GAYATRI TEXTILES Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE Commissioner of Central Excise in the impugned order confirmed demand of duty of over Rs. 1.2 crores against M/s. Gayatri Textiles and imposed on them penalty of equal amount under Section 11AC of the C.E. Act, 1944 and Rule 25 of the C.E. Rules, 2002. He also imposed penalties of Rs. 1 lakh each on the partners of the said firm and a few others. The assessee -firm prays for wavier of pre -deposit and stay of recovery in respect of the duty and penalty amounts while the rest of the parties pray for waiver and stay in respect of the penalties imposed on them.

(2.) LEARNED Sr. Counsel for the applicants has given a brief account of the facts of the case and submits that Gayatri Textiles have a strong prima facie case against the demand of duty. He has claimed support from the Tribunal's decision in the case of M. Tex and D.K. Processors (P) Ltd. v. CCE, Jaipur reported in 2001 (136) E.L.T. 73 (Tri. - Del.) as well as Board's Circular No. 703/19/2003 -CX., dated 25 -3 -2003. The learned Sr. Counsel submits that the demand of duty is on grey fabrics removed by M/s. Gayatri. Textiles to M/s. Premier Mills (manufacturers of processed fabrics, hereinafter referred to as the principal manufacturer). The principle manufacturer supplied yarns to M/s. Gayatri Textiles without paying duty thereon. These non -duty paid yarns were processed into fabrics by M/s. Gayatri Textiles as job workers, and grey fabrics so manufactured were cleared without payment of duty to the principal manufacturer. Demand of duty is on this clearance. Learned Sr. Counsel submits that these transactions, which are in vogue for a long time, were in terms of Rule 4(5) of the Central Excise Rules, 2002 corresponding to Rule 57F(3) of the C.E. Rules, 1944 which were in force in the past. It is submitted that M/s. Gayatri Textiles had been doing as above under Rule 57F(3) ibid and the same had never been objected to by the department. However, when they continued to do so, under Rule 4(5) ibid, the Department suddenly sprang up with demand of duty saying that Notification 214/86 -C.E. was not applicable to textile fabrics and hence no sort of exemption was available to the grey fabrics cleared by Gayatri Textiles to the principal manufacturer. Learned Sr. Counsel makes an alternative submission which is to the effect that M/s. Gayatri Textiles could very well claim exemption under Notification 14/02 -C.E. in terms of SI. No. 1 of the table annexed thereto read with explanation to the Notification. Referring to the Board's Circular ibid, he submits that, though the Circular was issued subsequent to the period of dispute viz. 1 -4 -2002 to 31 -3 -2003, the observations made by the Board in para 2 of the said circular are in the nature of a clarification of the law relating to the trade practice in the textile sector, like aforesaid practice of M/s. Gayatri Textiles. It is submitted at length that if duty requires to be recovered from Gavatri Textiles, on the above clearances, they should be given the benefit of Modvat credit on the inputs used in the manufacture of grey fabrics. According to the Sr. Counsel, the entire exercise would be Revenue -neutral and any intention to evade payment of duty cannot be attributed to the job worker. Learned Counsel has thus claimed a strong prima facie case.

(3.) LEARNED SDR, on the other hand, submits that nothing contained in the Notification 214/86 -C.E. was applicable to the grey fabrics in question inasmuch as that Notification was not applicable to any textile fabrics. According to her, the benefit of Notification 14/2002 -C.E. also cannot be legitimately claimed by M/s. Gayatri Textiles inasmuch as admittedly, yarns received by them for the job work were not duty -paid. The learned SDR has also endeavoured to distinguish the instant case from the facts of the case of M. Tex (supra). She also points out that the Board's Circular referred to by the learned Sr. Counsel is not applicable to the period of dispute. Elaborating this one point, she submits that the Board's Circular did not insist on production of duty -paying document where duty -paid nature of the goods was not in doubt. According to the learned SDR, explanation II to Notification 14/02 -C.E. read with condition No. 1 therein should also be understood in the above background.