E. RANGA RAO Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE Commissioner of Central Excise has demanded duty of Rs. 56 lakhs from M/s. Rajalakshmi Textile Processors Pvt. Ltd., Erode in respect of processed cotton fabrics allegedly manufactured by the said company during 1 -6 -2000 to 31 -12 -2000. The Commissioner has also levied penalty of Rs. 56 lakhs on the company under Rule 96ZQ, besides other penalties (Rs. 1 lakh and Rs. 10,000/ -) imposed under other rules. He has also imposed a penalty of Rs. 10,000/ - on its Director, Shri Ranga Rao. Ld. Counsel for the appellants submits that Shri Ranga Rao's proprietorship concern viz. Ranga Textile Processors was using the stenter transferred from the premises of M/s. RTPL, for the mere purpose of stentering, which did not result in the manufacture of the subject goods. The stenter in question was dismantled by M/s. RTPL under intimation to, and permission from, the department. No demand of duty should have been raised on M/s. RTPL in respect of the goods allegedly processed with dismantled stenter. Any demand of duty, if otherwise permissible in law, should have been raised on Shri Ranga Rao's proprietorship concern only. It is, further, pointed out by Id. Counsel that the Madras High Court has struck down as unconstitutional the compounded levy on independent textile processors under Rule 96ZQ of the Central Excise Rules, 1944 Beauty Dyers v. UOI - 2004 (166) E.L.T. 27 (Mad.). In view of this ruling of the High Court, the above demand could not have been raised on M/s. RTPL. It is submitted that the assessee's submissions based on the High Court's judgment were not considered by the Commissioner. Ld. SDR submits that, despite dismantlement of the stenter in question, the fabrics processed by Shri Ranga Rao's unit were being brought back to the assessee's premises for further processing and clearance and that the demand of duty is on the fabrics so processed by the assessee. After a perusal of the impugned order, we have found that there is a clear finding to this effect in the impugned order. Ld. Counsel, in his rejoinder, submits that this finding is factually incorrect. The question whether this finding is correct or not is debatable at the final hearing stage of the appeal.

(2.) FOR the present, we find that the Hon'ble High Court quashed compound levy on fabrics processed by the independent textile processors under Rule 96ZQ. The department appealed against the judgment of the High Court but there is no stay of operation of the judgment yet. It further appears to us that as the stenter in question was dismantled with the permission of the department, no fabrics could have been stentered in the assessee's premises with the stenter in question during the period of dispute. Admittedly, the demand of duty is in relation to the said stenter. If that be so, it prima facie appears to us, there could not have been a demand of duty on M/s. RTPL in terms of Section 3A of the Central Excise Act. We find that the demand raised in the impugned order is under Section 3A. We have found strong prima facie case in favour of M/s. RTPL, and for that matter, in favour of Shri Ranga Rao. Accordingly, there will be waiver of pre -deposit and stay of recovery in respect of the duty amount and penalty amounts.