M/S
Impression Prints Vs. Commissioner of Central Excise, Delhi-1 [2005] Insc 441 (24 August 2005)
S.
N. Variava & Tarun Chatterjee S. N. Variava, J.
This
Appeal is against the Judgment dated 27th December, 1999 by the Customs, Excise and Gold
(Control) Appellate Tribunal (for short CEGAT), New Delhi.
Briefly
stated the facts are as follows:
The
Appellants are manufacturers, amongst others, of items like bed sheets, bed
covers and pillow cases. In this Appeal, we are concerned with the question as
to whether the Appellants are entitled to the benefit of Notification No.
65/87-CE dated 1st
March, 1987 in respect
of bed sheets, bed covers and pillow cases. These items fall under Tariff Item
6301 which consists of "made up textile articles".
Under
the Notification, these articles have a "Nil" rate of duty "if
made without the aid of power". The Appellants had not taken out any
license and were not paying duty. They were issued a show-cause- notice as to
why duty be not levied on these items and why penalty be not imposed. The
Appellants claimed that under the abovementioned Notification these items bore
a "Nil" rate of duty and that they were therefore not liable to pay
duty. Their case was not accepted on the ground that in the process of manufacturing
printed bed sheets, bed covers and pillow cases they mixed colour with the help
of colour mixing machine which was operated with the aid of power. The
Appellants were therefore called upon to pay duty. Penalty was also imposed on
them. The Appeal of the Appellants has been dismissed by the CEGAT by the
impugned Judgment.
Mr. Bagaria
points out that the expression "made up" has been statutorily defined
in Note 5 of Section XI as under:
"5.
For the purposes of this Section, `made up' means:-
(a)
Cut otherwise than into squares or rectangles;
(b)
Produced in the finished state, ready for use (or merely needing separation by
cutting dividing threads) without sewing or other working (for example certain
dusters, towels, table cloths, scar squares, blankets);
(c)
Hemmed or with rolled edges, or with a knotted fringe at any of the edges, but
excluding fabrics, the cut edges of which have been prevented from unraveling
by whipping or by other simple means;
(d)
Cut to size and having undergone a process of drawn thread work;
(e)
Assembled by sewing, gumming or otherwise (other than piece goods consisting of
two or more lengths of identical material joined end to end and piece goods
composed of two or more textiles assembled in layers, whether or not padded);
(f) Knitted
or crocheted to shape, presented in the form of a number of items in the
length."
Relying
upon the statutory definition as made in Note 5 of Section XI noted above, Mr. Bagaria
submitted that "made up textile articles" are thus manufactured by
the process of cutting, hemming, sewing etc. He submitted that in this process
admittedly no power is used. He submitted that mixing of colours has been done
for the purposes of preparing cotton/printed fabrics which fall under Tariff
Items 52.06 and/or 52.07. He submitted that the use of power is only for
manufacturing those items. In support of this he relied upon Chapter note 2 of
Chapter 52 which reads as follows:
"2.In
relation to products of heading Nos. 52.06 to 52.12, bleaching mercerizing,
dyeing, printing, water-proofing, shrink-proofing, organdie processing or any
other process or any one or more of these processes shall amount to
`manufacture'." He submitted that the process of printing of fabrics was
statutorily defined as amounting to "manufacture". He submitted that
the fact that even those items have a "Nil" rate of duty (under other
Notifications) did not detract from fact that the process of printing was for a
different excisable commodity. He submitted that after the cotton/printed fabrics
are manufactured the "made up textile articles" are then manufactured
without the aid of power from those cotton/printed fabrics. He submitted that
the Notification exempts "made up textile articles" from payment of
duty "if made without the aid of power". He submits that the word
"made" refers to the "made up textiles articles". He
submits that for the purposes of this Notification it is not open to go beyond
the stage of inputs which go into the manufacture of a "made up textile
article", i.e., the cotton/printed fabric. He submitted that the benefit
of this Notification cannot be denied on the ground that in the process of
manufacture of cotton/printed fabrics power had been used.
Mr. Bagaria
relied on a number of decisions, of CEGAT, involving identical facts, wherein
it has been held that the benefit of such a Notification can not be denied.
In the
case of Commissioner of Central Excise, Indore vs. Dhvani Terefabs (Exports)
Pvt. Ltd. reported in 2001 (132) E.L.T. 604 the Assessee was manufacturing
towels from knitted pile fabrics which fell under Tariff Item 60.01. The Assessee
received duty paid processed fabric in his factory, cut those fabrics to size
and hemmed the edges with sewing machine. The Department felt that the last
activity amounted to manufacture and demanded duty on that. The Appellants
claimed benefit of Notification 65/87 which was denied to them on the ground
that the activity of knitting the fabrics was carried on on pile knitting
machine in which power was used. CEGAT held that the knitting activity was for
manufacture of knitted fabrics on which duty was paid and that the terry towels
were manufactured by merely hemming and stitching which was done without aid of
power. CEGAT held that the benefit of the Notification was thus not lost.
In the
case of Collector of Central Excise, Pune vs. Garware Wall Ropes Ltd. reported
in 1999 (111) E.L.T. 498 CEGAT, Delhi has held that the use of power in making
raw materials would not be reckoned towards manufacture of articles of ropes,
in which process, no power is used. CEGAT held that, under the circumstances,
the benefit of such a Notification would not be lost.
In the
case of Commissioner of Central Excise, Bangalore vs. Mysore Spinning & Manufacturing Mills reported in 1998 (99)
E.L.T. 241 CEGAT, Madras has held that the Assessee, who was manufacturing
terry towels, was not deprived of the benefit of the Notification as no power
was used for cutting the terry toweling cloth and stitching the edges of the
tower to convert them into made up articles of textiles. CEGAT has held that
merely because at an early stage the cloth has been subjected to bleaching,
dyeing etc. and that power had been used at that stage did not mean that the
benefit of the Notification would be lost.
In the
case of Dassani Electra (P) Ltd. vs. Collector of Central Excise, Calcutta-I
reported in 2000 (125) E.L.T. 646 CEGAT, Calcutta has held that the benefit of
the exemption would not be lost on generator sets which are manufactured
without the aid of power merely because power is used in the manufacture of its
inputs i.e. alternators. It is held that the manufacture of inputs would be a
separate individual activity and duty was paid on the inputs.
Relying
on the abovementioned authorities, Mr. Bagaria submitted that in the present
case also the colouring was done not for the purposes of manufacture of
"made up textile articles" but for manufacture of cotton fabrics
which was a separate excisable commodity. He submitted that the mere fact that
that commodity was also exempted from duty made no difference and thus the
benefit of the Notification was not lost. He submitted that the purpose of the
Notification was to give benefit of exemption and this purpose must not be
defeated by interpreting the Notification in a manner not borne out by a plain
reading of the Notification. In support of this submission he relied upon the
case of Collector of Central Excise & Ors. vs. Himalayan Cooperative Milk
Product Union Ltd. & Ors. reported in (2000) 8 SCC 642. Mr. Bagaria
submitted that the impugned Judgment requires to be set aside.
On the
other hand, Mr. Parasaran submitted that the Appellants carry on one continuous
process of manufacture. He submitted that for the purposes of manufacture of
"made up textile articles" the Appellants purchase PVC sheets in
rolls, cut them into small rectangular shape and print the same. He pointed out
that in the process of printing they mixed colour with the aid of power. He
pointed out that the Appellants then stitched and folded the printed sheets and
manufactured the bed sheets, bed covers and pillow cases.
He
submitted that the process being, one continuous process, it could not be said
that the bed sheets, bed covers and pillow cases were not made with the aid of
power. He submitted that this Court has, in a number of decisions, held that
the term "manufacture" would include all stages and all processes
which are necessary for manufacturing the final product.
In
support of his submission, he relied upon the case of Union of India vs. Delhi
Cloth & General Mills reported in (1963) Supp. 1 SCR 586. In this case, the
Assessee was manufacturing Vanaspati. At an intermediate stage oil, which the
Revenue claimed was refined oil, was manufactured. The question was whether
they were liable to pay excise duty on manufacture of refined oil which fell
within Item 23 of the First Schedule to the Central Excises and Salt Act,
bearing the description of "vegetable non-essential oils, all sorts, in or
in relation to the manufacture of which any process is ordinarily carried on
with the aid of power". This Court negatived the contention that the
definition of the term "manufacture" in Section 2(f) of the Act
included mere processing. This Court held that processing was distinct from
manufacture and that for a commodity to be excisable it must be a new product
known to the market as such. This Court however held as follows:
"The
definition of "manufacture" as in s. 2(f) puts it beyond any
possibility of controversy that if power is used for any of the numerous
processes that are required to turn the raw material into a finished article
known to the market the clause would be applicable; and an argument that power
is not used in the whole process of manufacture using the word in its ordinary
sense, will not be available." Relying on these observations Mr. Parasaran
submitted that it has been held by a Constitution Bench of this Court that if
power is used for any of the numerous processes then it would be manufacture
with the aid of power and that it would not be open to argue that there is no
manufacture as understood in its ordinary sense.
Mr. Parasaran
also relied upon a three Judge Bench decision of this Court in the case of J.
K. Cotton Spinning & Weaving Mills vs. Sales Tax Officer, Kanpur & Anr.
reported in (1965) 1 SCR 900. In this case, the Assessee was carrying on the
business of manufacturing textile goods, tiles and other commodities. It
applied for registration under Section 7 of the Central Sales Tax Act and
requested that certain goods be specified in the certificate of Registration
for the purposes of getting the benefit under Section 8(1) of the Act. By
virtue of Section 8(3) (b) read with Rule 13 this benefit was only available in
respect of goods which were "intended for use in the manufacture of or
processing of goods for sale". Initially, the Assessee was granted the
certificate in respect of goods claimed by them. However, subsequently, certain
goods like drawing material, photographic material, building materials
including lime and cement and steel, and coal were deleted. The question before
the Court was whether these materials could be said to be intended for use in
the manufacture of or processing of goods for sale. The Court was thus required
to consider what was meant by "manufacture of or processing of".
While considering this question this Court held that the expression "in
the manufacture" would normally encompass the entire process carried on
for converting raw material into goods. It was held that if a process or
activity is so integrally connected to the ultimate production of goods so that
but for that process manufacture or processing of goods is impossible or
commercially inexpedient then the goods required in that process would be
covered by the expression "in the manufacture of". It was held that
it was not necessary that the words "in the manufacture of" would
only refer to ingredients or commodities used in the actual manufacture. It was
held that the words "in the manufacture" do not refer only to
ingredients which are directly and actually needed for making the goods.
Mr. Parasaran
also relied upon the case of Ujagar Prints & Ors. vs. Union of India & Ors. reported in (1989) 3 SCC 488. In
this case, one of the questions was whether the process of bleaching, dyeing,
printing, sizing, shrink-proofing etc. carried on in respect of cotton or
man-made grey fabrics amounts to manufacture for the purposes of and within the
meaning of Section 2(f) of the Central Excises and Salt Act. Section 2(f) as it
then stood read as under:
"2(f)
'manufacture' includes any process incidental or ancillary to the completion of
a manufactured product; and." The Constitution Bench of this Court, after
considering the law, held that such activity amounts to manufacture within the
meaning of Section 2(f) of the said Act.
Reliance
was also placed upon the case of Collector of Central Excise, Jaipur vs.
Rajasthan State Chemical Works, Deedwana, Rajasthan, reported in (1991) 4 SCC
473. In this case this Court was considering whether the two assessees therein
were entitled to the benefit of an exemption Notification. In that Notification
exemption was not available to goods "in or in relation to the manufacture
of which no process is ordinarily carried on with the aid of power". One
of the assessee therein manufactured common salt. For manufacturing common
salt, brine was pumped into salt pans by using diesel pump and then lifted to a
platform by the aid of power. The question was whether the pumping and lifting
with the aid of power constituted processes in or in relation to manufacture.
The other assessee was manufacturing lime from coke and limestone. The raw
materials were lifted to a platform at the head of kiln with the aid of power.
The question was whether the activity of lifting with the aid of power
constituted process in or in relation to manufacture. This Court considered the
earlier authorities of this Court, set out hereinabove, and inter-alia held as
follows:
"20.
A process is a manufacturing process when it brings out a complete
transformation for the whole components so as to produce a commercially
different article or a commodity.
But,
that process itself may consist of several processes which may or may not bring
about any change at every intermediate stage. But the activities or the
operations may be so integrally connected that the final result is the
production of a commercially different article.
Therefore,
any activity or operation which is the essential requirement and is so related
to the further operations for the end result would also be a process in or in
relation to manufacture to attract the relevant clause in the exemption
notification. In our view, the word `process' in the context in which it
appears in the aforesaid notification includes an operation or activity in
relation to manufacture." ....................................
26. We
are, therefore, of the view that if any operation in the course of manufacture
is so integrally connected with the further operations which result in the
emergence of manufactured goods and such operation is carried on with the aid
of power, the process in or in relation to the manufacture must be deemed to be
one carried on with the aid of power. In this view of the matter, we are unable
to accept the contention that since the pumping of the brine into the salt pans
or the lifting of coke and limestone with the aid of power does not bring about
any change in the raw material, the case is not taken out of the notification.
The exemption under the notification is not available in these cases." Reliance
was further placed upon the case of Collector of Central Excise vs. Kamal
Chemical Industries reported in (1992) 61 E.L.T. 692.
In
this case also, power has been used for handling raw material i.e. for
transferring the acid from tankers to overhead tanks. It was held that this
activity was part of the process in or in relation to manufacture and thus the
benefit of the Notification would be lost.
Based
on the above authorities, it was submitted by Mr. Parasaran that in considering
whether the "made-up of textile fabrics" are made/manufactured with
the aid of power one cannot dissect or bisect the process of manufacture of the
final product. He submitted that, in cases like this where the process is a
continuous and integrated one it is irrelevant that at an intermediate stage
another excisable product had come into existence.
Faced
with these authorities Mr. Bagaria submitted that these authorities are on the
facts of those cases and on the basis of the very wide wording being considered
viz. "in or in relation to the manufacture of which no process is
ordinarily carried on with the aid of power". He submitted that the word
"made" does not include the entire process but only refers to the
manufacture of printed bedsheets, bed covers and pillow cases from cotton
fabrics.
We
have considered the rival submissions. It must be mentioned that in the
beginning we were impressed by Mr. Bagaria's submissions.
However
we find that the authorities of this Court, relied upon by Mr. Parasaran, hold
that "manufacture" in Sec. 2(f) of the Central Excise Act includes
any process incidental or ancillary to the completion of a manufactured
product. It has been held that this puts it beyond any possibility of
controversy that if power is used for any of the numerous processes that are
required to turn the raw material into the finished article then the
manufacture will be with the use of power. It has been held that if power is
used at any stage then an argument that power is not used in the whole process
of manufacture, using the word in its ordinary sense, will not be available. It
has been held that the expression "in the manufacture" would normally
encompass the entire process carried on for converting raw material into goods.
It has been held that if a process or activity is so integrally connected to
the ultimate production of goods so that but for that process, manufacture or
processing of goods is impossible or commercially inexpedient then the goods
required in that process would be covered by the expression "in the
manufacture of". It has been held that it was not necessary that the words
"manufacture" would only refer to the stage at which ingredients or
commodities are used in the actual manufacture of the final product. It has
been held that the word "manufacture" does not refer only to the
using of ingredients which are directly and actually needed for making the
goods. These authorities are binding on us. It is also settled law that to
avail of an exemption the party has to strictly comply with the exemption Notification.
Therefore the wording of the Notification becomes relevant. The Notification
grants exemption to "made up textile articles" only "if made
without the aid of power".
These
words mean the same thing as "in the manufacture of which no power is used".
We are unable to accept submission that the word "made" only refers
to stage of manufacture from cotton fabrics to printed bedsheets, bed covers
and pillow cases. The Chapter Notes relied upon by Mr. Bagaria only specify
that the activities mentioned therein amount to manufacture (made up). The
Chapter notes have been put in to eliminate arguments that those activities do
not amount to manufacture. They do not detract or make a difference to the
legal position as laid down by this Court. In all such cases one would have to
see what are the products which are being manufactured. Where the
activity/business is of manufacture of the final good and where there is one
continuous and/or integrated process it makes no difference that at some
intermediate stage an excisable commodity has come into existence. What one has
to see is whether the activity is so integrally connected to the production of
ultimate goods that but for that process the manufacture of the ultimate goods
is impossible or commercially inexpedient. If it is so integrally connected
then that process would be covered by the expression "made with the aid of
power". It is not necessary that the words "made with the aid of
power" only refer to ingredients or commodities used in the final
manufacture.
Now
let us look at the manufacturing process used by the Appellants for manufacture
of the final product i.e. "made up textile articles". The Tribunal
has set out this activity as follows:
"3)
Bed Sheets, Bed Covers and Pillow Cases:
Manufacturing
processes of these items has been explained by Shri Pradip Thapar in his
statement recorded on 4.6.93:
"Sheeting:
The sheets are put on the table, after which the screen printing is done
manually as per the colour and design being printed. A separate screen is used
for every colour. These screens are designed and made in our premises. After
the design is printed, the sheeting is removed from the table into a bin. On
accumulation of a certain quantity (of sheets) the same is put up for steaming.
This steaming is done by heating the water either by coal or gas.
3. The
colours are mixed in paste and thinned down by water so that each colour can be
printed through the each of the screen. If the quantity is small, we mix the colour
by hand, otherwise with larger quantities of 25 kgs. is mixed with a mixer to
get the proper mixing. The mixer is operated with the aid of power. Since there
is no electricity in our premises, we operate two generators off and on to
facilitate our functioning. The capacity of our generators is 6.5 HP and 25
KVA. In a single shift of 8 hours, it is operated for maximum of 4 hours per
day. The average consumption of diesel is approximately 1.5 to 2.5 litres per
hour. We have four tables for printing purposes, the sizes of which are 17 metres
in length (2 tables) and 13 metres (other two tables). The length and breadth
of our sheet is the same as that of a Bombay Dyeing sheet, is approximately 89
x 100 cm. The pillows covers are made after cutting the same from the already
printed sheets, which are naturally dried by just hanging in the open air.
The
cutting of the sheets is done manually. The screens are made in the following
manner:
4. The
screen which is coated with a photo emulsion and is exposed to tube light, with
the aid of power i.e. generator. At times when there is no power, the screens
are exposed to sun light.
5. Shri
Ganga Ram Colour Master of the appellants has stated that the unit was
receiving plain cloth in thans and thereafter the same was cut and placed on
tables for printing; the number of screens was equal to the number of colours;
that towels were being received in sets in different sizes i.e. Medium, large
etc. and thereafter the same was printed just like sheets; that then the same
was dried up in the open air; that after the cloth got dried the same was
steamed with the aid of steam generated out of water with the help of coal or
gas; that thereafter stitching, pressing/ironing and packing is done; that PVC
sheeting received in thans was first cut and thereafter printed on tables and
packed. Shri Ganga Ram also stated that colour mixing was done with the aid of
power as well as manually. He further informed that the frame was exposed to
the tube light for about 2-1/2 minutes."
6. The
appellants' submission is that they do not manufacture bed sheets or bed covers
or pillow cases since they do not carry out the process of stitching of the
edges and that sheets got converted into bed sheets and pillow cases only after
stitching of the edges. Further in the light of the statement of Shri Ganga Ram
who has categorically stated that stitching was done in the appellants' factory
and in the light of the factual position that sheets were cut to definite sizes
of approximately 89 x 100 cms which has been admitted by Shri Pradip Thapar to
be same as that of sheets manufactured by M/s Bombay Dyeing, we hold that the
appellants manufacture these items and that their subsequent submission that
they were getting fabric cut into sheets and other made up articles on job
work, is only an after thought which cannot be accepted." It is fairly not
disputed that this is the manufacturing process. It must be noted that
initially it had been contended that stitching had been done on job work basis.
This was found to be factually incorrect and before us this plea has not even
been urged. From the above set out process it is clear that the activity of
manufacturing printed bedsheets, bed covers and pillow cases starts with the
screen printing and colouring. Without this activity it would not be possible
to make printed bedsheets, bed covers and pillow cases. The activity of
printing and colouring is much more integrally connected to the manufacture of
printed bedsheets, bed covers and pillow cases than say the activity of pumping
brine into salt pans for manufacture of salt or the activity of lifting raw
material to the platform at the head of the kiln for manufacture of lime.
Without the printing and colouring it is impossible to manufacture printed bedsheets,
bed covers and pillow cases. In such cases it is irrelevant that at an
intermediate stage some other excisable commodity comes into existence. The
cotton fabrics are manufactured in the process of manufacture of printed bedsheets,
bed covers and pillow cases. We thus see no infirmity in the impugned Judgment
when it holds that the benefit of the Notification is not available.
Mr. Bagaria
next submitted that penalty has been levied under Section 11AC of the Central
Excise Act. He submitted that this Section was introduced only with effect from
28th September 1996. He relied upon the case of
Commissioner of Central Excise, Coimbatore vs. Elgi Equipments Ltd. reported in
(2001) 9 SCC 601 and submitted that it has been held that this Section only
operates prospectively and not retrospectively. He submitted that thus penalty
could not have been imposed. We find that no such point had been raised before
the Tribunal and no such point is raised even in the Memorandum of Appeal
before this Court. In any event the adjudication had taken place in 1998 at which
time Section 11AC was on the statute book.
We
thus see no substance in the Appeal. The same stands dismissed with no order as
to costs.
Back
