CESTAT quashes Excise Duty Demand on Manufacture of Dyed Yarn on ground of Absence of Real Manufacturer [Read Order]

The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the excise duty demand on the manufacture of dyed yarn on the grounds of the absence of a real manufacturer. 

Paliwal Overseas Pvt. Limited, the appellant assessee was purchasing grey Yarn, and the part of the yarn used to be sent to another manufacturer to dye the dyed yarn was used in the manufacture of Handloom Durries and Rugs, and the same attracting nil rate of duty. 

The assessee appealed against the order passed by the Commissioner (Appeals) for confirming the demand of duty amounting to Rs. 1,59,75,117/- on the dyed yarn and imposition of penalty of equivalent amount under Section 11AC of Central Excise Act,1944 read with Rule 25 of Central Excise Rules, 2002. 

Dinesh Verma and Sagar Verma, the counsels for the assessee contended that the assessee had got their goods manufactured/yarn dyed from a job worker, thus the department in the facts of the present case cannot allege suppression of facts necessitating invocation of the extended period. 

Also submitted that the assessee had got their goods manufactured/yarn dyed from job worker and the activity of yarn dyeing has been done by the job worker and in that circumstances, the job worker was the manufacturer of dyed yarn and if any duty is payable on dyeing yarn then it was to be paid by the job worker. 

Rajeev Gupta and Aneesh Dewan, the counsels for the department contended that in the show cause notice the assessee had not declared dyeing of grey yarn consumed captively for the manufacture of exempted goods i.e. Handloom Durries and Rugs, in their monthly returns and hence the assessee suppressed the facts from the department. 

The Bench observed that the assessee had no facility for dyeing yarn in their factory and the job worker was the manufacturer of dyed yarn and if any duty was to be paid it was to be paid by the job worker. The dyed yarn by the job worker was not captively manufactured by the assessee and in that circumstance, the Notification No. 67/95-CE had no relevance to the facts of the present case. 

The two-member bench comprising S S Garg (Judicial) and Anjani Kumar (Technical) quashed the excise duty demand imposed against the assessee. 

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