Interpretation of a notification and two High Court orders.
Two High Court orders have come to our Notice on the same issue and same party.
The first order dated 9.4.2008 states,
We have also heard Mr. Vasant Naag , the Petitioner no.2 who is present in the Court. He categorically states that the Armed Guards are waiting at his residence to take him into custody.
Pending further orders, the Respondents shall not arrest Petitioner no.2 or any other Officers of the Petitioner-Company till 17th April, 2008.
The Second order dated 6.5.2008 states,
In this Petition, under the peculiar facts and circumstances of the case, we had granted ad-interim relief on 9th April, 2008 not to arrest the Petitioner No.2.
After hearing the parties for some time, the ad-interim relief granted on 9th April, 2008, which is continued till today, to continue further, subject to the Petitioners depositing a sum of Rs.16 crores with the Respondent No.2, and also furnishing a bank guarantee of Rs.16 Crores in favour of Respondent No.2, within a period of two weeks from today. The aforesaid deposit of Rs.16 Crores and bank guarantee of Rs.16 Crores will be without prejudice to the rights and contentions of the Petitioners.
In the event, the Petitioners fail to deposit the aforesaid sum of Rs.16 Crores and furnish a bank guarantee of Rs.16 Crores in favour of Respondent No.2 within the aforesaid period of two weeks from today, the ad-interim relief granted on 9th April, 2008 will stand vacated without any further reference to this Court.
The Respondents are at liberty to carry out further investigation in the above and issue appropriate show cause notice and pass an order in accordance with law. No other interim relief in the above.
From a reading of the two orders, certainly no one can make out what the case is all about, except that the petitioner feared arrest and was given a stay and in the second order they were directed to deposit Rs. 32 Crores. What is this all about?
Here is what our Research Team came up with.
The assessee is a composite mill and manufactures “Polyester Fibre Tops” classifiable under Tariff Item 5506 of the Central Excise Tariff. The manufacturing process envisages procuring Polyester Tow falling under Tariff Item 5501 & converting the same into Polyester Wool blended Top.
The Revenue allegation is that the goods falling under TI 5506 are conditionally exempt from payment of Excise duty in terms of Sl. No. 10 of Notification 30/2004CE dated 09.07.2004 inasmuch as the condition is –
“Staple fibres procured from outside and subjected to carding, combing or any other process required for spinning by a manufacturer who does not have the facilities in his factory (including plant and equipment) for producing goods of heading nos. 55.01, 55.02, 55.03 and 55.04”
Since the assessee does not procure “Staple fibre ( uncarded polyester staple fibre falling in heading 5503 ) but procures polyester tow (heading 5501) they are not eligible for exemption, the allegation goes.
So, the alleged problem in the present case is that the assessee is procuring Polyester Tow (5501) [but not uncarded polyester staple fibre falling in heading 5503 as per Department contention ] & converting the same to Polyester Wool blended Top [5506].
What is important to note is that Tow is an intermediate product coming into existence in the manufacture of Staple fibres. The Central Excise Tariff presently has separate Tariff headings for Tow & Staple Fibre.
So the big question is , “if a manufacturer begins his manufacturing process by using an input from a stage anterior to that referred to in the notification, is he eligible for the exemption?”
Revenue apparently is of the view that he is not. The assessee is afraid that he would be arrested and sees armed guards waiting outside his house. The High Court orders deposit of Rs. 16 Crores and bank guarantee for another Rs. 16 Crores.!
Click here for the High Court order No.1 and High Court order No.2