Customs, Excise and Gold Tribunal - Tamil Nadu
Bala Handlooms Exports Company Ltd. vs Cce on 16 November, 2007
Equivalent citations: 2008(125)ECC39, 2008(151)ECR39(TRI.-CHENNAI), 2008(223)ELT100(TRI-CHENNAI)
ORDER P. Karthikeyan, Member (T)
1. The impugned order has upheld rejection of two refund claims totaling above Rs. 12 lakhs being the accumulated CENVAT credit pertaining to the last quarter of 2004 and the first quarter of 2005 in the account of M/s. Bala Handlooms Export Company (BHEC), Chennai. These two appeals have been filed by BHEC. The appellant generally procures yarn and gets it bleached, dyed, converted into fabrics and embroidered through job workers. Occasionally they also purchase fabrics of Chapter Heading 5406. These and the job worked goods are exported. As per the impugned order, the refund in question relates to credit of duty paid on purchased fabrics of CSH 5406 which were exported. The lower authorities have denied the refund of credit under Rule 5 of CENVAT Credit Rules (CCR) on the ground that the appellants had not undertaken any process of manufacture on the fabrics (inputs) received. As per the orders the purchased inputs were subjected to the following operations before export.
1. Unpacking of the fabrics received.
2. Removing dust and excess starch.
3. Checking yarn through 100% inspection
4. Special folding to give crease
5. Fixing the folding through thread banding
6. Labeling and fixing sticker
7. Primary individual packing of fabric in poly packs
8. Bundling individually packed fabrics to specified quantity.
9. Stacking the bundles containing specified quantity to make bales.
10. Compressing the bales using the pressing machine and strapping.
11. Packing the bales with tar coated brown paper to make the bales ready for transport by sea.
12. Final packing of bales with gunny/jute fabrics and wrapping the same with steel band as per international standard.
2. Before the lower authorities it was argued that the definition of manufacture contained in the Exim Policy for the purposes of export was wider and that the impugned exports were of manufactured goods. The following extract from the Exim Policy was relied upon.
In the case of exports, the Central Board of Excise and Customs while interpreting the benefit of Notification No. 1/95-CE dated 4.1.95 applicable in the case of 100% EOU (pg 452-453) had clarified that a broader view is called for in interpreting the provisions of the said Notification and that the term "manufacture" for the purpose of export is wider in meaning than that used in the Central Excise Act, 1944; that while the process of galvanizing per se would not amount to manufacture under the Central Excise Law, it would amount to manufacture for the purpose of export.
3. The original authority rejected the plea of the appellants that their case was similar to the one dealt with by the Tribunal in CCE v. Weston Electronics . In the said decision the Tribunal had allowed the appeal filed by M/s. Weston Electronics, an EOU, after noting the CBEC Circular clarifying the scope of Notification No. 1/95-CE dated 1.3.95 (supra). The Tribunal decided that packing of recorded audio CDs in jewel boxes with printed titles of songs etc. in export worthy packing entitled the imports of inputs made by the EOU to exemption extended under Notification No. 13/81. The benefit was subject to the condition that the EOU manufactured or packed the inputs and exported.
4. The original authority followed the ratio of the Apex Court's decision in the case of CCE v. Maharashtra Fur Fabrics Ltd. in rejecting the appellant's claim. In that judgment, while dealing with a dispute on processes amounting to manufacture to which fabrics were subjected to, the Apex Court interpreted the Notification No. 3/1998 CE dated 19.01.98. This notification had inserted a proviso to Notification No. 198/86 CE dt.27.2.86. The Court observed while interpreting the expression "process of bleaching, dying, printing, shrink-proofing, tentering, heat-setting, crease-resistant processing or any other process" in the said Notification, that the import of the specific expressions had to be kept in mind to decide what were the other processes. Thus understood, processes akin to the specified processes alone fell within the meaning of 'any other processes' in the proviso.
5. In the instant case, as the appellants did not undertake any process that could be grouped along with the above specified processes (which also appeared in Chapter Note 4 of Chapter 54) the assessee was held not to have subjected the purchased fabrics (inputs) to any manufacturing process. Accordingly he found that refund of accumulated credit under Rule 5 of CENVAT Credit Rules could not be allowed to the appellants. In the impugned order, the Commissioner (Appeals) found that the appellants had procured the fabrics and exported the same without undertaking any process which amounted to manufacture. He held that input had been cleared as such and the provisions of Rule 5 of CCR did not cover refund of such input credit. Accordingly he upheld the order of the original authority.
6. In the appeal before the Tribunal it is submitted that the appellants are manufacturer/exporter of powerloom polyester fabrics and powerloom mixed fabrics falling under Chapter sub heading 5406 and 5513 respectively. They held registration certificate issued by the Department for manufacture of the above goods. They had Golden Export House status. It was not in dispute that the credit availed goods were used in the export goods. It was argued that the processes enumerated in the impugned order constituted manufacture. The assessee manufactured and exported goods classified under Chapter Heading 54.06 and 55.13 of the CETA Schedule. They reiterated the relevance of the clarification issued by the Board in the context of Notification No. 1/95-CE dated 4.1.95 applicable in the case of 100% EOU. They also relied on the Tribunal's decision CCE v. Weston Electronics (supra) cited before the lower authority.
7. At the time of hearing the ld. Counsel appearing for the appellants submitted that the Circular No. 489/55/99CX dt.13.10.99 clarified as follows:
For the purposes of Rules 12 and 13 the expression "manufacture" has very wide connotation. It includes blending, packaging, or any other operation. Even if a process do not conform to manufacture under the provisions of Central Excise Act for the purposes of export benefit, the wider connotation has to be applied. Thus the process of blending, packing etc. are well covered under Rule 12(1)(b). This clarification continued to be relevant.
The learned SDR reiterates the arguments in the impugned order and defends the same.
8. I have carefully considered the records of the case and the submissions made by both sides. The appellants are a manufacturer exporter and get fabrics manufactured with yarn supplied by it. It also exports fabrics after subjecting them to various processes. They follow the CENVAT scheme and avail credit of duty paid on inputs including yarn and fabrics. They claim that as per Note 4 of Chapter 54, multiple folding of fabrics undertaken by them was a specified process of manufacture in respect of goods falling under 5401 to 5405. They subjected the fabrics to various processes which, according to them, constituted manufacture for the purpose of export. I find that these processes do not constitute manufacture as defined in Section 2(f) of the Act.
9. I find that the Board's Circulars on galvanizing of metal or blending and packing of tea cited were issued to clarify the scope of Notification No. 1/95 CE dated 1.3.95 and are not relevant to the dispute in question. These were processes of manufacture for the purpose of granting export benefit in terms of Notification No. 1/95-CE. "Manufacture" had wider connotation in the context of the said notification. A process like galvanizing which per se did not amount to manufacture for Section 2f of Central Excise Act (the Act) was clarified to constitute manufacture for the purpose of granting export benefit. Similarly in the case of tea, blending and packing though were not processes of manufacture as per Central Excise Act had to be treated as manufacture for the purpose of granting export benefit.
10. In the Weston Electronics case the Tribunal decided that export packing had to be considered as constituting manufacture for the purpose of granting benefit on import of related inputs by the EOU, Weston Electronics Ltd. That ratio applied only to the reading of Notification No. 13/81 Cus pertaining to inputs procured by the EOU.
11. Appellants take credit of duty paid on yarn and fabrics. At the time of receipt of inputs ie, fabrics, the appellants are not in a position to identify the fabrics which would be sent for job work for embroidering and for ultimate export. All the fabrics received including those which are subjected only to the processes enumerated by the lower authorities in their orders are exported. I find that the appellants used to be allowed refund in the same circumstances till the subject claims were filed and that the lower authorities denied the refund on the ground that the fabrics involved had not undergone any process of manufacture as interpreted by the Apex Court in the case of CCE v. Maharashtra Fur Fabrics Ltd. (supra).
12. As per the Explanation to erstwhile Central Excise Rules (CER) 12 and Rule 13, 'manufacture' includes the process of blending of any goods or making alterations or any other operation thereon. Replacing of the CER '44 with CER 2001/02 did not curtail any benefits the trade had enjoyed in relation to export. Moreover if the manufacturer of the impugned goods or a merchant manufacturer were to export them, the exporter would have been granted the duty paid on the fabrics.
13. I find that Rule 5 of the CENVAT Credit Rules reads as follows:
Rule 5 Refund of CENVAT Credit Where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the Cenvat credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification.
Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty.
The rule provides for refund of CENVAT credit taken on inputs where for any reason the same could not be utilized for clearing final products for home consumption or export products on payment of duty. After considering the relevant facts I am convinced that the appellants are eligible for refund of accumulated CENVAT credit in terms of Rule 5 of the CCR. Considering the above legal position I find that the appellants are eligible for the refund of the CENVAT credit claimed. The appeal is allowed.
(Order pronounced in open court on 16.11.07)