Customs, Excise and Gold Tribunal - Tamil Nadu
Cc vs S.P. Apparels on 14 October, 2003
Equivalent citations: 2004(115)ECR463(TRI.-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. This appeal by the Revenue is directed against the Order-in-appeal No. C.Cus. 509/02 dt. 31.10.2002, by which the appellate authority has set aside the order of the lower adjudicating authority and allowed the appeal by the appellants by applying the ratio of the judgments rendered by East Zonal Bench, Calcutta, in the case of Rupa & Co. Ltd. v. CC, Kolkata . Aggrieved by this order the appellant revenue has come in appeal on the following grounds:
1. As per the first proviso of Customs Notification 29/97, exemption form 10% CVD is available only to capital goods required for the manufacture of textile garments (including knitwear). But the imported Gray Fabric inspection machine is capable of inspecting fabrics for detection of any defects in the fabrics for detection of any defects in the fabrics and not used in the manufacture of garments.
2. This issue is clarified by Board's letter vide F.No.607/35/99-Dbk dated 18.11.1999, which states that:
Machines like knitting machine, dyeing machines, compacting machine etc., are not eligible for exemption from CVD in terms of Customs Notification 29/97 because such machines are used for processing/manufacture of fabrics and not in the manufacture of textile garments (including knitwear). The exemption from CVD under Customs Notification 29/97 is available only to those machines which are used in the manufacture of textile garments (including knitwear).
3. Central Board of Excise and Customs issued a Circular No. 13/2000-Customs dated 22.2.2000, wherein the Board categorically clarified inter-alia as follows:
In terms of proviso of Paragraph 1 of Customs Notification No. 29/97 dated 1.4.1997, CVD exemption is, inter alia available only to machines which are used in the manufacture/processing of textile garments (including knitwears). Hence, if a garment exporter imports machines which are not used for the manufacture/processing of garments, CVD exemption will not be available to such machines which process fabrics. It is therefore reiterated that CVD exemption in terms of Customs Notification No.29/97 dated 1.4.1997 (issued under zero duty EPCG scheme) should only be extended to machines which are directly used in the manufacture of processing of textile garments (including knitwears).
4. The Gray Fabric Inspection machine is a fabric inspection machine which does not find use in making readymade garments like sewing machines, cutting machines, button hole sewing machine, button stitch sewing machine, collar turning and blocking machine, cuff turning and blocking machine, pocket creasing machine, ironing machine, shirt folding machine etc. Therefore, Gray Fabric Inspection machine being a fabric inspecting machine is not required for manufacture of garments and is not eligible for the exemption of CVD under Customs Notification 29/97.
5. Gray Fabric Inspection machine is required for inspecting fabrics for detection of any defects in the fabrics by which garments cannot be manufactured unless such unprocessed fabrics is treated or process by various other machines like compacting, calendering, shrinkage removing etc. These processes are not invariably done by the one person. Obviously, fabrics manufacturing is a very complicated and cumbersome task which includes various processes. The manufacturing of garments starts only thereafter in which Gray Fabric Inspection machine does not have any role to play.
6. Hon'ble Tribunal's judgment, in the case of Commissioner of Central Excise and Customs, Pune-I v. Arlabs Ltd. (Tri.) defining the concept of integrated process is of much relevance, which states:
Manufacture-Integrated process-Fact that manufacturer has a particular raw material as a starting point and manufactures finished product in the course of which another finished product emerges does not itself make the process integrated. A process is said to be integrated if there is a continuous process involved in which case no intermediate product emerges-respondent having cleared some of the intermediate products into market, it cannot be said to be integrated process-Section 2(f) of Central Excise Act, 1944.
Here, at each stage the output from each machine is a new product coming into existence. As a result of process such as bleaching, washing, dyeing, mercerising, compacting, calendering, knitting etc. undertaken with the help of the respective machines, a new or distinct commodity emerges such as bleached yarn/fabric, Dyed yarn/fabric, knitted fabric etc. At each stage of every process undertaken in different machines, a new marketable commodity emerges. Therefore, each process amounts to manufacture as defined in Section 2(f) of the Central Excise Act, 1944.
7. Board's clarification is based on a letter No. 20(1)/96/Wvg/61 dated 23.2.2000, by the Additional Textile Commissioner (Tech), office of the Textile Commissioner, Ministry of Textiles. This letter was circulated by Tripur Exporters Association to all its members vide their letter reference No.34/TEA/99 dated 26.2.1999. As per this letter, Annex I Covers-Machinery for manufacture of woven and knitted garments.
Annex-II Covers-Machinery's such as circular knitting machine, sueding machine, soft flow dyeing machine, compacting machine, fabric, reversing machine etc. This machines can be allowed for in-house garment making units (only for captive consumption).
In this case, the fact of captive consumption is not proved by the importer or he has not proved that he is having all such fabrics processing machines as per Annex II for in house garment making. If the appellant claims himself as a full-fledged, "In-house garment making unit", he has to demonstrate by way of plans, flow chart and all other technical documents to prove that he had installed all the machines specified in Part II of Textile Commissioner's letter cited, to support his claim as an "in-house garment making unit". But this has not been done and a mere claim as "in-house garment unit" without any evidence, is not acceptable at all.
8. Further, the licence holder has not proved by way of Central Excise documents, that the intermediate products emerging during the manufacturing operation in an "in-house garment making unit" are not sold or exported or otherwise disposed.
9. Based on the letter No. 20(1)/96/Wvg/61 dated 23.2.1999, from the Additional Tribunal Commissioner (Tech.), O/o. the Textile Commissioner, Ministry of Textiles, Board issued clarifications regarding the 10% CVD exemption under Customs Notification 29/97 by (1) A letter dated 20.7.1999 (2) A letter vide F.No.607/30/99-Dbk dt. 18.11.1999 and (3) A circular No.l3/2000-Cus dt.22.2.2000 (1) In its first letter dated 20.7.1999 the Board categorically clarified, The exemption from CVD in terms of Customs Notification 29/97 is inter-alia available to machinery required for the manufacture of textile garments (including knitwears). Fabric processing machines like knitting machine, dyeing machine, compacting machine etc. listed in Textile Commissioner's letter dated 23.2.1999 are not required in the manufacture of garments as these machines are required for the processing of fabrics. As CVD exemption in terms of Customs Notification 29/97 is available only to machinery used in the manufacture of textile garments (including knitwears), the CVD exemption is not available to fabric processing machines.
(2) The above said clarification was reiterated in Board's letter dated 18.11.1999 vide F.No.607/30/99-Dbk dated 18.11.1999.
(3) Board issued a Circular No. 13/2000-Cus. dated 22.2.2000, wherein it was clarified:
In terms of proviso of Paragraph 1 of Customs Notification No.29/97 dated 1.4.1997, CVD exemption is inter alia, available only to machines which are used in the manufacturing/processing of textile garments (including knitwears). Hence, if a garment exporter imports machines which are not used for the manufacture/processing of garments, CVD exemption will not be available to such machines which process fabrics. It is therefore, reiterated that CVD exemption in terms of Customs Notification No.29/97 dated 1.4.1997 (issued under zero duty EPCG scheme) should only be extended to machines which are directly used in the manufacture of processing of textile garments (including knitwears).
10. It is, therefore, reiterated that CVD exemption in terms of Customs Notification No.29/97 dated 1.4.1997 (issued under zero duty EPCG scheme) should only be extended to machines which are directly used in the manufacture of processing of textile garments (including knitwears).
By issuing such clarifications, Board has not tried to change the meaning of notification. By using the word 'direct use', Board has further clarified the category of machines eligible for 10% CVD exemption. Also Board has issued such clarification for uniform practice since doubts were raised from various quarters regarding the interpretation of notification although the notification is crystal clear.
11. The Hon'ble Supreme Court in the case of British Machinery Supplies Co. v. Union of India , observed as follows:
Circulars issued by the Collector of Central Board of Excise & Customs cannot be overlooked as atleast they are binding on the department.
As per Section 151A of the Customs Act 1962, the CBEC is empowered to issue orders/circulars, instructions/guidelines and directions to officers of Customs for the purpose of uniformity in the classification of goods or with respect of levy of duty thereon and these orders shall be observed and followed. Customs Notification 29/97 is issued with respect of levy of duty only. Hence, any circular issued with reference to this notification is automatically covered under Section 151 (A).
2. Heard Ld. DR Shri C. Mani, who has reiterated the grounds of the appeal.
3. Appearing on behalf of the respondent Shri S. Kandaswamy, Consultant, argued that the issue is no longer res integra and had been decided by this Bench in the case of Premina Exports v. CC, Chennai reported in 2002 (148) ELT 1065 (Tri.-Chen.) : 2002 (105) ECR 841 (T), wherein it has been held that under EPCG policy Machinery which are required for textile garments manufacturing would be entitled to benefit exemption of additional duty granted under Notification No. 29/97-Cus. and goods required for textile garments manufacturing would include machineries for knitting, winding, compacting and dyeing of fabrics as these processes are essential for manufacturing of knitted garments. The argument of the revenue is that these processes are independent of production of garments wherein these machines have to be used directly, cannot be accepted and should be rejected and the exemption of additional duty has to be granted under Notification No. 29/97-Cus. dt. 1.4.1997. Ld. Consultant has also invited our attention on the judgment rendered by the EZB, Kolkata, in the matter of Rupa & Co. Ltd. reported in 2002 (143) ELT 562 (Tri. Kolkata), which judgment has held that the respondent/assessee is entitled to benefit of exemption under Notification No. 29/97-Cus. dt. 1.4.1997 and these judgments in the matter of Rupa & Co. Ltd. (supra) has been relied on by this Bench in the case of Premina Exports (supra). Ltd. Commissioner (Appeals) has also relied on the judgment rendered in the case of Rupa & Co. Ltd. (supra) as well as the judgment rendered by us in the case of Premina Exports vide Final Order No. 1043-1067/2002 dt. 17.9.2002.
4. We have considered the rival submissions and find that the issue is no longer res integra and has already been decided by this Bench in the case of Premina Exports and 24 Ors. v. CC, Chennai vide final order No. 1043-1067/02 dt. 17.2.2002 : 2002 (105) ECR 841 (T) and we have applied various judgments including the judgment rendered by the EZB in the matter of Rupa & Co. Ltd. v. Commissioner of Customs, Kolkata (supra). The Ld. Commissioner has applied both the above judgments and various other judgments rendered by this Bench and his findings are extracted herein below:
I have carefully gone through the records of the case and the submissions made by the appellant.
The CEGAT, Chennai, vide Final Order No. 1043-1067/02 dated 17.9.2002 had examined in detail the scope of the expression "goods required for the manufacture of" as it appears in Notification 29/97 to consider whether it will include knitting machine and processing machines for making knitted garments. The Hon'ble CEGAT agreed with the contention before them that while interpreting notifications issued under Section 25 of the Customs Act, 1962, no additions can be made and the notification should be interpreted as it is worded i.e., benefit of notification cannot be curtailed and the question of direct usage cannot be a factor to decide the benefit of exemption as has been done by the clarification issued by the CBEC in its Circular dated 22.2.2000. The only factor to be decided is whether the machines are required in the manufacture of garments whether directly or indirectly. The machines under consideration in the appeal were knitting machines, winding machines, compacting machines and dyeing machines. After perusing the catalogues and leaflets the CEGAT observed that these machines are used for processing fabrics at various stages. It was also observed that licenses had been issued for import of these machines for exporting textile/knitted garments and this has not been disputed by the Department. Due consideration has also been given to the fact that the exporters have to submit periodical statements to the licensing authority showing the details of machines imported, goods manufactured and exported and the export obligation completed. Reliance was placed on the Hon'ble Supreme Court judgment in the case of J.K. Cotton Mills 1997 (91) ELT 34 (SC) where the Court had observed that the expression "in the manufacture of goods" should normally encompass the entire processes carried on by the dealer for converting raw materials into finished goods wherein the particular process is so integrally connected with the ultimate production of the goods that but for that process manufacturing of processing of goods would be commercially inexpedient. Goods 'required' in that process would in our judgment fall within the expression "in the manufacture of goods". Based on the above, it was decided by the CEGAT, Chennai, that the manufacture of textile garments/knitted garments. The CEGAT, EZB, Kolkata, in the case of M/s. Rupa & Co. Ltd. (supra) also stated that processing machines, including Fabric Inspection Machines, used to avoid manufacturing defects are required for manufacture of garments as "the process of manufacture of textile garments.... States with the inspection and reversal of the fabric and thereafter various process are required to be undergone for the actual manufacture of garments.
Since the CEGAT decisions would squarely apply to the facts in the present case, this appeal is taken up for decision without further hearing to the appellant. The goods under import, in the present case, is Automatic Grey Fabric Inspection Machine which is also required for the manufacture of textile garments. As per the wording of the notification as it stood at the time of import of these goods, all capital goods required for the manufacture of textile garments were eligible for the exemption. It is well-settled law that notifications should be strictly implemented. In the case of Assistant Collector of Central Excise, Pondicherry v. New Horizon Sugar Mills Pvt. Ltd. the Hon'bie High Court held that if the language of the exemption notification is deficient in bringing out the real intention of the Govt. it is not for the Court to supply the deficiency. It is therefore not legally possible to confine the benefit of the exemption to only those machines which are 'directly' used in the manufacture of garments where the notification extends the benefit to all machines required for the manufacture of textile garments. Furthermore, it is also pertinent that Automatic Grey Fabric Inspection Machine has since been listed in the Annexure to the Notification 122/99 dt.4.11.99 (which amended notification 29/97). This therefore reinforces the position that these machines are indeed required for the manufacture of textile garments.
We, therefore, are in agreement with the findings of the Ld. Commissioner, which is based on the judgment rendered by this Bench and other co-ordinate Bench's and we confirm the order of the Ld. Commissioner and hence reject the stay petition and appeal filed by the appellant revenue. Ordered accordingly.
(Dictated and pronounced in open Court).