Customs, Excise and Gold Tribunal - Delhi
Kapri International (P) Ltd. vs Commissioner Of C. Ex. on 14 July, 1998
Equivalent citations: 1999(110)ELT937(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. This is an appeal against the order of Commissioner of Central Excise, New Delhi confirming a demand of duty of Rs. 43,52,716.34 for the period 1-4-1984 to 31-5-1985 for clandestine clearance of bed sheets, bed spreads etc. from the appellants through official liquidator under Rule 9(2) and Section 11A of the Act. The Commissioner further confirmed a demand of duty of Rs. 1,72,694.26 from the appellants through official liquidator for wrongful availment of benefit of Notification No. 77/83-C.E., dated 1-3-1983 for the period 1984-85. He also confiscated 132 bichhona sets, 17 packages containing 204 bichhona sets, 40 cartons containing bed sheets, pillow covers, top sheets etc. and 38 cartons containing bed sheets, pillow covers etc. He also gave an option to the appellants through official liquidator to redeem these confiscated goods on payment of redemption fine of Rs. 1.50 lac with the direction that this option may be exercised within 30 days of receipt of this order. He also imposed a penalty of Rs. 25 lac on the appellants. Against this order, the appellants have filed the present appeal before us.
2. The facts of the case are that the Central Excise Officers carried out checks in the factory of the appellants at Sahibabad and also a number of their office premises including search of the appellants' registered office at New Delhi. On examination of the records, it was found that the appellant company was receiving duty paid cotton fabrics in running length from their sister concern M/s. Dior International, Sahibabad and were manufacturing items like bed sheets, bed spreads, table cloths, napkins etc. by cutting the fabrics in running length to required sizes and then hemming and stitching them. It was claimed by the appellants that these fabrics in running length, they were sending to fabricators/job workers. The appellants also claimed that the items like bed sheets, bed spreads, table cloths, napkins etc. were manufactured by the job-workers/fabricators. During the search of registered office three card boxes containing 132 bichhona sets in duly packed marketable condition were recovered and were seized. From the godown of M/s. Dooars Transport Agency 17 cartons containing 12 bichhona sets were recovered and seized. From the store rooms of M/s. Dooars Transport Agency 38 bichhona sets removed by the appellants and 40 more cartons of bichhona sets were seized. These goods were seized in the reasonable belief that they were liable to confiscation. Incriminating documents were also noticed in the premises searched. The samewere also seized in the reasonable belief that they were relevant and pertained to the goods which were liable to confiscation.
3. On scrutiny of the documents seized and the statements of the various persons, it was found that the appellants had evaded duty amounted to Rs. 43,52,716.34 during the period 1-4-1984 to 31-5-1985 and that there was wrongful availment of duty of Rs. 1,72,694.26. Accordingly a show cause notice was issued to the assessees asking them to explain as to why the duty should not be demanded from them, why the goods found at various places should not be confiscated and why a penalty should not be imposed on them.
4. After examination of the records of the case as the appellants had not availed the opportunity of being heard in person or cross examination of the witnesses, the Commissioner passed the order as indicated above.
5. Sh. M. Venkataraman, ld. Advocate for the appellants submitted that the appellants are engaged in the manufacture of bed sheets, bed spreads, table cloths and napkins. For the manufacture of these items, they procured duty paid fabrics. These fabrics were cut into small pieces to make bed sheets, bed spreads, table cloths, napkins and pillow covers. He submitted that insofar as napkins and pillow covers are concerned he is not adducing any argument on these items inasmuch as the appellants were prepared to pay duty on these items; that these items were not covered by the definition of cotton fabrics given in Tariff Item 19(1). He submitted that during the period the cotton fabrics were defined under Item 19 as "cotton fabrics" means all varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadders, counter-panes, table cloths, embroidery in the piece, in strips or in motifs, fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials and fabrics covered partially or fully with textile flocks or with preparations containing textile flocks, if (i) in such fabrics cotton predominates in weight, or (ii) such fabrics contain more than 40 per cent or more by weight of non-cellulosic fabrics or yarn or both:
Provided that in the case of embroidery in the piece, in strips or in motifs, fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials, and fabrics covered partially or fully with textile flocks or with preparations containing textile flocks, such predominance or percentages, as the case may be, shall be in relation to the base fabrics which are embroidered or impregnated or coated or laminated or covered, as the case may be -
I. Cotton fabrics, other than (i) embroidery in the piece, in strips or in motifs, (ii) fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials, and (ii) fabrics covered partially or fully with textile flocks or with preparations containing textile flocks -
(a) cotton fabrics, not subjected to any process.
(b) cotton fabrics, subjected to the process of bleaching, mercerizing, dyeing, printing, waterproofing, rubberizing, shrink-proof-ing, organdie processing or any other process or any two or more of these processes.
5. The ld. Counsel submitted that in view of the definition of cotton fabrics in the tariff itself, we have to examine whether the items bed sheets, bed spreads and table cloths were covered by the definition of cotton fabrics. He submitted that in the tariff, cotton fabrics have been defined as cotton fabrics means of varieties of fabrics manufactured either wholly or partly from cotton and includes dhoties, sarees, chadders, counter-panes, table cloths etc. He submitted that in the present case the duty paid cotton fabrics were received by the appellants from their factories and since the cotton fabrics means among other things, bed sheets, bed spreads and table cloths, therefore the question of payment of duty on these three items again did not arise inasmuch as the duty on the material was paid as cotton fabrics. He submitted that in case the duty is demanded again on bed sheets, bed spreads and table cloths, it will amount to demand of duty twice. He, therefore, submitted that the tariff was very clear and since bed sheets, bed spreads and table cloths are specifically included in the definition of cotton fabrics, therefore, there was no question of demand of duty on these items again once the duty was paid on cotton fabrics in running length. He, therefore, submitted that the impugned order may be modified to the extent stated above and the penalty may be reduced drastically.
6. Sh. S. Srivastava, ld. JDR appearing for the Revenue submitted that in this case the admitted position is that the cotton fabrics in running length is purchased by the appellants and that these cotton fabrics is cut into small pieces and these pieces are given a definite shape of articles of cotton fabrics after stitching and hemming the corners thereof. He submitted that therefore the issue in the case boils down to consider whether this cutting, stitching and hemming amount to manufacture. He submitted that conversion of running cotton fabrics into articles amounts to manufacture and since it amounts to manufacture therefore the article become separately dutiable, that since the articles become separately dutiable, that the duty under T.I. 19(1) has rightly been demanded by the lower authorities. In support of his contention he cited and relied upon the judgment of the Apex Court in the case of Prestige Engineering (India) Limited [1994 (73) E.L.T. 497]. He also referred to the judgment of the Apex Court in the case of S.D. Fine Chemicals (P) Ltd. [1995 (77) E.L.T. 49 (S.C.)] stating that the Apex Court observed that the definition of manufacture under Section 2(f) confines to its natural meaning but is an expansive definition that certain processes which may not otherwise amount to manufacture are also included therein. A reference was also made to the decision of the Apex Court in'the case of Decorative Laminates (India) (P) Ltd. [1996 (86) E.L.T. 186 (S.C.)]. In this case the Apex Court had observed that processing of duty paid commercial plywood by applying phenol formaldehyde resin under 100 per cent heat and pressure and coating the wire mesh either on one side or on both side results in manufacture of a different commodity known as slip-proof commercial plywood hence again liable to duty under sub-heading 4408.90 of the Central Excise Tariff. He submitted that in the instant case there is no prohibition in demanding duty again on bed sheets, bed spreads and table cloths even if duty was paid on cotton fabrics in running length under the same sub-heading or heading. He also referred to the decision of the Tribunal in the case of Ramaraju Surgical Cotton Mills [1996 (82) E.L.T. 86]. He submitted that the Tribunal in this case observed that converting loose woven fabrics into gauze bandage is manufacture and the goods so produced are classifiable under Heading 30.04 of the Central Excise Tariff. He submitted that this decision of the Tribunal squarely covers their case. He submitted that cutting of fabrics in running length into small length and stitching and hemming them into article is nothing but the manufacture and since the process undertaken for the production of articles amount to manufacture, therefore, the duty has rightly been demanded. He, therefore, prayed that the appeal be rejected.
7. In rejoinder, the ld. Counsel submitted that this Tribunal in the case of Tansi Engineering Works [1996 (88) E.L.T. 407] observed that cutting and punching of holes in angles and channels does not amount to manufacture as no new commodity comes into existence irrespective of particular item mentioned in the Tariff Schedule.
8. Heard the submissions of both sides. We have carefully perused the submissions of both sides as also the case law cited and relied upon by the appellants. The basic issue for determination is whether bed sheets, bed spreads and table cloths are cotton fabrics or articles of fabrics. For the purpose of classification of any product we have to consult the tariff to find out whether the tariff provides any indication in this regard. We note that the T.I. 19(1) for the relevant period defines cotton fabrics and definition has been given as cotton fabrics. The term does not limit the scope of interpretation and therefore cotton fabrics for the purpose of classification under T.I. 19 (I) will include bed sheets, bed spreads and table cloths as given in the definition. Since the tariff itself defines that bed sheets, bed spreads and table cloths are cotton fabrics and since the duty on cotton fabrics in running length has already been paid, therefore, the demand of duty on the same item again will amount to demand of duty twice on the same item.
9. Since the tariff defines cotton fabrics, therefore, the question of considering whether the manufacture has taken place or not. To say the least every process does not amount to manufacture. Only such process as bring into existence a new product distinct in name, character and use amounts to manufacture. In this case definition of cotton fabrics deeming fiction is that the bed sheets, bed spreads and table cloths are cotton fabrics and therefore if the duty has been paid on the goods as cotton fabrics then the duty shall not be liable to be paid on the bed sheets, bed spreads and table cloths. In this view of the matter, we hold that no further duty shall be payable on the above items.
10. Having regard to the above findings, we find that the penalty is on the higher side and the same is reduced to Rs. 10 lac.
11. The impugned order is therefore modified to the extent stated above and the appeal is disposed of accordingly.