Excise, Chandigarh Vs
M/S. Shital International
WITH CIVIL APPEAL NO.
4541 OF 2005COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS M/S. SHITAL INTERNATIONAL
JUDGMENT
D.K. JAIN, J.:
1.
1.
These appeals filed by the Revenue under Section 35-L(b) of the Central Excise Act,
1944 (for short "the Act") are directed against the order and judgment
dated 21st August2002 passed by the Customs, Excise and Gold (Control)Appellate
Tribunal, (for short "CEGAT"), as it existed then, and the order and judgment
dated 8th November 2004passed by the Custom, Excise and Service Tax Appellate
Tribunal (for short "CESTAT"), whereby both the CEGAT and CESTAT rejected
the claim of the Revenue and held that the goods manufactured by the assessee
were" unprocessed knitted pile fabrics" classifiable under
chapter sub-heading 6001.12 of the Central Excise Tariff Act, 1985 (for short "the
Tariff Act"), attracting Nil rate of duty.
2.
2.
Since the question of law arising for our consideration in all the appeals is similar,
these are disposed of by this common judgment. However, for the purpose of
appreciating the controversy, a brief reference to the facts in Civil Appeal Nos.1689-1690
of 2003, relating to the same assessee, would be necessary. These are: The assessee
company is engaged in the manufacture of knitted pile fabrics as well as knitted
hosiery fabrics of man-made fibers. Admittedly, till 30th September 2000, the assessee
was declaring the processed goods as dutiable and was paying Excise duty on the
same. However, on 3rd October 2000, the assessee submitted a revised declaration
claiming that the goods manufactured by it were subject to Nil rate of duty in terms
of Notification No. 06/2000-CE dated 1st March 2000 which came into effect from
1st October 2000, forming part of General Exemption No. 66, prescribing Nil
rate of duty on “unprocessed knitted or crocheted fabrics", as also
under Notification Nos. 9/96 and 18/96. On receipt of the revised declaration, a
show cause notice dated 12th December 2000 was issued to the assessee, questioning
as to why its stand be not rejected and CENVAT @ 16% ad valorem with AED(ST) @ 8%
and AED (TTA) @ 15% of the Excise duty on the goods should not be levied.
On 29th December 2000,
the assessee replied to the above show cause notice, denying liability on the ground
that the fabric was unprocessed. However, the claim of the assessee did not find
favour with the Deputy Commissioner, Central Excise, Jalandhar who vide his Order-in-Original
No.222/20/Val/01 dated 29th June 2001, held:
"knitted pile fabrics
of sub-heading 6001.12 being manufactured by the notice be treated as processed
fabrics and chargeable to cenvat @ 8% Adv., AED(ST) @ 8% Adv. in terms of notification
no. 17/2000 dated 01.03.2000."
1.
2.
3.
Being
aggrieved by the said orders, the assessee preferred an appeal before the
Commissioner (Appeals), Customs & Central Excise, Chandigarh.
4.
The
Commissioner (Appeals), upon consideration of the processes undertaken by the assessee
came to the conclusion that these were not covered under Chapter Note 4 to Chapter
60 of the Tariff Act as neither of the processes of carding, knitting and shearing
find mention in the said Chapter Note nor these processes can be covered under "any
other process" mentioned in the said Chapter Note. Placing reliance on the
decisions of the CEGAT as well as on the decision of this Court in Mafatlal Fine
Spinning And Manufacturing Co. Ltd. Vs. Collector of Central Excise, Bombay1, the
Commissioner allowed the appeal of the assessee.
5.
Aggrieved
by the said order, the Revenue preferred an appeal before the CEGAT. As mentioned
previously, the CEGAT, vide impugned order, dismissed the appeal. Relying on the
decision of this Court in Mafatlal (supra), the CEGAT held that operations of shearing,
cropping and back coating of the fabric undertaken by the assessee did not amount
to processing of the fabric, as contemplated in the said Chapter Note.
6.
It
would be expedient to mention that in C.A. No. 4541 of 2005 relating to the same
assessee, the Commissioner, vide Order-in-Original No. 69/CE/JAL/03 dated 30th
July 2003, who had adjudicated on the show cause notice dated 22nd June1 (1989)
2 SCC 446: 1989 (40) ELT 218 (SC)2001, after examining the processes carried out
by the respondents, had concluded that the knitted pile fabric manufactured by the
assessee was unprocessed and therefore was exempt under Notifications No. 5/99 and6/2000.
In the ultimate analysis the Commissioner observed thus:
"Thus, from the above
discussion it is proved that the notice has supplied knitted pile fabrics as well
as knitted hosiery fabrics to the buyers sold by raising commercial invoices and
most of the pile fabrics supplied by the noticee as knitted fabrics were not having
back coating and even if process of back coating was conducted on some quantity,
the noticee have claimed that the drying was done naturally. There is nothing on
record to controvert the claim that back coated pile fabrics were not dried naturally
or cannot be dried naturally. Thus, I find that the show cause notice itself does
not contain any of the ingredients required to substantiate the charge that the
processes undertaken by the noticee amounts to manufacture in terms of Chapter Note
4 to Chapter 60 of Central Excise Tariff Act 1985 so as to attract Central Excise
Duty. In view of the above discussion, I hold that the processes undertaken by the
noticee in the manufacture of pile fabrics sold as knitted fabrics do not amount
to manufacture in view of Hon'ble
Supreme Court judgment
in Maharashtra Fur Fabrics Ltd. reported as 2002 (145) ELT 287 (SC) and the definition
of processes as defined above 6 and therefore, the goods supplied by the notice
were not dutiable under notification no.5/99-CE dated 28.02.1999 and 6/2000-CE
dated 01.03.2000 during the relevant period and Central Excise duty amounting to
`1,20,93,135/- [BED `1,11,97,348 + `8,95,787] is not recoverable under Section 11A
of the Act and interest under Section 11AB of the Act." Aggrieved by this order,
the Revenue preferred an appeal before the CESTAT, which was rejected vide the impugnedorder.
1.
2.
3.
4.
5.
6.
7.
Being
dissatisfied by the said orders, the Revenue is before us in these appeals.
For the sake of convenience, hereinafter, both the CEGAT and the CESTAT will
be referred to as "the Tribunal."
8.
Mr.
B. Bhattacharya, learned Additional Solicitor General, appearing for the revenue,
contended that since in the instant case, the fabric had been subjected to processing
in the form of shearing and electrifying polishing, these processes amounted to
"manufacture" in terms of Chapter Note 4 to Chapter 60 of the Tariff Act
and hence it was not exempted from Excise duty.
Learned counsel argued
that the decision of this Court in Mafatlal (supra) was not applicable to the present
case, as initially the assessee was itself paying duty as and when knitted pile
fabric was cleared under Excise invoices, treating the same as processed fabrics.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Per
contra, Mr. V. Lakshmi Kumaran, learned counsel appearing for the assessee, while
supporting the impugned order of the Tribunal, urged that Chapter Note 4 of Chapter
60 of the Tariff Act refers only to those processes which result in irreversible
or lasting change in the character of the fabric and, therefore, since the processes
of shearing and back-coating did not bring about any change in the grey fabric,
the said processes do not fall within the ambit of the said Chapter so as to attract
Excise duty. To buttress the argument that the processes carried out by the assessee,
namely shearing, back coating etc. are integral processes for the manufacture of
knitted pile fabric and did not amount to manufacture of "processed
fabric" as contemplated under Chapter 8 Note 4 and, therefore, the assessee
was entitled to claim exemption under Notification No. 06/2000-CE, learned counsel
relied on the decisions of the Tribunal in Maharashtra Fur Fabrics Ltd. Vs. Collector
of Central Excise, Bombay2 and Versatile Enterprises Pvt. Ltd. Vs. Collector of
Central Excise, Meerut3.
10.
It
was strenuously contended that so far as the process of shearing was concerned,
the issue is no more res integra in the light of the decision of this Court in
Mafatlal (supra) wherein it had been held that shearing process did not have the
effect of bringing about any change in the grey fabric. According to the
learned counsel, in view of the concurrent findings of fact recorded by both the
authorities below, the test enunciated in the said decision stands satisfied. It
was, thus, asserted that there being no permanent change in the character of the
fabric even when the grey fabric is back-coated or sheared, the ratio of the said
decision is in all force to the facts in hand and,
1994 (71) E.L.T. 857 (Tri.-Del.)
2001 (130) E.L.T. 770
(Tri.-Del.)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
therefore,
the appeals deserve to be dismissed. In so far as the question of process of electrifying
polish was concerned, learned counsel submitted that such a plea was neither a
part of the show cause notice nor was raised by the Revenue either before the Commissioner
or Tribunal, the Revenue cannot be permitted to raise such a plea at this stage.
Before embarking on an
examination of the rival submissions, it would be instructive to take note of the
tests laid in Mafatlal (supra), to determine whether a process amounts to manufacture
under the Excise Act. In the said case, this Court had observed thus:-
"Any processing that
can take a case out of Rule 49-A(1)(b) must be a process which renders cotton fabric
ceases to be `grey fabric' as commercially known and understood. The question
whether calendering' and `shearing', as actually carried out by the appellant has
had the effect of taking the cotton fabric out of Rule 49-A(1) should be decided
in the light of this test. 20. In the present cases, the claim of the appellant
before the authorities that the calendering process employed by them was 10 such
as to give temporary finish by pressing the fabric is not controverted. No lasting
change is brought about. There is no finding to the contrary. Likewise the claim
as to the "shearing" which was only to trim protruding, stray fibres from
the fabric. If these are the nature of the operations, the `grey' fabric, in the
facts of these cases, does not become new and commercially different commodity and
cease to be `grey' cloth. There is thus no justification to take it out of Rule
49-A(1)(b)."
12.
Therefore,
the questions arising for consideration are: (i) whether the said processes undertaken
by the assessee amounted to "manufacture" in terms of Note 4 to Chapter
60 and/or (ii) whether the processes in question introduce such a change in the
nature of the fabric that it ceases to be a grey fabric?
13.
The
relevant portion of Chapter 60 of the Tariff Act along with the notes reads as follows:
"CHAPTER 60 KNITTED
OR CROCHETED FABRICSNotes:1. This Chapter does not cover: (a) crochet lace of heading
No. 58.04;
(b) labels, badges or
similar articles, knitted or crocheted, of heading No. 58.07; or (c) knitted or
crocheted fabrics, impregnated, coated, covered or laminated of Chapter 59. However,
knitted or crocheted pile fabrics, impregnated, coated, covered or laminated, remain
classified in heading No. 60.012. This Chapter also includes fabrics made of metal
thread and of a kind used in apparel, as furnishing fabrics or for similar purposes.3.
Throughout this Schedule, any reference to "knitted" goods includes a
reference to stitch-bonded goods in which the chain stitches are formed of textile
yarn.4. In relation to products referred to in this Chapter, bleaching, mercerizing,
dyeing, printing, water- proofing, shrink-proofing, tentering, heat-setting, crease-resistant,
organdie processing or any other process or any one or more of these processes shall
amount to `manufacture'.
Head- Sub-
Description of goods Rate of Duty heading No. No. Basic Additional
(1) (2) (3) (4) (5)60.01
Pile fabrics, including `Long pile' fabrics and terry fabrics, knitted or crocheted
- `Long pile' fabrics: 6001.11 - Of man-made fibres 16% 8% 6001.12 - Of other textile
materials 16% 8% 6001.19 - Of other textile materials 16% Looped pile fabrics
6001.21 - Of cotton 16% 8% 6001.22 - Of man-made fibres 16% 8% 6001.29 - Of other
textile materials 16% - Other: 6001.91 - Of cotton 16% 8% 6001.92 - Of man-made
fibres 16% 8% 6001.99 - Of other textile materials 16%"
14.
There
is no dispute that knitted pile fabrics are to be classified under heading No. 60.01
of the Tariff Act. The issue is whether the processes of shearing and back-coating
which do not figure in Chapter Note 4 to Chapter 60 of the Tariff Act, would fall
within the ambit of "any other process “referred to in the said note. It is
well settled that general terms following particular expressions take their colour
and meaning as that of the preceding expressions, applying the principle of ejusdem
generis rule, therefore, in construing the words "or any other process",
the import of the specific expressions will have to be kept in mind. (See: Collector
of Central Excise, Bombay Vs. Maharashtra Fur Fabrics Ltd.4). Therefore, the processes,
with which we are concerned in the present appeals must take their colour from the
process of bleaching, dyeing, printing, shrink-proofing, tendering, heat-setting,
crease-resistant processing, specifically mentioned in the note. It is evident
that when a grey fabric is subjected to any of these processes, a permanent or lasting
change is brought about in the fabric. Whereas, in the present case, both the
appellate authorities below have found that neither shearing nor back-coating brings
about any permanent or lasting change in the knitted pile fabric manufactured by
the assessee by carding and knitting. In this regard, it would be useful to advert
to the observations made by this Court in Commissioner of Central Excise, Hyderabad-IVs.
Charminar Non-Wovens Limited,5 wherein it was held that:- "Such concurrent
findings by the lower authorities are interfered with by this Court in exercise
of its jurisdiction under Section 35-L of the Central Excises and Salt Act, 1944
only when such findings are patently perverse or (2002) 7 SCC 444 (2009) 10 SCC
770 are based on manifest misreading of any legal provision. Here none of these
situations is present. Reference in this connection may be made to the decision
of Siddhartha Pharmaceuticals v. CCE . In that judgment, the learned Judges of
this Court held that with the concurrent finding of facts reached by the lower authorities
in classification on the basis of evidence and on analysis of relevant legal
provision interference is not called for by this Court in exercise of its power
under Section 35- L of the Central Excise Act, 1944."
15.
In
the declaration submitted by the assessee, the saidprocesses are described as follows:-
"a. Carding: Firstly,
the fibre/synthetic waste/mixed fibre and waste is fed into the carding machine
which opens the compressed material and after loosening the same, sliver is made.
b. Knitting: Thereafter, the carded sliver plus yarn is inserted into the loops
of the circular knitting machines and the fabric is made. c. Shearing: The next
process is on the back- coating machine where the cloth is sheared, polished and
the pile is kept to the required level. d. Back-coating: The final process is on
the back coating machine where the back coating is done and fur is ready. Then,
it is measured on semi-automatic measuring table and the rolls are made6 (2009)
16 SCC 561 which are ready for show in the Excise Bond room
and for sale." In
this background, we find it difficult to hold that the processes of shearing or
back-coating are of the same nature as other processes mentioned in the said chapter
Note and therefore, would fall within the scope and ambit of “any other process."
16.
Adverting
to the second issue, noted supra, the Revenue has not controverter the afore-stated
factual position, nor has it adduced any evidence to suggest that the processes
mentioned in the afore-extracted declaration induce some permanent change in the
"grey fabric". A bare perusal of the nature of the processes, explained
in the said declaration reveals that the processes mentioned therein do not have
the effect of changing the "grey fabric" into another commodity or bring
about a permanent or lasting change in the fabric so as to bring out a new product,
tan amounting to manufacture in terms of Chapter Note 4to Chapter 60 of the Tariff
Act. Support is also lent to this view by the decision of this Court in Mafatlal's
case(supra).
17.
As
regards the process of electrifying polish, now pressed into service by the revenue,
it is trite law that unless the foundation of the case is laid in the show
causes notice, the revenue cannot be permitted to build up a new case against the
assessee. (See: Commissioner of Customs, Mumbai Vs. Toyo Engineering India Ltd.7;Commissioner
of Central Excise, Nagpur Vs. Ballarpur Industries Ltd.8 and Commissioner of Central
Excise, Bhubaneshwar-I Vs. Champdany Industries Limited9).Admittedly, in the instant
case, no such objection was raised by the adjudicating authority in the show cause
notice dated22nd June 2001 relating to the assessment year 1988-89 to2000-01. However,
in the show cause notice dated 12thDecember 2000, the process of electrifying polish
finds abrief mention. Therefore, in light of the settled legal position, the plea
of the learned counsel for the revenue in7
(2006) 7 SCC 592
(2007) 8 SCC 89
(2009) 9 SCC 466 that
behalf cannot be entertained as the revenue cannot be allowed to raise a fresh plea,
which has not been raised in the Show Cause notice nor can it be allowed to take
contradictory stands in relation to the same assessee.
18.
In
light of the foregoing discussion, we are in agreement with the Tribunal that the
said processes do not amount to "manufacture" in terms of Note 4 of Chapter
60of the Tariff Act, and hence the fabric in question is “unprocessed knitted fabric"
falling under Sr. No.165 of the exemption notification No. 06/2000 dated 1st March
2000,attracting Nil rate of duty as also under notification Nos.5/99, 9/96 and 18/96.
These appeals are bereft of any merit and are, therefore, dismissed accordingly,
leaving the parties to bear their own costs.
...........................................J.
(D.K. JAIN)
............................................J.(C.K. PRASAD)
NEW
DELHI;
OCTOBER
22, 2010
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