ORDER
C.N.B. Nair, Member (T)
1. Upon hearing both sides, we find that appeal Nos. 2938 and 20 74 of 2006 are required to be taken up after dispensing with the requirement for pre-deposit in Appeal No. 2938/06. Accordingly, stay application No. 2307 of 2006 is allowed.
2. Both the appeals are interconnected. Accordingly, they were taken up together and are disposed of by this order.
3. The appellant is an independent processor of textile fabrics. Such processors were brought under compounded levy scheme (sic) under Notification No. 41/98. In such cases, levy of excise duty is based on the annual capacity of production. The crucial condition and the basis for determination of capacity is the capacity of the chambers of the stenter. Appellant’s capacity was determined in terms of those Rules and it discharged duty from Feb. 1999.
4. On 18.8.99, a show cause notice was issued proposing to deny the facility of payment of duty under compounded levy scheme to the appellant. Subsequently, (sic) another show cause notice dated Feb 2000 was issued proposing to recover duty from the appellant based on its actual production for the period January to September 1999. Under an order dated 31.3.06, show cause notice dated 18th August, 1999 was adjudicated, holding that the appellant is not a processor, processing fabrics with the aid of hot-air stenter. Appeal No. E/2074 of 2006 challenges that order. Subsequently, under an order dated 1.9.06, duty demand of about Rs. 1.36 crores was confirmed. This demand is pursuant to the earlier order dated 31.3.06, holding that the appellant was required to be pay duty not at the compounded rate. Appeal No. E/2938 of 2006 challenges that order.
5. The submission of the learned Counsel is that the appellant was having hot-air stenter all along from Feb. 1999 and the processing was being carried out by using the said machine. It is also his submission that under the compounded levy scheme, a processor having hot air stenter, could discharge duty only in terms of Notification No. 41/98. According to the learned Counsel, this is clear from explanations II to notification No. 41/98 and Notification No. 42/98 and the impugned orders are clearly contrary to the relevant legal provisions.
6. The issue that arises for consideration is a question of law as to whether a processor who has installed a hot air stenter could be asked to discharge duty except under compounded levy scheme contemplated in Notification No. 41/98. The explanations relied upon by the learned Counsel for the appellant may be read:
Notification No. 41/98-CE (NT) dated 10 Dec. 1998
Explanation II.- For the purpose of this notification, an ‘independent processor’ means a manufacturer who is engaged exclusively in the processing of fabrics with the aid of power and who also has the facility in his factory (including plant and equipment) for carrying out heat-setting with the aid of power or steam in a hot-air stenter, and who has no proprietory interest in any factory engaged in the spinning of yarn or weaving of fabrics”.
Notification No. 42/98-CE (NT) dated 10 Dec. 1998
Explanation II. – Unless otherwise specified in any rule made under Section 3A of the Central Excise Act, 1944 (1 of 1944), for the purposes of this notification the goods shall be deemed to have been manufactured or produced with the aid of a hot-air stenter, if they are cleared from a factory where a hot-air stenter is installed, irrespective of whether it is in use or in working condition, or is otherwise.
7. The Notification relate to levy of duty on independent processors. The Explanation defines independent processor as a manufacturer who is engaged primarily in the processing of fabric with the aid of power and “who has also the facility in his factory for carrying out heat setting with the aid of power of steam in a hot-air stenter”. While the above is the definition of independent processor under notification No. 41/98, (sic) the explanation II to Notification No. 42/98 (Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998) states that “the goods shall be deemed to have been manufactured or produced with the aid of a hot-air stenter, if they are cleared from a factory where a hot-air stenter is installed, irrespective of whether it is in use or in working condition, or is otherwise”. Thus, the production is deemed to have been made with the aid of hot-air stenter and duty is required to be discharged depending on the annual capacity in all cases where a hot air stenter is installed in the premises of an independent processor. This is “irrespective of whether it is in use or in working condition, or is otherwise”. In the statutory scheme, once the independent processor has installed a hot air stenter, all the production from its factory shall be deemed to be produced by using a hot air stenter and duty shall be payable based on the capacity of production of the stenter, irrespective of whether the stenter was in working condition or not. Actual quantity of production is altogether irrelevant in the statutory scheme for the purpose of levy.
8. The statute made no exception to the above scheme of levy. And to do so, would undermine the scheme of compounding. Compounding was resorted to “having regard to…the extent of evasion of duty…and to safeguard the interest of revenue” (1st para of Notification No. 41/98). The Commissioner’s order dated 31.3.06 taking the appellant out of the compounding scheme is therefore, not sustainable. It is set aside and Appeal No. E/2074/06 is allowed.
9. As already noted, the demand under challenge in Appeal No. 2938/06 is a demand consequent to the finding in the order under challenge in Appeal No. E/2074/06. This demand has no independent existence and cannot survive once the finding impugned in appeal No. E/2074/06 is set aside. Accordingly, this Appeal No. E/2938/06 is also allowed, with consequential relief, if any, to the appellant.
(Dictated and pronounced in open Court)