PRECOT MILLS LTD. Vs. CCE, COIMBATORE

JUDGEMENT

(1.) THE appellants are engaged in the manufacture of cotton yarn falling under Chapter Heading 52.05 of the CETA Schedule. Their main activity is doubling of single yarn as job workers for their sister unit at Kanjikode, Kerala. During the period of March to June 2000, they received cotton yarn (single) from their Kerala unit for the purpose of doubling/reeling. This movement of yarn was under the warehousing procedure under Rule 156A/156B of the Central Excise Rules as modified by Rules 173N. The yarn, after conversion, was returned to their Kerala unit without payment of duty under the warehousing procedure in terms of Rule 96E. The Kerala Unit cleared the goods on payment of duty of excise at the applicable rate. The appellants took Modvat credit of Rs. 4,03,371/ - on capital goods which were received in their factory during February to April, 2000. These capital goods were used for the above doubling/reeling purposes. The department objected to the availment of capital goods credit on the ground that these capital goods were used exclusively for the manufacture of exempted goods viz. doubled yarn cleared without payment of duty to the Kerala unit under Rule 96E. The original authority disallowed the above credit and demanded the amount of duty under Rule 57AH read with Section 11A of the Central Excise Act, from the assessee.

(2.) LD . SDR reiterated the findings of the Commissioner (Appeals) and submitted that it was not correct to rely on the Tribunal's decision in Coats Viyella India Ltd. (supra) for the purpose of deciding the instant case inasmuch as the cited decision did not deal with any capital goods credit. After giving careful consideration to the submissions made by both sides, I find that the clearances of doubled yarn made by the appellants to their sister unit without payment of duty were under Rule 96E of the erstwhile Central Excise Rules, 1944. It is clear from their declaration filed under Rule 173B 1 July, 2000 that they were not availing the benefit of exemption under Notification No. 6/2000 -CE dated 1.3.2000 prior to July, 2000 and proposed to avail such exemption from July, 2000 only. The appellate Commissioner's finding that the assessee was operating under the above Notification during the period of dispute is not supported by the evidence on record. The wrong finding has led to wrong conclusion. What appears from the records is that the assessee was operating under Rule 96E during the period of dispute. The question now arising for consideration is whether the clearances of doubled yarn effected by the assessee to their sister unit without payment of duty under the warehousing procedure could be equated to clearances under an exemption Notification. The Tribunal's decision in the case of Cotton Viyella India Ltd. (supra) is an answer to this question. It was held in that cases as under: - -