Appellant, M/s. Parasrampuria International, A Division of Parasrampuria Synthetic Ltd., Sector-III, Pithampur, (hereinafter referred to as the Appellant Company) are a 100% EOU engaged in the manufacture of Polyester Cotton yarn and Polyester blended yarn falling under sub-heading no.5505.10, 5515.20, 5202.10, 5202.99, 5509.21 and 5509.22 of the Central Excise Tariff for export. Shri S.K. Chabra is the Managing Director of the appellant company and Shri S.V. Sharma is the Asstt. General Manager of the appellant company during the period of dispute. The period of dispute in this case is from October, 2001 to March, 2006. The appellant during this period, in addition to clearing the finished products, ‘spun yarn’ for export, were also making DTA clearances of cotton waste. The Director General of Central Excise Intelligence initiated investigation in respect of the value of DTA clearances and gathered evidences which indicated that the value and quantity of the DTA clearances had been under-declared and on this basis, a show cause notice was issued to the appellant company. In respect of that show cause notice, the appellant filed an application before the Settlement Commission for the settlement, wherein they admitted short payment of duty including education cess of Rs.1,28,22,150/-. The value of the goods cleared into DTA was about Rs.9 crores. The application filed by the appellant company before the Settlement Commission was decided by the Settlement Commission vide final order dated 26.2.08 by which the dispute was settled at Rs.1,28,22,150/- along with simple interest @10% p.a.
2 Subsequent to the Settlement Commissioners order, the eligibility of the appellant for concessional rate of duty in respect of the DTA clearances under notification no.8/97-CE dated 1.3.97, no.6/97-CE dated 1.3.97 and no.23/03-CE dated 31.3.32003 was reviewed by the jurisdictional Central Excise Authorities. The benefit of these exemption notifications was admissible only in respect of those clearances into DTA which had been made in accordance with the Exim Policy and in terms of the Exim Policy, the overall ceiling of the DTA clearances was 50% of the FOB value of the exports. Accordingly, it was found that during the period of dispute, the DTA clearances, of the appellant company had exceeded the ceiling of the 50% of the FOB value of the exports and as such, the clearances in excess of the ceiling were not eligible for concessional rate of duty and would attract duty at the normal rate in terms of the proviso to Section 3 (1) of the Central Excise Act, 1944. It is on this basis that show cause notice dated 1.12.2006 was issued to the appellant company, its Director, Shri S.K. Chabra and its Asstt. General Manager, Shri S.V. Sharma for –
(a) recovery of the central excise duty including education cess amounting to Rs.437.73 lakhs along with interest thereon under Section 11 AB;
(b) imposition of penalty on the appellant company under Section 11 AC of the Central Excise Act, 1944 and
(c) imposition of penalty under Rule 26 of the Central Excise Rules,2004 on Shri S.K. Chabra, Director and Shri S.V. Sharma, Asstt. General Manager. Subsequently another show cause notice dated 11.06.2007 was issued for the period from April, 2006 to December, 2006 demanding duty of Rs.35,98,319/-from the Appellant Company on the issue of inclusion of DTA sales of cotton waste in excess of the overall DTA sale entitlement limit.
3. The above show cause notices were adjudicated by the Commissioner vide order-in-original dated 2.4.2014 by which —
(a) he confirmed total duty demand of Rs.2,92,08,602/- along with interest and appropriated the amount of Rs.1,28,22,150/- paid in terms of the Settlement Commission’s order;
(b) imposed penalty of Rs.2,92,08,602/- on the appellant company under Section 11 AC of the Central Excise Act, 1944, and
(c ) imposed penalty of Rs.15 lakh each on Shri S.K. Chabra, Director and Shri S.V. Sharma, Asstt. General Manager.
4. However, the adjudicating authority dropped the proceedings initiated vide SCN dated 01.12.2006, regarding inclusion of the value of cotton and waste, for determining the entitlement for DTA clearance.
5. Three appeals have been filed by the assessee, Shri S.K. Chandra, Director as well as Shri S.V. Sharma, AGM against the duty demands as well as penalties imposed. Revenue has filed appeal against the dropping of proceedings initiated in SCN dated 01.12.2006.
6. In this connection, we heard Shri Manish Saharan, ld Advocate for all the appellants as well as Shri M.R. Sharma ld DR for the Revenue. The arguments advanced on behalf of the assessee, Director and AGM are that on the basis of allegation of under-valuation of DTA clearances, SCN dated 04.09.2006 was issued which came to be decided by the Settlement Commission, directing the assessee to pay differential duty amounting to Rs.1,28,22,150/-. However, for the same offence, the Revenue has issued another SCN dated 01.12.2006 wherein duty demand totally amounting to about Rs.437.73 lakhs has been made. The decision of the Apex Court in the case of M/s Nizam Sugar Factory Vs Commissioner 2006 (197) 465 (S.C.) was cited to support the argument that when all the relevant facts were in the knowledge of the authorities when first SCN was issued, while issuing second and third SCNs, same facts could not be considered as suppression on the part of the assessee. In view of the above, it was argued that the demand raised vide SCN dated 01.12.2006 was time barred.
7. Ld DR justified the impugned order and argued as follows:
(i) As far as issue of SCN dated 01.12.2006, he argued that the appellant has admitted the under-valuation for cotton yarn cleared in the DTA and hence such portion of under-valuation is required to be added to re-determine the entitlement for DTA clearances. The adjudicating authority has restricted the concessional rate of duty under Notification 23/2003 dated 31.03.2003 to 50% of FOB value of the exports. He justified the issue of SCN invoking the extended period with the submission that the appellant has suppressed the sale of cotton waste and did not account these figures towards DTA entitlement limit.
(ii) The Revenue’s appeal is filed on the ground that the Commissioner has erred in taking the view that the cotton waste was non-excisable and hence there is no need to add the value thereof to determine the ceiling of DTA entitlement. He relied on the case of M/s Nahar Industrial Enterprises Vs Commissioner 2003 (154) ELT 284 (Tri. Del.) in which the Tribunal held that sale of rejects shall be counted under DTA sale entitlement as per the Exim Policy. The Hon’ble Supreme Court has dismissed the appeal filed against the Tribunal’s decision as reported in 2011 (268) ELT A50 (S.C.).
8. The ld Advocate opposed the contention of Revenue. He argued that the issue regarding DTA sales entitlement has been decided in the recent case of Commissioner Vs STI India Limited-2017 (347) ELT 294 (Tri.Del.) In the above decision, the Tribunal held that the value of cotton waste which stands exempted from duty is not required to be counted for DTA sales entitlement. Accordingly, he submitted that the Revenue appeal is without merit.
9. Heard both sides and perused the record.
10. The original allegation investigated by DGCEI was that the appellant has under-valued the clearances made in DTA in respect of cotton yarn. After the issue of SCN in this regard, dated 04.09.2006, the appellant approached the Settlement Commission which settled the dispute. Accordingly, the appellant paid differential duty amounting to Rs.1,28,22,150/- along with simple interest @ 10%. After the order of the Settlement Commission, the Revenue proceeded to re-determine the eligibility of the appellant for the concession rate of duty in respect of DTA clearances. The relevant Notification 23/2003 dated 31.03.2003 allowed the benefit of concessional rate for DTA clearances only for the goods which were cleared in DTA in accordance with the Exim Policy restricted to overall the ceiling of such DTA clearances to 50% of the FOB value of exports. The Revenue added the quantum of under-valuation of cotton yarn, as settled by the Settlement Commission, to the value of clearances already made during the disputed period and noticed that over the ceiling of 50% of the FOB value was already breached. For the value of clearances in excess of the ceiling, the Revenue demanded the differential duty without the benefit of the concession under Notification 23/2003, totally amounting to Rs.4.37 lakhs. Towards this, SCN dated 01.12.2006 was issued for the period October, 2001 to March, 2006 which covered the same period of dispute settled by the Settlement Commission.
11. The argument advanced by the appellant is that the second SCN dated 01.12.2006 covering the same period of dispute as the initial SCN dated 04.09.2006 (which was settled by the Settlement Commission), cannot be held valid for the extended period of limitation since the allegation of under-valuation was already known to Revenue. The case of M/s Nizam Sugar Factory (supra) decided by the Hon’ble Supreme Court stands cited in support.
We find considerable force in the argument advanced by the appellant. The allegation of under-valuation was investigated by the Revenue resulting in SCN dated 04.09.2006. On the basis of the known facts, Revenue was already in a position to re-compute the overall ceiling of DTA clearances by adding the quantum of under-valuation detected, but Revenue failed to do so. For such re- computing and raising the revised demand, a further SCN dated 01.12.2006 has been issued in which the allegation of suppression has been made once again. In the circumstances of the case, we are of the view that the decision of the Hon’ble Supreme Court in the M/s Nizam Sugar Factory case will be applicable and Revenue will be precluded from raising the allegation of suppression in the SCN dated 01.12.2006. Consequently, the demand of duty raised in SCN dated 01.12.2006 is required to be restricted to that falling within the normal period of limitation. Beyond this period, the demand is set aside. The adjudicating authority will re-quantify the demand as above. The mandatory penalty equal to the duty demanded also will not be liable to the paid. However, the demand for interest on the re-computed demand as well as the penalties imposed on the Director as well as Asstt. General Manager are upheld.
12. The SCN dated 01.12.2006 had also proposed demand of duty on the cotton waste which stands cleared by the appellant in the DTA. The SCN also proposed including the value of such cotton waste for re-determining the DTA entitlement. But the adjudicating authority dropped the demand of duty on cotton waste. Against such finding, Revenue is in appeal before us.
13. The ld DR, appearing for Revenue, has raised the argument that even though cotton waste is not excisable, the same is required to be counted against the DTA sales entitlement. In support, they have cited the decision of M/s Nahar Industrial Enterprises (supra) which stands approved by the Hon’ble Supreme Court. As against above, on behalf of the appellant, the case of M/s STI India (supra) has been cited.
14. We have carefully considered both the decisions. We note that the decision in the case of M/s Nahar Industrial Enterprises (supra) is applicable for the Exim Policy, in force, prior to 01.04.2001. The decision in the case of M/s STI India covers the subsequent period and hence is applicable to the facts of the present case. The Tribunal observed in the case of M/s STI India as under:
“4. We have heard the ld. AR for the Revenue and the ld. Counsel for the respondents. The respondents have filed cross appeal also in these cases. The lower authorities examined the legal provisions as per Para 9.9 and 9.20 of Exim Policy 1999-2002 and Notification No.23/2003-C.E. The original authority relying on the Final Order No.A/723-724/2012-Ex, dated 26.05.2012 [2012 (284) E.L.T. 572 (Tribunal)] of the Tribunal held that obtaining soft cotton waste in the course of carding and combing, ginning cotton do not amount to manufacture and no news product with distinct name, usage and character emerges. We further note that cotton waste is exempted under Notification No.23/2003-C.E. without any condition. Even if the respondents have no permission for DTA sales in terms of Exim Policy, such waste cannot be subjected to any duty. The applicable duty on such cotton waste is nil without any condition. In such a condition, we find that the argument of the Revenue that clearance of cotton waste should be within the over all ceiling of 50% of FOB value is contrary to Exim Policy. It may be noted here that Assistant Development Commissioner of NSEZ. Noida had clarified that as cotton waste is unconditionally exempted from duty, the same is not to be counted for DTA sales entitlement in terms of Para 6.8(e) of the policy. We find that on careful examination of the applicable provisions of Exim Policy and Notification as stated above, there is no merit in the present appeals by Revenue. Accordingly, the same are rejected.”
In the view of above, there is no justification t include value of cotton waste in the DTA entitlement.
15. In the light of above discussion, we reject the appeal filed by Revenue. The appeals filed by the appellants are partially allowed and the matter remanded to adjudicating authority for re-quantification of the demand within the normal period.