of the notifications in question. The condition required to be fulfilled for availing benefit of above notifications is as under:
(i) Manufactured out of textured or draw-twisted yarn falling under Chapter 54 of die First Schedule on which the appropriate duty of Excise under the First Schedule, the special duty of Excise leviable under the Second Schedule to the Central Excise Tariff Act, 1985 has already been paid; and
(ii) No credit under Rule 3 or Rule 11 of the Cenvat Credit Rules, 2001 has been availed in the process of dyeing, printing, bleaching or mercerizing in the manufacture of dyed, printed, bleached or mercerized yarn.
3. As per the Revenue, the said condition does not stand fulfilled inasmuch as the appellant had manufactured dyed twisted yarn out of twisted yarn on which no duty was paid. On the other hand, it is the appellant’s contention that the starting raw material for manufacture of dyed twisted yarn was duty paid texturised yarn on which they have not availed any Modvat credit. Coming into existence of twisted yarn is an intermediate stage, which cannot be held to be the starting point. The basic and starting raw material for manufacture of dyed yarn is duty paid texturised yarn which is subsequently twisted before dyeing of yarn.
4. We find considerable force in the above contention of learned advocate. Admittedly, the starting raw material is the duty paid texturised yarn which stand turned into an intermediate product i.e. Twisted yarn which in turn is captively used in manufacture of dyed yarn. It is well settled that if ‘A’ is used in the manufacture of ‘B’, which in turn is used in manufacture of ‘C’, it can be safely concluded that ‘A’ has been used in manufacture of ‘C’. Admittedly, ‘A’ is duty paid, and no credit has been availed by the appellant. That being so, an inevitable conclusion would be that the condition of notification stand satisfied by the appellant.
5. We also note that an identical condition in Notification No. 6/2002-C.E. was the subject matter of the Tribunal’s decision in case of Precot Mills Ltd. v. CCE, Bangalore, 2005 (183) E.L.T. 407 (Tri.-Bang.). Tribunal while dealing with the said issue, has held in favour of the assessee by observing as under:
“6. We have carefully considered the rival contentions. The point to be decided in this case is whether the appellant is entitled to claim exemption under Sl. No. 97 in respect of the dyed yarn manufactured out of the doubled yarn which availed complete exemption from duty. The decision on this point involves the interpretation of the following expression used in condition 19(ii) of the Notification No. 6/2002:-
“If manufactured out of yarn on which appropriate duty of excise has already been paid.”
It is true that the dyed yarn was manufactured out of the doubled yarn on which no duty was paid. But it is also true that the dyed yarn was manufactured, out of doubled yarn manufactured out of single yarn on which duty had already been paid. Hence, if a question is asked whether the dyed yarn is manufactured out of the duty paid yarn, answer would be ‘YES’. The dyed yarn was manufactured out of single yarn on which, duty was paid even though at the doubling stage, exemption was availed. There is no condition that the yarn should have suffered duty at every stage. In other words there is no condition that if doubled yarn is subject to the process of dyeing, the dyed yarn is entitled for exemption only if at the doubling stage duty had been discharged. Moreover, the appellants contended that even if the duty is paid at the doubling stage, Cenvat credit can be availed for clearance of dyed yarn and in effect there would be revenue neutrality. In these circumstances, the appellant’s interpretation of condition 19(ii) appears to be correct. In view of these observations, we allow the appeal with consequential relief.”
6. By following the ratio of law as declared in the above decision, we hold that the condition of notification stand fulfilled and the impugned order confirming demand of duty is required to be set aside.
7. Apart from the merits of the case, we also note that the demand is barred by limitation having been raised beyond the normal period of one year. Admittedly, the benefit of the concessional rate of duty in terms of notification was being availed by the appellant after making declaration to the department and after making entries in the statutory records. The reasoning of the Commissioner that by claiming conditional exemption, which the appellant knew were only applicable to dyed twisted polyester yarn if manufactured out of texturised or dyed twisted yarn on which appropriate duty of Central Excise have already been paid, the appellant had made misdeclaration, is not appreciated by us. (It is well settled that the claim of exemption cannot be held to be misrepresentation. The appellant having made claim, it was for the Revenue to adjudge as to whether such claim was available or not. We, accordingly, hold that there is no suppression or misstatement on the part of the appellant with an intent to evade payment of duty so as to invoke longer period of limitation).
8. In view of the above, appeals are allowed on merit as also on limitation with consequential relief to the appellants.”
In the case of Precot Mills Ltd. (supra) this Tribunal decided the identical issue the same has reproduced below:-
“5. The Revenue relied on the decision of the Apex Court in the case of CCE, Vadodara v. Dhiren Chemical Industries [2002 (139) E.L. T. 3 (S.C.)] and maintained that the doubled yarn did not suffer any duty and hence, the benefit of Notification No. 6/2002 under Sl. No. 97 will not be applicable to the dyed yarn which is converted from doubled yarn. While giving comments on the appeal, the Revenue has observed that the appellants contention that if the duty is paid at the doubling stage, they would be eligible for the CENVAT Credit of the same at the dyeing stage and in effect, it would be revenue neutral appears to be correct.
6. We have carefully considered the rival contentions. The point to be decided in this case is whether the appellant is entitled to claim exemption under Sl. No. 97 in respect of the dyed yarn manufactured out of the doubled yarn which availed complete exemption from duty. The decision on this point involves the interpretation of the following expression used in condition 19 (ii) of the Notification No. 6/2002 :-
“If manufactured out of yarn on which appropriate duty of excise has already been paid.”
It is true that the dyed yarn was manufactured out of the doubled yarn on which no duty was paid. But it is also true that the dyed yarn was manufactured out of doubled yarn, manufactured out of single yarn on which duty had already been paid. Hence, if a question is asked whether the dyed yarn is manufactured out of the duty paid yarn, answer would be ‘YES’. The dyed yarn was manufactured out of single yarn on which, duty was paid even though at the doubling stage, exemption was availed. There is no condition that the yarn should have suffered duty at every stage. In other words there is no condition that if doubled yarn is subject to the process of dyeing, the dyed yarn is entitled for exemption only if at the doubling stage duty had been discharged. Moreover, the appellants contended that even if the duty is paid at the doubling stage, Cenvat credit can be availed for clearance of dyed yarn and in effect there would be revenue neutrality. In these circumstances, the appellant’s interpretation of condition 19(ii) appears to be correct. In view of these observations, we allow the appeal with consequential relief.
From the above Tribunal decision, the issue is no longer res integra. ……..
From the above findings, we observed that the Learned Commissioner (Appeals) has correctly examined the issue and accordingly allowed the appeal of the respondent. As per the above discussion and following the decision in the case of Kejariwal Yarns Put. Ltd. (supra) and Precot Mills Ltd. (supra) the impugned order does not require any interference. Therefore the same is upheld, the Revenue appeal is dismissed. CO also stands disposed.’
7. In view of our findings supra and the cited decision, nothing further remains to be decided in the dispute and we, therefore, allow the appeal by setting aside the impugned order.
(Order pronounced in the open court on 05/09/2023)
Notes:
1 [order-in-appeal no. BR/293/Th-I/2012 dated 14th November 2012]
2 [excise appeal no. 86154/13-MUM]
3 [excise appeal no. 3278/05 along with appeal no. E/CO/350/06]
4 [final order no. A/94361-94364/16/EB dated 2nd December 2016]
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