COMMISSIONER OF CENTRAL EXCISE Vs. PRECOT MILLS LIMITED

JUDGEMENT

(1.) M /s. Precot Mills Ltd., Pollachi (hereafter referred to also as 'PML' or the 'assessee') manufactured grey fabric of cotton falling under the Chapter Heading 52.07, 52.08, and 52.09 of the schedule to the Central Excise Tariff Act, 1985. They had taken Modvat credit/Cenvat credit of a total of Rs. 57,94,586/ - being duty paid on capital goods under Rule 57 AB of Central Excise Rules, 1944, (CER) for the period 01/03/01 to 30/06/01 and under Rule 3 of the Cenvat Credit Rules, 2001 (CCR) for the period 01/07/01 to 28/02/02. It was observed that the capital goods had been used . exclusively for the manufacture of exempted goods, grey/unprocessed woven fabrics of cotton. As the assessee had manufactured exempted final product using the credit availed capital goods and appeared to have withheld the fact of exclusive use of those goods in the manufacture of exempted goods, a show cause notice was issued to the assessee proposing to recover Rs. 57,94,586/ - under Rule 57 AH of the Central Excise Rules, 1944 and Rule 12 of the Cenvat Credit Rules, 2001 read with the provisions of Section 11A of the Central Excise Act, 1944 (the Act). It was also proposed to demand interest on the above amount under Rule 57 AH of the Central Excise Rules and Rule 12 of the Cenvat Credit Rules, 2001 read with Section 11AB of the Central Excise Act: Notice proposed also to penalize the assessee under Rule 57AH(2) and 173Q of Central Excise Rules, 1944 and Rule 13(2) of Cenvat Credit Rules, 2001 and under Section 11AC of the Act. After allowing sufficient opportunity to the assessee to present their case, the Commissioner passed the impugned order disallowing modvat/cenvat credit of Rs. 57,94,586/ - and ordering its recovery under Rule 57 AH of Central Excise Rules, 1944 and Rule 12 of Cenvat Credit Rules, 2001 read with Section 11A of the Central Excise Act, 1944. The Commissioner imposed a penalty of Rs. 57,94,586/ - under Section 11AC of Central Excise Act, 1944 read with Rule 57AH(2) and 173Q of the Central Excise Rules, 1944, and Rule 13(2) of Cenvat Credit Rule, 2001. The Commissioner did not demand any interest under Section 11AB of the Central Excise Act, 1944 on the credit demanded.

(2.) THE assessee and the Revenue have filed appeals against the above order. In the appeal filed by the assessee, it is submitted that its weaving division had been newly established which had started its commercial production on 01/03/01 and that the subject proceedings pertained to the preparatory machines and certain other capital goods. They had obtained Registration Certificate No. 1/2001 dated 25/01/01. The Registration Certificate had been obtained for the manufacture of cotton fabrics falling under the chapter heading 52.07, 52.08, 52.09 and woven fabrics of synthetic staple fibers falling under the chapter heading 55.11, 55.12, 55.13. They had obtained another PAN based Registration Certificate on 28/01/2002 which included also the articles of apparel and clothing accessories not knitted or crocheted, in addition to the above goods. It was submitted that some of the goods they had intended to manufacture were dutiable. They had started clearing processed fabrics on payment of duty from March, 2002. As the grey fabrics manufactured by the assessee were input for the manufacture of processed fabrics and articles of apparel, they claimed that the capital goods installed had not been exclusively used in the manufacture of the exempted product and therefore, provisions of Rule 57AD(3)/Rule 6(4) were not attracted. Their intention to clear the processed fabrics on payment of duty had been intimated to the jurisdictional Deputy Commissioner of Central Excise vide their letter dated 11/05/01. They had also intimated that they would be sending grey fabrics for further processing to job workers which would be cleared on payment of duty from their factory as per the Notification No. 11/01 CE dated 01/03/01. They also submitted that the Dy. Commissioner had 'confirmed' the proposed procedure. The appellants further submitted that they had filed a declaration under Rule 173(B) of Central Excise Rules, 1944 under cover of their letter dated 18/05/01, wherein manufacture of both dutiable and exempted cotton fabrics had been declared. The declaration also indicated the procedure under Rule 57AC(5) followed by them for getting grey fabrics processed by the job workers. The assessee argued that the Modvat credit could not be denied on the capital goods for the reason that they would also be used in the manufacture of dutiable goods over the life span of the factory, though initially they had been deployed in the manufacture only the exempted goods.

(3.) IN the proceedings before the Commissioner, they had contested the allegation that they had not disclosed that credit availed capital goods had been exclusively used in the manufacture of exempted product and the same had been with an intention to evade payment of duty. They had informed the department about the range of manufacture and the Certificate of Registration issued had indicated manufacture of dutiable goods falling under various Chapters. They had paid duty of excise on processed fabrics as well as articles of apparel manufactured using grey fabrics produced with the impugned capital goods. They had intimated taking of Modvat credit and had disclosed the entire manufacturing details in their letters to the department, when the impugned credit had been taken by them. Therefore, there was no question of levy of penalty and interest.