S.R.F. LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are engaged inter alia in the manufacture of nylon filament yarn of 210 denier, falling under Chapter 54 of the Central Excise Tariff Schedule. Nylon filament yarn of denier age 210 ±4% with high tenacity, falling in Chapter 54, was fully exempt from payment of duty under Notification No. 27/95 -CE dated 16.3.1995. In 1996 Budget, such yarn was taken out of the purview of exemption. Accordingly, from 23.7.1996, only nylon filament yarn of 210+4% denier, with low tenacity, falling under SH 5402.41, was exempt from payment of duty Under Notification No. -CE dated 23.7.1996. The appellants filed a declaration under Rule 173B on 30.7.1996 claiming exemption under Notification No. 8/96 -CE in respect of their product, which was accepted for provisional assessment under Rule 9B till the outcome of test results on the denierage and tenacity of the yarn. Samples were drawn on 7.6.1996, 26.7.1996, 29.8.1996, 1.10.1996 and 31.12.1996 for determination of denierage. The Chemical Examiner found the denierage of the yarn samples to be above 224, which exceeded even the higher limit of 210+4% prescribed under the Exemption Notification. The assessee contested the test results and sought re -test of the samples by the Chief Chemist, CRCL, New Delhi. The Chief Chemist's report confirmed the Chemical Examiner's test results. Subsequently, as suggested by the Chief Chemist, the samples were got tested at the National Test House, Madras for tenacity of yarn. The National Test House reported tenacity as below the minimum [52.92 cN/Tex] required for 210 denier yarn under IS : 4401 -1981. The NTH results as to denierage of yarn further confirmed the results reported by the Chemical Examiner and the Chief Chemist. On the basis of the test results, the original authority held that the benefit of exemption under Notification No. 8/96 -CE was not available to the Nylon filament yarn of denierage higher than 210 ±4% manufactured and cleared by the assessee during the period 23.7.1996 to 31.12.1996. The authority finalised the assessments accordingly and demanded basic excise duty and additional excise duty totalling to about Rs. 4.14 crores on the above clearances. Abatement of the quantity of yarn directly exported by the assessee during the said period and Modvat credit of basic excise duty to the extent of Rs. 89,641/ - paid on the inputs consumed in the manufacture of yarn were allowed by the original authority while quantifying the demand of duty. The decision of the original authority was appealed against, but the appeal was rejected by the first appellate authority. Hence the present appeal of the assessee.

(2.) HEARD both sides. Ld. Counsel for the appellants submitted that the demand of duty was based on the Chemical Examiner's report which according to them, was not reliable in view of what was stated by the Chemical Examiner when cross -examined. Without prejudice to this submission, ld. Counsel raised a contention that the Chemical Examiner's report on any sample could be made applicable only to the lot from which the sample was drawn. In this connection, he relied on the Tribunal" decision in the cases of CCE, Vadodara v. Basantlal B. Lekhadia 1996 (17) RLT 279 (CEGAT -D) and Kiran Spinning Mills, Bombay v. CCE, Bombay . He also relied on the Madras High Court's judgment in Collector v. Cambodia Mills Ltd. Reverting to the assessee's plea as to denierage of their yarn, ld. counsel submitted that denierage of yarn could be controlled, in the process of its manufacture, by varying one or more of four parameters, namely:

(3.) LD . Counsel also submitted that the quantity of the yarn removed for export by the appellants (physical exports) as also the quantity of yarn cleared by the appellants to their job workers for conversion into fish net twine for export (deemed exports) should have been excluded from the levy. Referring to the finding of the original authority that no quantity of twine which was claimed to have been manufactured out of yarn cleared by the appellants during the period of dispute and to have been exported, was correlated with any quantity of yarn cleared by the appellants during the said period, ld. Counsel argued that the authority should have followed the "First In First Out" (FIFO) method, in which event it would have been found that 2,81,336.215 K.grms. of yarn contained in twine exported were out of the clearances of yarn effected after 23.7.1996 from the appellants' factory. This quantity of yarn ought to have been excluded from levy of duty. This argument of ld. Counsel was based on an equitable principle like the one followed by the Hon'ble Supreme Court in the case of TELCO v. Municipal Commissioner, Thane reported in, 1993 Supp.(1) Supreme Court Cases 361 . Ld. Counsel, in this connection, quoted from para 29 of the Supreme Court judgment, which reads as under: