LOYAL SUPER FABRICS Vs. CCE

JUDGEMENT

(1.) M /s. Loyal Super Fabrics, Cuddalore (hereinafter referred to as 'the assessee') are engaged in the manufacture of processed cotton yarn (Heading 52.03 of CETA Schedule), processed polyester yarn (Heading 55.09), processed cotton fabrics (Heading 52.07), processed man -made fabrics (Heading 55.12), processed cotton knitted fabrics (SH 6001.11) and processed man -made knitted fabrics (SH 6001.12). M/s. Loyal Textile Mills Ltd., Kovilpatti (LTML, for short) are manufacturers of cotton and man -made fabrics as well as cotton and man -made knitted fabrics. Since they have no processing facility at Kovilpatti, they sent these fabrics to the assessee for processing. The Asst. Commissioner of Central Excise, Kovilpatti vide his letter dated 30.11.2001 permitted M/s. LTML to clear grey fabrics without payment of duty, to the assessee for processing and to get back the processed fabrics without payment of duty for conversion into garments for export in terms of Rule 19 of the Central Excise (No. 2) Rules, 2001 read with Notification No. 43/2001 -CE (NT) dated 26.6.2001. Accordingly, M/s. LTML were clearing grey fabrics without payment of duty to the assessee for processing and the latter was clearing the processed fabrics without payment of duty, to the former for conversion into garments for export. The department issued the following eight show -cause notices to the assessee for recovery of a total amount of duty of Rs. 5,87,94,338/ - from them:

(2.) THE department's appeal is against the dropping of penalty, while the assessee's appeal No. E/638/2003 is directed against the demand of duty with interest as confirmed in Order -in -Original No. 9/2003 dt. 30.5.2003. In appeal No. E/313/2004 filed against Order -in -Original No. 17/2003 dt. 21.11.2003 of the Commissioner, the assessee is aggrieved by a similar demand of duty of over Rs. 2.9 crores for the period July to December 2002 as also against a penalty of Rs. 30 lakhs. Appeal No. E/1388/04 filed by the assessee is against Order -in -original No. 8/2004 dt. 14.7.2004 passed by the Commissioner raising a similar demand of duty of over Rs. 2.1 crores and imposing a similar penalty of Rs. 25 lakhs for the period January to March 2003.

(3.) THE assessee's case is that they were entitled to duty -free clearance of processed fabrics to M/s. LTML on the strength of the permission granted to M/s. LTML by the jurisdictional Asst. Commissioner. This permission was communicated to M/s. LTML in a letter dated 30.10.2001 of the Superintendent of Central Excise, which reads as under: Please refer to your letter dated 15.10.2001 on the above subject. In this regard, the Assistant Commissioner of Central Excise, Kovilpatti has permitted you to clear grey fabric without payment of Central Excise Duty to Loyal Super Fabrics Ltd., Cuddalore for further processing of bleaching/dyeing and get back the processed fabrics with out payments of Central Excise duty for Garment manufacturing and export from your Mills. In this connection, the Assistant Commissioner of Central Excise, Kovilpatti Division has instructed you to follow the procedure laid down under Rule No. 19 of Central Excise (No. 2) Rules 2001 read with Notification No. 43/2001 dated 26.6.2001. The above permission enabled M/s. LTML to clear grey fabrics without payment of duty, to the assessee for further processing (bleaching/dyeing) and get back the processed fabrics without payment of duty for manufacturing garments for export. M/s. LTML were liable to follow the procedure laid down under Rule 19 of the Central Excise (No. 2) Rules, 2001 read with Notification No. 43/2001 -CE(NT) dt. 26.6.2001. It is also on record that M/s. LTML were enjoying similar facility under Rule 13 of the Central Excise Rules, 1944 read with Notification No. 47/94 -CE (NT) dt. 22.9.94. The permission given by the jurisdictional Asst. Commissioner to M/s. LTML in 1997 under the erstwhile Rule 13 was being continued under the new Rule 19 of the Central Excise (No. 2) Rules, 2001. In the impugned orders, learned Commissioner has chosen to decide as to whether the continued permission under Rule 19 ibid read with Notification No. 43/2001 -CE (NT) was correct. After examining the relevant provisions of the said Rule and Notification, learned Commissioner has taken the view that "procurement of excisable goods" by the exporter in terms of Notification No. 43/2001 -CE (NT) was a prerequisite for the assessee to avail themselves of the benefit under Rule 19 read with the Notification. He noted that M/s. LTML had not 'procured' grey fabrics and had only 'manufactured' the same and, therefore, the assessee was not entitled to claim the benefit of Rule 19 read with the Notification in respect of the products manufactured by processing such grey fabrics. Ld. Commissioner, further, observed that the permission given to M/s. LTML by the jurisdictional AC itself was beyond the scope of "enabling provisions/notification". We are unable to accept the decision of the Commissioner, which is contrary to the expressed provisions of Rule 19, which reads as under: RULE 19. Export without payment of duty. - (1) Any excisable goods may be exported without payment of duty from a factory of the producer or the manufacturer or the warehouse or any other premises, as may be approved by the Commissioner.