V.K. Agrawal
1. The issue involved in this appeal, filed by M/s. Standard Niwar Mills, is whether they were eligible to pay duty of excise on the basis of Annual Capacity of Production under Section 3A of the Central Excise Act, read with Rules 96ZQ of the Central Excise Rules and whether demand for duty can be raised by the Commissioner without challenging the Final Order passed earlier?
2.1 Shri V. Lakshmikumaran, learned Advocate, mentioned that the Appellants are engaged in the processing of cotton fabrics as Independent Textile Processors; that under their letter dated 28.12.98 addressed to the Assistant Commissioner, they indicated their intention to install a Hot Air Stenter of two Chambers and as per direction of the Assistant Commissioner under letter dated 31.12.98, filed a declaration on 31.12.98 giving the details of Hot Air Stenter installed by them; that as the said declaration was not in proper form, the same was filed in proper form on 11.1.1999; that they informed the Superintendent about payment of compounded levy in January and February; that the Commissioner, under Order No. 4/99, dated 26.2.99 provisionally determined the annual production capacity and the duty liability per month per chamber; that the Superintendent visited their factory on 12.4.99 alongwith Shri C.B. Gupta, Professor Textile Chemistry, Govt. Textile Institute, and a Panchnama was drawn; that thereafter, the Commissioner, under Order No. 58/99 dated 2.6.99 determined their annual capacity of production to be Rs.375.12 lakhs in terms of value and monthly duty liability to be Rs.2 lakhs per chamber.
2.2 The learned counsel, further, mentioned that the Central Board of Excise & Customs (Board) clarified, under Circular F. NO. 354/99/99-TRU dated 16.7.1999, that where the stenters do not have any insulated chambers, determination of the capacity of production would not be possible and the compounded levy scheme could not be made applicable for such cases; that it was also informed in the Circular that Hot Air stenter should be capable of heat setting or drying of fabrics with the aid of power or steam which is not possible in the absence of insulation; that the Commissioner issued a show-cause notice dated 4.8.99 for denying the compounded levy under Section 3A of the Act, and proposed to charge duty with reference to the production and removals on ad-valorem basis and demanded differential duty amounting to Rs. 43,25,586/- in respect of clearance of goods during the period 1.1.1999 to 30.6.99.
2.3 The learned counsel contended that the Commissioner had passed a final Order determining the annual capacity of production after going through the report of the expert; that, therefore, the present proceedings are in the nature of reviewing the Order dated 2.6.99 which power is not enjoyed by the Commissioner under the provisions of Central Excise Act; that accordingly the proceedings are without jurisdiction. Reliance was placed upon the decision in the case of CCE, Kanpur vs. Flock (India) Pvt. Ltd., 2000 (120) ELT 285 (SC) wherein it was held that “where an adjudicating authority has passed an Order which is appellable under the statute and the party aggrieved did not choose to exercise the statutory right of filling an appeal, it is not open to the party to question the correctness of the Order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his Order.”
3. The learned Counsel, further, contended that the show cause notice was issued on account of Circular dated 16.7.99 to the effect that hot air stenter should have insulation; that the action, if any, on the basis of Circular could only be prospective and cannot be retrospective; that inspite of the denial by the Commissioner the proceedings were initiated on the basis of Circular only as the Commissioner had never earlier raised any dispute regarding insulation. He also mentioned that a Panchnama was drawn after the visit of the technical expert drafted by the Department; that it has been clearly explained in the Panchnama that Cotton cloth is being processed in the factory and it is being dried through the stenter; that the cloth is held by the clips on the chain which is passed through the stenter; that moisture to the cotton cloth is provided by steam; that the clips hold the cloth and stretch is during the trave; that the cloth is dried in the second chamber; that because of the steam the fabric is getting moist and because of the heat it is getting dried up and obtained at the delivery end; that the authorities were fully aware of the fact that the insulation was not found inside the machine and Shri Gupta, technical expert, explained that the heaters installed in the machine in front of the blower was drying the cloth which was duly stretched inside the machine. He also contended that reference to I.S. Glossary of Terms does not in any way subscribes to the views of the Commissioner; that Note 1 states that attachment may be by Pins or clips; Note 2 indicates the uses to which machines are put to, namely,
(a) Drying,
(b) Heat setting of thermoplastic materials, and
(c) fixation of chemical finish.
He mentioned that the Commissioner hold that drying of fabrics, heat setting and fixation of chemical finish should be available for the purpose of extending benefit of compounded levy which is totally out of context as the ISI Glossary indicates that the stenter can be used for any of these purposes and not for all these purposes; that as per Explanation II to Notification No. 42/98-CE, (NT) an Independent Processed is to have the facility for carrying out the heat setting or drying in a hot air stenter with the aid of power or steam; that both facilities need not be present and if any one of the facilities is available, it is sufficient; that as they have stenter with the facility for drying, it is sufficient to meet the requirement of the Notification; that both technical expert Prof. B.D. Dikshit and Shri C.B. Gupta have agreed that drying is being done by the machine; that since thermal treatment of fabric is not undertaken by (SIC) IS 9785 181, relied upon by the Commissioner, is not relevant for the present matter; that further this standard nowhere provides that insulation is a must.
4. Shri V. Lakshmikumaran, learned Advocate, referred to Hand Book On Glossary of Textile Terms, according to which “Heat Setting” means “the process of stabilisation of fibres, yarns or fabrics to any shape by the action of moist or dry heat. The Process consists essentially in exposing the material while under dimensional control and shape to a temperature higher than any temperature likely to be met with in its subsequent use,” and emphasised again that both the experts are unanimous that the stenter is hot air clip stenter and that it can be used for drying the fabrics. He also referred to “The Standard Handbook of Textiles” by A.J. Hall, which provides definition of the clip stenler and the hot air stenter, according to which the Hot Air Stenter undertakes both the drying and the stentering so that the fabric is dealt with in one run at a rapid rate. He also referred to the statement dated 3.8.99 of Shri Hridaynarayan, Fitter of the Appellants, who had deposed that the cloth is dried up with the help of heater. Finally the learned Advocate mentioned that proviso to Section 11A of the Central Excise Act has not been invoked in this present case and as all the facts are in the knowledge of the Department, and disclosed by them, the ingredients necessary for invoking the Proviso is not existent and accordingly demand has not been confirmed under section 11A; that the question of imposing penalty does not arise as it is only a question of change in opinion and that too on account of Circular; that if duty is payable by them; they are eligible to avail of deemed credit under Notification No. 29/96-CE(NT), dated 3.9.1996 towards the basic excise duty.
5. Countering the arguments, Shri Mewa Singh, learned S.D.R., submitted that as per Explanation III to Hot Air Stenter Independent Textile Processors Annual Capacity Determfination Rules, 1998, the essential condition for being an “independent process” is that he should have the facility in his factory for carrying out heat-setting with the aid of power or steam in a hot air stenter; that under their letter dated 31.12.98, the Appellants informed the Department that they had installed a Hot Air stenter with two chambers; that on examination, the stenter was found to have no insulation inside, both the ends of it were open through which cloth already dried with the help of ‘Drying Ranges’ installed in the unit was passing; that this means that the stenter was not used for ‘drying’ the cloth and in absence of insulation, ‘heat setting’ of cloth was not possible; that the stenter was being used only for stretching the cloth with the help of a moving chain fitted with clips; that this has been corroborated by the Fitter in his statement which has been endorsed by Shri Amarnath Aggarwal, Partner, and Shri Parmod Gupta, Authorised Signatory of the Appellants; that the Fitter, in his statement dated 3.8.99, deposed that the cloth cannot be dried from the machine if the wet cloth is passed and that not even the lighter cloth could be dried up in the machine. The learned SDR, further, showed from the Book “The Standard Handbook of Textiles, referred to by the Learned Advocate, that in the “Hot Air Stenter,” “the stenter frame is mostly enclosed because in this way it is possible to effect drying of the fabric by means of hot air with the smallest waste of heat. As the fabric is carried forward within the tunnel or housing, jets of hot air are blown through it downwards and upwards, and also along it.” The learned SDR emphasised that in Hot Air Stenter both drying and stentering are undertaken; that the Appellants have not disputed that they do not have the facility of heat setting; that a demand of duty can be raised by the Commissioner under Section 11A of the Central Excise Act.
6. We have considered the submissions of both the sides. Section 3A(1) of the Central Excise Act empowers the Central Government to notify the goods on which duty of excise shall be levied and collected on the basis of annual capacity of production. As per Rule 2 of Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998, these rules apply to processed textile fabrics falling under the specified Headings of the Schedule to the Central Excise Act, for determining the annual capacity of production of an independent processor. Explanation to these Rules provides that “Independent Processor” means a manufacturer who is engaged primarily 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 or drying, with the aid of power or steam in a hot air stenter.
7. It is evident from this Explanation that the Independent Processor should have the facility for carrying out heat-setting or drying with the aid of power or steam in a hot air stenter. The Appellants themselves have mentioned in Memorandum of Appeal that if any one of the facilities is available, it is sufficient for the purpose of being treated as independent processor. They have further mentioned that “Hence the appellants having a Stenter with the facility for drying is sufficient to meet the requirements of the notification.” It is thus apparent that the Appellants are not denying that the stenter used by them is not capable of doing heat setting. We have now to examine whether it is capable of drying the fabrics. According to them both the experts have agreed on the point that the machine installed in their factory can do the process of drying. We find from the Panchnama drawn on 12.4.99 in the presence of expert Shri C.B. Gupta that the steam passed through two tubes/pipes provides the moisture to the cotton cloth. If the cloth is wet and drying process is carried out in the stenter itself, there is no need to moisture the same. It is observed from the said Panchnama that what is being dried in the stenter is the moisture provided from the steam for smoothening the process of stretching. The Panchnama nowhere states that the wet fabrics is being dried in the stenter. On the other hand Shri Hridayanarayan, Fitter, has clearly deposed in his statement dated 3.8.99, which has not been retracted, that the dried cloth enters from the back hole, and inside the machine it is made lightly wet and later the cloth is a bit dried up with the help of heater. It has not been rebutted by the Appellants that fabrics is dried on drying range. The fitter has also clearly stated that the wet cloth, if used in the machine, cannot be dried up fully or partially. The Appellants have not brought any evidence on record to show that wet fabrics can be dried by the stenter installed in their factory. This statement is further supported by another Panchnama dated 3.8.99. We also find that it is clearly mentioned in The Standard Hand book of Textile by A.J. Hall that “The modern machine undertakes both drying and the stentering so that the fabric is dealt within one run at a rapid rate…….They dried or otherwise prepared fabric mangled in the last operation is led through the two-bowl impregnating or padding mangle for the purpose of incorporating in it some softening or other finishing ingredient. Thence it passes over the small number of drying cylinders to behalf-dried. Then the fabrics enters the stenter and is there stretched to width and set and dried at this width.” Thus, the Appellants do not satisfy the requirement of the Notification as they do not have facility in their unit for carrying out heat setting or drying with the aid of power or steam in a hot air stenter.
7. It has been also contended by the learned Advocate that the Commissioner can not review his own order. Section 11A of the Central Excise Act provides for issuing the show-cause notice for demanding the duty which has been short levied or short paid. In the present matter show cause notice has been issued on 4.8.99 for demanding the duty for the period from 1.1.1999 to 30.6.99 and such the entire duty has been demanded within the period of six months. Hence, there is no need for invoking the provisions of the Proviso to Section 11A(1) of the Act. In view of the provisions of Section 110 of the Finance Act, the demand for duty can be validly issued for past six months from the relevant date notwithstanding any approval, acceptance or assessment. We, however, agree with the learned Advocate that this is not a fit case for imposing the penalty as the duty liability was fixed by the Department itself and therefore set aside the penalty. We thus upheld the liability of the Appellants to pay the duty demanded subject to availability of the Modvat Credit for which Appellants should provide the necessary requisite evidence to the satisfaction of the Commissioner within one month of the receipt of this Order.