Customs, Excise and Gold Tribunal - Tamil Nadu
Premina Exports And 24 Ors. vs Cc on 17 September, 2002
Equivalent citations: 2002(105)ECR841(TRI.-CHENNAI), 2002(148)ELT1065(TRI-CHENNAI)
ORDER Krishna Kumar, Member (J)
1. Appeal Nos. C 87/2002 to C 105 of 2002 are against the order No. C. CUS 772-790/2001 dated 29.11.2001 passed by the Commissioner of Customs (Appeals) Chennai. appeal Nos. C 136/2002 to 139 of 2002 and appeal No. C 155 of 2002 are against the order No. 123-129/2001 TRY (CUS)(PNV) dated 31.12.2001 passed by the Commissioner of Customs (Appeals) Trichy and appeal No. C/140/2002 is against the order in appeal No. 130/2001 TRY (CUS)(PNV) dated 31.12.2001 passed by the Commissioner of Central Customs (Appeals), Trichy.
2. As common issue is involved in these appeals, these have been heard together and are being disposed of by this common order.
3. The short point in these appeals relate to availing of additional duty exemption for various machines imported by the appellants in terms of Customs Notification No. 29/97 dated 1.4.1997. The goods under question have been imported under EPCG scheme for export of textile garments including knitted garments. The authorities below have rejected claims of appellants and hence these appeals.
4. Shri S. Murugappan, learned Advocate assisted by Ms. Prameela Vishwanathan, learned Advocate appeared for the appellants and took us through EPCG scheme provisions as outlined in Chapter VI of the relevant import and export policies for the period 1997 - 2002 and also provisions of Customs Notifications No. 29/97 referred above, in particular the proviso to the above notification specified that when the goods imported are required for the manufacture of textile garments (including knit wear) they are elligible for exemption from payment of additional duties. They argued that in all these cases, various machines imported by appellants are required for manufacture of textile garments including knitted garments, and therefore, they will be elligible for exemption referred above. It was argued that in the light of this, the lower authorities rejection of the claims on the ground that these machineries are not directly required for the manufacturing of knitted garments is not sustainable. The appellants main submissions are as under:
i) The original authorities have referred to the circulars issued by the Central Board of Excise and Customs to the effect that the machineries used for processing of fabrics or machineries required for knitting of fabrics cannot be considered as required directly for manufacturing and knitting garments and hence exemption from payment of additional duty should not be granted. By issuing of such circulars Board cannot curtail the benefit available in terms of specific notification issued in terms of statutory provisions. The following judgements were relied on.
a) Steelage Industries Ltd. v. Collector of Central Excise, Mumbai .
b) Polyformalin (P) Ltd., Cochin v. Collector of Central Excise, Cochin .
ii) There is a catena of decisions by Apex Court and various High Courts to the effect that notifications have to be interpreted on the basis of plain language used therein and that when the meaning is clear and unambiguous, no additions of words or deletion of words can be permitted.
iii) In respect of the above appellants the EPCG licences have been issued specifically for the import of these machines for producing and exporting garments including knitted garments. In some cases the licences are for import of fabrics knitting and processing machines only while some licences have been issued for import of various machines including fabric machines, Sewing machines etc. There is no specific provision that the appellants should import a complete set of machines required for manufacturing of knitting garments. The other machines required by appellants can be procured locally. In respect of the cases where the licences have been issued only for import of fabric machines including knitting machines, there is a condition that the appellants export goods of value which is nine times the CIF value of the machines allowed to be imported or 7.5 times of the FOB value of the machines.
iv) In all these cases the appellants have SSI certificates for manufacturing of knitted garments. Most of them are also having certificates of Apparel Export Promotion Council for exporting Readymade Garments/knitted garments.
v) After import of these machines the appellants are using them in the manufacturing of garments and garments so manufactured were exported. Samples of shipping bills showing such exports with cross references to the relevant EPCG licences were submitted. The export of garments is spread over 5 years as per the licencing conditions and, therefore, the appellants have still time to comply with the conditions stipulated in the licences for export of knitted/textile garments.
vi) Therefore, the issue boils down to the interpretation of the expression used in the Notification, i.e. "goods required for the manufacture of...textile garments (including knitwear)". The machines imported are required for manufacturing of textile garments (including knitted garments) and the benefit of exemption is available to the appellants. There is no definition of "manufacturing" or the expression "goods required for the manufacture" either in the notification or in the customs tariff. In the absence of such definition, the meaning assigned to these words in common parlance should be taken into consideration. Reference to the decisions of the Hon'ble Supreme Court in the case of United Offset Process Pvt. Ltd. v. Assistant Collector of Customs and in the case of Collector of Central Excise, Kanpur v. Krishna Carbon Paper Co. was made in this regard.
vii) By taking into consideration the above Supreme Court judgements, the scope of the expression "required for the manufacture of should be interpreted appropriately in the present set of facts. For the purpose of interpreting the above expression, following judgements were referred:
1) J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur reported in 1997 (91) ELT 34 (SC)
2) Collector of Central Excise v. Rajasthan State Chemical Works
3). Standard Fire Works Industries Sivakasi and Anr. v. Collector of Central Excise Madurai
4) Ceat Tyres of India Ltd. v. UOI reported in 1992 (62) ELT 517 Mumbai.
5) Ferro Alloys Corporation Ltd. v. Collector of Customs, Bhubaneshwar, reported in 1995 (77) ELT 302 (T) : 1995 (57) ECR481 (T).
6). Kudremukh Iron 81 Ore Ltd. v. Collector of Customs, Bangalore reported in 2000 (41) RLT 138 (TLB) : 2000 (93) ECR 60 (T-LB).
viii) The following technical details already provided before the lower authorities will show that in the commercial parlance and industrial usage norm the knitting of the fabric and processing of the same will form part of the production process of knitted garments:
1) Wills and Co. Com.
2) http: www.brod.trico.com.
3) http: www.Danube.hu/jersey.htm.
4) http/www/unido.Org.
5) http/www/Cibiexports.Com.
6) www.fashonz.co.nz/
7) The book "Knitted Clothing Technology" written by Terry Barack-enbury.
(ix) Quality of the garments has to be ensured right from the knitting stage if the exporters have to compete in the international market and export their products. In this regard a copy of the "garment defects classifications list" drafted by one of the buyers of knitting garments from one of the appellants in the present case was filed. Based on the defects list, the manufacturer of the garments is to ensure that the final product made is free from the defects enumerated in the list. The defects referred in the list begin with the knitting operations and various stages of the production of the garments.
(x) In the case of Rupa & Co. Ltd. v. Commissioner of Customs, Kolkata reported in 2002 (81) ECC 520 (T) : 2002 (102) ECR 100 (T), similar question of levy of additional duties in terms of the very same notification was examined. In this case the Hon'ble Tribunal observed that the interpretation that only machines which are used directly in the manufacturing of textile garments will be eligible for additional duty exemption is not correct. In the light of the above and under law the various machines imported by manufacturers are required for manufacturing of knitting garments.
(xi) The Supreme Court in the Judgment relating to J.K. Synthetics case referred to (Supra) has clearly laid down that where any particular process is so Integrally connected with the ultimate production of the goods that but for that process manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". It was emphasised that in the present case it would not be commercially expedient to manufacture garments without making own fabrics.
(xii) In the case of Kudremukh Iron Ore Ltd. (Supra) the Tribunal has extracted the contentions made in the case of Oblum Electrical Industries P. Ltd. to the effect that the words "for the purpose of manufacture" in the notification has the effect of enlarging the ambit of the exemption that has been granted. Therefore, taking into consideration the above and the fact that the subject machines are allowed to be imported for production of garments for export and the fact that already the subject machines are being used in the production of export of garments is not under dispute, the benefit of additional duty exemption should be allowed.
5. Shri A. Jayachandran, learned D.R. appearing for the Revenue argued and submitted that production or knitting of fabric and processing of such fabric are independent activities and are not connected with the production of garments. He, therefore, submitted that (i) fabrics and garments are different products and they are marketable as such, i.e. as fabric as well as garments (ii) in terms of the first schedule to the Central Excise Tariff Act, 1985, the knitted fabrics are classified under Chapter 60, whereas garments are classified under Chapter 62.
iii) The manufacturing licences granted to the appellants refer to the manufacture of knitting cloth or and knitted garments and the same is not necessary if it is the same process. In the case of Kongoor Textiles Process (appeal No. C/101/2002) the licence is only for manufacture of fabrics.
iv) Annexure-iii to the notification 29/97 referred above knitting machines are shown under spinning machinery and therefore, it is evident that these machines are not required for production of garments.
v) Time and again the Textile Commissioner and the Deptt. of Revenue have clarified that textile processing machines or knitting machines are not eligible for additional duty exemption under zero duty EPCG Scheme. In particular reference was made to the Textile Commissioner letter dated 23.2.1999, Deptt. of Revenue letters dated 20.7.1999, 7.12.1999 and 22.2.2000.
(vi) In the reference made to the book "Knitted Clothing Technology" the reference is with regard to production of garments smarting with fabric. This book does not state that the first step is manufacturing of fabric and it only refers to use of fabric.
(vii) Even in the case of Rupa & Co. referred to by the appellants it is noticed that the production of knitting garments started with the inspection and reversal of fabric. In case the fabric is already dyed or compacted then such machinery are not to be allowed additional duty exemption.
viii) Machineries for processing should not be allowed in respect of cases where the garments are manufactured on job work basis.
6. The learned D.R. has also submitted a written submission along with enclosure.
7. In his rejoinder the learned Advocate appearing for the appellants submitted as under:
1) The classifications under the first schedule to the Central Excise Tariff Act, 1985 are not relevant in the present case. It may be that fabric is classified under one chapter and garments are classified under another chapter but that does not answer the question whether the manufacture of the garments, fabric production is a process.
2) Even as per the provisions of EPCG scheme exports through 3rd party is allowed subject only to the condition that the machines imported under the scheme should be used for the manufacturing and the export of the finished goods. Neither the policy nor the notification prohibits manufacture on job work basis.
3) The reference to annexure-III of the notification 29/97 is misplaced. Even going by the D.R. arguments it is to be noted that the Sewing machines which are essential for the sewing of the garments did not figure in the annexure and on that basis the benefit is not being denied.
4) In the Textile Commissioner's letter dated 23.2.1999. the list of machines under part-II has the following title "machines for manufacturing knitting fabric, along with knitted fabric processing machines for in house garments making units (only for captive consumption)". Therefore, it is an admitted position that knitting machines and fabric processing machines are required for garment knitting units. However, the distinction sought to be made by Textile Commissioner about the captive consumption is not relevant as notification 29/97 does not lay down any stipulation in this regard.
(5) The policy circular 52 (RE-99)/99-2000 dated 18.2.2000 provides guidelines to the field authorities for issue of EPCG licences to various exporters including garments sectors. Annexure-III to this circular contains machinery requirements by garment sector. This list consists of 198 machines. It includes the knitting machines, the compacting machines, dyeing machines etc. With regard to industrial licence to M/s. Kongoor Textile Process, it was clarified that the said licence covers manufacturing of knitting cloth as well as manufacturing of knitted garments. The manufacturing activity related to knitting garments was later added in this certificate and the same is already on record.
6) At page 47 of the book Knitted Clothing Technology referred to, it will be very clear that the production of garments starts with the knitting fabric. The interpretation adopted by the Ld. D.R. that this refers only to the use of fabric is incorrect. The process of knitting of the fabric is the first step in the production sequence.
7) In the case of Rupa & Co. (Supra) the knitting machine was not under consideration but only machines for processing. Hence the Tribunal did not have occasion to give any ruling regarding the knitting machine. Hence no inference can be drawn from this decision that the production of garments will start only with fabric processing machines.
8) Notification 29/97 dated 1.4.1997 was issued providing for exemption from payment of additional duty to all machines. By issue of Notification 71/97-Cus. dated 16.9.1997, 10% additional duty was imposed. However, exemption was made available in respect of goods required for manufacturing of leather garments, textile garments including knit wear. The exemption from payment of additional duty was provided for these products for the reason that the manufacturers of these goods were not under Central Excise and, therefore, 10% additional duty will not be available as modvat credit. During the relevant period, the activities of the production of knitting fabrics and production of knitting garments did not attract excise levy.
8. We have considered the rival submission. The short point for determination in these appeals is the scope of the expression "goods required for the manufacture" as it appears in the notification 29/97 and whether it will include the knitting machines and processing machines for making knitted garments. The learned Adv. appearing for the appellants have pointed out that in the circular dated 22.2.2000 issued by the CBEC it was clarified that the additional duty exemption is to be extended only to machines which are directly used in the process of manufacture of textile garments. The reference was also invited to the circular dated 14.3.2000 wherein the Deptt. of Revenue has again confirmed that, the exemption benefit is available only to those machines which are directly used in the manufacture of garments. It was contended that while interpreting notifications issued under Section 25 of Customs Act, 1962, no such additions can be made and that the notification should be interpreted as it is worded. It was further contended that by administrative circulars the benefit of notifications can not be curtailed. We agree with the contentions of the appellants in this regard by taking into account the case laws cited. Therefore, the question of direct usage cannot be a factor to decide the benefit of additional duty exemption. On the other hand what is to be decided is whether these machines are required in the manufacture of garments whether directly or indirectly. The machines under dispute in these appeals are of the following types:(1) Knitting Machines, (2) Winding Machines (3) Compacting machines (4) Dyeing machines
9. We have perused the catalogues and leaflets submitted for these machines. The knitting machines are used for knitting the fabrics or production of fabrics which is the basic material for production of garments. The winding machines are for winding yarns preparatory to dyeing. As per the catalogue, winding of the yarn with these rewinding machines saves costs in dyeing process. The compacting machine is used for shrink control in the knitting fabrics. The knitted fabric is to be subjected to this process to ensure that after this is made to knitted garments shrinkage in the garments does not occur and the garments do not go out of shape. The dyeing machines are required for dyeing of the fabric. These machines come with dryer. The knitted and dyed fabrics are dried using these machines.
10. We observe that in all these cases the licences have been issued for import of these machines for exporting textile/knitting garments. It is further noticed that the appellants have also SSI Certificates for manufacture of knitting garments though other goods are also within the scope of manufacture. To a specific query from the bench, learned D.R. has replied that the fact that the appellants are exporting garments is not in dispute. The appellants have also submitted sample copies of shipping bills showing export of knitted garments. It was further submitted that the appellants have to submit periodical statements to the licensing authorities showing the details of the machines imported; goods manufactured and exported and the extent of export obligation completed. On completion of export obligation the appellants have to submit the full details to the licensing authorities as well as customs authorities evidencing export of goods specified in the licences to get the bond or undertaking cancelled. Therefore, the issue is limited to the question whether process of knitting of fabrics and the various processes done on the fabrics can be considered as essential process for manufacture of knitted garments, and therefore, these equipments used in such processes are goods required for manufacturing of knitting garments.
11. The learned Adv. appearing for the appellants relied upon extensively on the Supreme Court Judgment in the case of J.K. Cotton Mills {Supra). In this case the Hon'ble Supreme Court observed that the expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods, where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgement, fall within the expression "in the manufacture of goods." For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included "in the manufacture" of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression "in the manufacture" of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgement, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tool, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need nor, to qualify for special treatment under Section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for "turning out or the creation of goods."
12. In the case of Rajasthan State Chemical Works, cited Supra, the Apex Court observed in paragraphs 11 & 12 as follows:
11) Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one class to another. There may be several stages of processing, a different kind of processing at each stage. With each process suffered the original commodity experience a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place.
12. Manufacture thus involves series of processes. Process in manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to, manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to the manufacture.
13. These two judgements coupled with the other judgements given by the High Court at Mumbai and this Tribunal referred to by the appellants reveal that the manufacturing process need not be single operation involving one simple process. There may be many such processes and in each process the original material may undergo change. These processes may be so integral that it will be commercially inexpedient to manufacture without going through that process. It was extensively argued that in the present case, it is not possible to export garments by buying fabric or processed fabric from markets. The production quality starts with knitting of fabrics itself and from the step of knitting all the processes have to be closely monitored till such time garments are ready for packing. The appellants have referred to the various advertisements appearing in the websites. In the websites http/www/Danube it is stated that high quality fabric for the tubular knitting bodies of the "T" shirts is provided by their state of act Tubular Knitting machines. It is also stated that only reactive Dye agents are used in the manufacturing process to have strict quality standards. This further to the process of shrinkage control by compacting to ensure expected specifications. In the website of Brod trico the machines used in the production process of knitwear include flat bed Knitting machines, circular knitting machines, winding machines, pressing machines, label machines, cutting machines, sewing machines and drying machines. From the book "Knitted Clothing Technology" submitted by the appellants it is clear that knitting is the basic process in the production of knitting garments. At the introduction page it is stated "Knitting is one of the most important processes for producing garments." It further states that "the industries dealing with the production of knitted garments remain separate from those dealing with woven garments." Thus any segregation between fabric production and garment making that may be noticed in woven garment industry will not be relevant here. At page 12 of the above book the production sequence of fully cut garments is shown. The same is reproduced below for the purpose of clarity.
FULLY CUT GARMENTS. PRODUCTION SEQUENCE Circular knitting of fabric | Scouring, bleaching and/or dyeing | Pressing, calendering or decatizing or stentering | Laying up (spreading) of fabric | marking and cutting | Assembly | Examine and mend | Finish press | Fig. 1.2 Production sequence of fully cut garments
14. In the above process as well as processes described at pages 13, 16 and 17, the production sequence starts with knitting. Further at page 39 of the book it is stated that the companies making garments knit their own fabric and then carry out further processes.
15. In the light of the clear position as stated in the above book writ ten by one of the former head of the department of Fashion and Textiles, we agree with the contention of the appellants that the manufacture of the knitted garments starts with knitting. The decision of the Kolkata Bench of this Tribunal in the case of Rupa 81 Co. is limited to other machines which are used for processing. We have also noted that the DGFT has issued circular No. 52/99-2000 dated 18.2.2000 and which has referred to these machines under Annexure-III as machines used for garment sector..
16. Thus for the reasons stated above and in the light of the Supreme Court judgements relied upon and Tribunal's decision in the case of Kudremukh Iron Ore Ltd., Rupa &. Co. and Ruia Kotex Ltd. reported in 2002 (103) ECR 925 (T) machines under question arc to be considered as goods required for the manufacture of textile garments / knitted garments. Accordingly all these appeals are allowed and the impugned orders are set aside with the consequential relief, if any.
(Pronounced in open Court on 17.9.2002)