Customs, Excise and Gold Tribunal - Delhi
Cce, Indore vs M/S. Dhvani Terefabs (Exports) Pvt. ... on 15 May, 2001
Equivalent citations: 2001(132)ELT604(TRI-DEL)
ORDER
G.R.Sharma
1. The captioned five appeals, four preferred by M/s. Dhvani Terefabs Exports Pvt. Ltd. and one preferred by the Revenue were heard together. In addition the Misc. application filed by Revenue was also heard and are being disposed of by this common order.
2. Out of the above five appeals, in the three appeals filed by M/s. Dhvani Terefabs Exports the issue is the same, therefore, they were heard first. The issue in these three appeals is whether tere-towels made by cutting, hemming & stitching without the aid of power by he appellant are dutiable or not.
3. The appellants are engaged in the manufacture of knitted pile fabrics. It emerges in running length. There is no dispute about its classification under Chapter Heading 60.01. It is processed. Duty on the processed fabrics is paid. The appellant receives duty paid processed fabrics in its factory. It is then cut to size and edges hemmed with sewing machine. Revenue was of the view this activity amounts to manufacture and 'made up article' classifiable under Chapter Heading of duty in the present case relates to this activity. The Department alleged that the appellants had manufactured and removed clandestinely 'made up articles' without obtaining registration etc. During investigation statements of S/Shri B.R.Pandey, Manager, Amitabh Tiwari, Manager Works and Pradeep Waikar, Accountant were recorded. It was alleged that made up articles are classifiable under Chapter heading 6301 and hence dutiable. Accordingly, a SCN was issued to the appellants asking them to explain as to why the tere-towels manufactured by them should not be classified under Chapter Heading 6301 and why duty should not be demanded from them under Rule 9(2) and proviso to Section 11A(1) and why penalty should not be imposed. In reply to the SCN, the appellants submitted that their product was not classifiable under heading 63.01. It was also submitted that Section Note 5 of Section XI was applicable to their case in-as-much as towels in question were in the form of 'made up articles' after cutting, stitching and hemming. It was submitted that there was no dispute that knitted pile fabrics fall under Chapter 60; that such knitted fabrics are processed with the aid of power. The duty on such knitted fabrics was paid. It was contended that Power was used in the processing of knitted fabrics. It was submitted that the SCN alleges that since fabrics had been knitted and processed with the aid of power even though such fabrics are cut and stitched without the aid of power and since at the stage of processing of fabrics power is used the towels are ineligible for the benefit of Notification No.65/87 S.No.4. It was argued that this interpretation was incorrect. After careful consideration of the submissions Ld. Commissioner held that the towels are made up articles; that power was used in the manufacture of towels; that exemption under Notification No.65/87 was not available; that SSI exemption was not available as brand name of S.Kumar "S.Kumar a Love Touch' is used.
Further he held that dispute before me pertains to the goods manufactured by them during Oct'89 to June'94 wherein the party has specifically admitted that the knitted fabrics after cutting into required length are subjected to hemming at ends so that articles are ready for use. The Ld. Commissioner passed the following order.
"40. Show Cause Notice No.V(63)15-1/94/Adj dt.16/20.9.94
i) Central Excise duty amounting to Rs.54,53,397.60 payable on towel valued Rs.3,97,19,295.92 cleared without payment of duty during the period Oct'89 to March'94 is confirmed for recovery under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A(1) of Central Excise Act, 44.
ii) 31989 towels valued Rs.2,28,546 seized on 8.4.94 are also liable for confiscation, however, since these goods are released provisionally on execution on B.II Bone for Rs.2,28,546/- with bank guarantee of Rs.30,000/- and these goods are not presently available for confiscation. I order for appropriation of bond and security against redemption fine for the goods under seizure.
iii) A penalty of Rs.20,00,000/-(Rupees twenty lakhs only) is imposed upon notices under Rule 173Q of the Central Excise Rules, 1944.
B) Show Cause Notice No. V(63)15-35/94/Adj dt.2.11.94
i) Central Excise Duty amounting to Rs.64,522.80 payable on towels valued Rs.6,45,228/- is confirmed for recovery under Rule 9(2) of the Central Excise Rules, 1944 read with proviso to Section 11A(1) of the Central Excise Act, 1944.
ii) A penalty of Rs.30,000/(Rupees thirty thousand only) is imposed upon the party under Rule 173Q of the Central Excise Rules, 1944.
C) Show Cause Notice No.V(63)1701/CL/94/CVC dt,13/14.7.94
i) the classification of towels should be under Chapter 63 and attracts the appropriate rate of duty".
Being aggrieved by this order, the appellants have filed these three appeals.
4. Arguing the case for the appellant Shri V.Sridharan, Ld. Counsel submits that the appellants do not dispute the classification of the product under Chapter heading 6301. He also concedes that the demand of differential duty for the period 1.3.94 to 31.3.94 is sustainable in law.
Ld. Counsel submits that the main contention was that the appellants are manufacturer of tere-towels. The process for manufacture of tere towels is cutting, hemming and stitching. He submits that cutting, hemming and stitching is done without the aid of power. He submits that the Department had relied upon the statement of Shri B.R.Pandey who stated that in the process of manufacture of tere towels, power is used. Explaining it further he stated that power is used in knitting the fabrics on pile knitting machines. He submits that it was further clarified by Shri Pandey that power was used in processing the knitted fabric but no power was used in cutting, hemming and stitching. Ld. Counsel submits that in terms of S.No.4 of Notification No.65/87-CE dt.1.3.87 as amended 'made up articles' carried Nil rate of duty if made without the aid of power. He submitted that the admitted position was that no power was used in cutting hemming and stitching. He submits that in terms of Note 5 to Section XI, the tere towels manufactured by them were 'made up articles'. He submits that the Department has not produced any evidence to show that the tere towels manufactured by them were cut in shape otherwise than in square or rectangles inspite of the fact that this point was raised by them in reply to the SCN. He submits that the Department has relied on the judgment of the Apex Court in the case of Standard Fire Works [1987(28) ELt. 56] and in the case of Rajasthan State Chemical Works [1991(55)ELT.444]. He submits that these judgments are distinguishable in-as-much as power was used in the process of manufacture of excisable final product whereas in the present case power was used in the manufacture of processed fabrics where as no power was used in cutting, hemming and stitching of the tere-towels. In support of his contention that if power was not used in the production of any excisable product, the benefit of Notification No.65/87 cannot be denied. He cited and relied upon the decision of this Tribunal in the case of Elgi Tyre & Tread Ltd.
5. Ld. Counsel also referred to the Circular No.10/85/CX.1 dt.19.11.85 stating that the Board clarified that the question of applicability of Notification No.179/77 dt.16.6.77 to perfumary, derivatives manufactured from out of and within the factory of production of sandal wood oil was considered in the 22nd North Zone Conference held on 16th and 17th May'84 and clarified that the matter has further been examined in consultation with the Ministry of Law. The Min. of Law has opined that in order to avail of the exemption for goods mentioned in Notification No.179/77 no process of manufacture should have been conducted with the aid of power. However, exemption from payment of Excise Duty as a finished product can be availed of even if power has been used in the process of manufacture provided the raw material/component parts are by themselves excisable (including those which are exempted from excise duty) irrespective of the premises on which those parts are manufactured.
6. Ld. Counsel also referred to Board Circular No.3/87 dt.19.6.87 wherein it was clarified that "In the case covered by the aforesaid Supreme Court judgment (M/s. Standard Fire Works Industries, Sivakasi) manufacturers of fire works claimed exemption in terms of Notification No.179/77-CE in respect of fire works manufactured by them. The raw materials consisted of paper, chemicals, iron filings, coal, guns, steel wires etc. The steel wires were sent to the manufacturer of different persons to be cut to size the similarly, paper was made over to outsiders or being shredded into small strips and given special treatment. All these processes were done with the aid of power. It was not in doubt, however, that within the factory of manufacture of the works, no power was used. The Supreme Court decided that where there was no dispute regarding the cutting of steel wires, the treatment of paper having been carried on with the aid of power, albeit, outside the manufacturer's factory, the requirement under the notification was not satisfied. On this basis, the appellants claimed for exemption was disallowed. The question whether the instructions issued in Circular No.10/85-CX.I dt.19.11.85 would require modification in the context of the aforesaid Supreme Court judgment has been examined in the Board. In a case before the Supreme Court the two raw materials viz. steel wires and paper were finished excisable goods by themselves and in these cases power was used in the final stage of manufacture of fire works from the raw materials. The fact that the processes were carried out by outsiders, did not make any difference in so far as the applicability of the exemption notification was concerned. The processing of paper and cutting of steel wires were a part of fresh processes in the manufacture of fire works in which power had been used. Board's instructions dt.19.11.85 had, however, considered the exemption to be admissible only in the cases where power had been used at the earlier stage of the manufacture of raw materials/component parts, and not in respect of the processes performed during the stage of the conversation of raw-material/component parts into the finished manufactured product. In view of the aforesaid, Board is of the view that no modification is necessary in regard to guidelines given in Board Circular No.10/85CX.I dt.19.11.85."
8. Ld. Counsel referred to the decision of this Tribunal in the case of M/s. Elgi Tyre & Tread Ltd. reported in 2000(117)ELT.727 in which this Tribunal held "3. On a careful consideration of the submission, we do not agree with the grounds raised by the Revenue in this matter. The bonder received by the assessee is being considered as goods and it has suffered duty. Independently the respondents have been considered as manufacture for a new item which is referred to as Precision Bonding Machine. The quetion is as to whether for manufacturing this new product Precision bonding machine whether power has been utilised. The fact of the same having been manufactured without the aid of power has not been disputed by the Revenue. The Revenue only contends that the bonder has been manufactured by the job worker by using electricity and therefore, the assessee would not get benefit. We are not in a position to appreciate the argument of the Revenue as the job worker is an independent manufacturer and the goods have already left the premises on payment of duty. The processes carried out at the assessee's premises has not been done with the aid of power. Therefore, the Commissioner's findings that the Notification No.179/77 as amended is totally justified and legal. In this regard, we also note the judgment rendered in the case of CCE vs Indian Thermit Corpn. Ltd. as Final Order No.E/387/93-Bl, dt.16.11.93 wherein a similar case, the Tribunal has held that the assessee therein was entitled to the benefit of the notification in question as the goods were manufactured without the aid of power. Similar view has been expressed in the case of Kumar Brothers vs CCE as reported in 1996 (84)ELT.299 Tribunal. We take note of another unreported case as rendered in Dassani Electra (P) Ltd. vs CCE as per Final Order No.815/Cal/1997 dt.17.7.97. For the reasons given above, there is no merit in this appeal and hence this appeal is rejected".
Ld. Counsel also referred to the decision of this Tribunal in the case of Dassani Electra(P)Ltd. reported in 1997(22)RLT.678. In this case, he submits that in paras 10 & 11, the Tribunal held "10, Dealing with the first proposition it is seen that there is no dispute about the facts that the gen sets have been assembled manually without any aid of power. The Tribunal vide its order in the case of CCE, Kanpur vs Indian Thermit Corpn. Ltd. replied upon by the appellants' counsel has held that the use of power in the inputs, which are independent duty paid goods will not have any effect on the assessees entitlement to Notification No.179/77-CE dt.18.6.77 if no power has been used in the manufacture of the final products. The appellants reliance on the Tribunal's decision in the case of M/s. Kumar Brothers vs CCE, Madras is also well founded. In the said judgment, the Tribunal has based their views on the Supreme Court's judgment in the case of Standard Fire Works and on the Board's instructions issued in the year 1987 which are to the effect that exemption under the said Notification is availabe even if power has been used in the process of manufacture provided the raw material/component parts bythemselves are not excisable irrespective of the premises on which there parts are manufactured. latest Supreme Court decisions in the case of Ranade Micronutrients and Kores(I) Ltd. have laid down that the Board's clarifications and circulars are binding on the departmental authorities and theycannot deviate from the same. We find that in the instant case though powr has been used in the manufacture of alternators, this fact will not have anybearing while considering the exemption benefit to gen sets under Notification No.179/88 in as much as the alternators are independent excisable goods on which duty is leviable under the excise law. We also find that the Hob'ble Supreme Court in the case of Rajasthan State Chemical Works has interpreted theuse of power in paras 20 to 22 of their judgment. It has been laid down in the said judgment in the concluding paragraphs that if any portion in the course of manufacture is so integrally connected with the further portion which results in the emergence of manufactured goods and such portion is carried on with the aid of power, the process in or in relation to the manufacture must be deemed to be one carried on with the aid of power. However, in the instant case, manufacture of alternators is an independent manufacturing activity being carried out by the appellants. In view of our discussion above, we hold that the exemption under Notification No.179/77-Ce dt.18.6.77 was available to the appellants.
11. The appellants claim that the alternators manufactured by them and consumed captively in the manufacture of the gen sets were entitled to exemption under Notification No.118/75 is also liable to be accepted. The alternators at the relevant time were classifiable under Tariff Heading 68 of the Central Excise Tariff; a part of the alternators was undoubtedly being used in the further manufacture of gen sets in the appellants' own factory. Accordingly, we hold that the benefit of Notification No.118/75 was available to the appellants in respect of the captively consumed alternators".
Ld. Counsel submits that their case is fully covered by the ratio of the decisions in the above two cases and therefore, exemption was eligible to them under Notification No.65/87. Ld. Counsel also referred to the judgment of this Tribunal in the case of Kumar Brothers vs CCe reported in 1996(84)ELt.288 in which this Tribunal held that empty pattis manufactured with the aid of power but tube light fittings assembled with other components without the aid of power are entitled to the benefit of notification No.179/77. In support of his contention that the appellants are entitled to the exemption benefit.
9. Ld. Counsel also referred to the judgment of this Tribunal in the case of Kanti Pd. Tibrewala vs CCE reported in 1998(29)RLT.53 in which the Tribunal held that in mixing of dyes or in packing of dyed fabrics should notbe taken as use of power in dyeing process. A similar view was taken according to the Counsel by this Tribunal inthe case of CCE, Pune vs Garwarewall Ropes Ltd. reported in 1999(111)ELT.498.
10. Ld. Counsel also referred to the judgment of this Tribunal contained in its Final Order No.E/387/93-B1 in the case of CCE, Kanpur vs M/s. Indian Thermit Corpn. Ltd. in which this Tribunal held that in view of the admitted facts that the ingredients are independent duty paid goods and that they are merely mixed manually without the aid of power, the goods "Thermit Power' and 'Ferro Alloys' would be entitled to the benefit of Notification. Ld. Counsel submits that for coming to this conclusion this Tribunal had relied on thejudgment of the Hon'ble Supreme Court in the case of Rajasthan State Chemical Works reported in 1990(55)ELT.444 and Standard Fire Works Industries, Sivakasi reported in 1987(28)ELT.56. He submits that the ratio of the decisions of this Tribunal after relying on the judgments of the Apex Court squarely covered their case. ld. Counsel, therefore, submitted that in view of the above facts,the submissions made and the case law cited and relied upon the three appeals may be allowed.
Ld. Counsel also submitted that the demand is time barred and interest is not payable. It was also submitted that penalty was too harshand since it was a classification dispute, penalty should not be imposed.
11. Shri R.C.Sankhla, Ld. DR submits that the Department has placed reliance on the statement of Shri Pandey where Shri Pandey had admitted that in the process of manufacture of tere towel, power was used. Ld. DR submits that it has now been admitted by the appellant that tere towel is a 'made up article' classifiable under chapter heading 6301. Ld. DR submitted that power no doubt was used at the stage of knitting the yarn into fabrics and subsequently in processing the fabrics and since power was used the benefit of notification was correctly denied. He submitted that the demand is not time barred and that interest is chargeable. Ld. DR submits that evasion of duty was deliberate and hence penalty is imposed, He reiterates the findings of the authorities below.
12. On careful consideration of the submissions of both the sides and the case law cited and the evidence on record, we find that the classification of the product was not disputed before us. The appellant has accepted the classification of the product manufactured by them under Chapter 63. therefore, the only dispute that is posed before us for decision is whether tere towels are entitled to the benefit of Notification No.65/87 or not. We find that tere towels are manufactured from processed knitted fabrics. Grey fabrics are knitted on pile knitting machine. No doubt power is used in the pile knitting machine as well as in processing, therefore, a dispute rose whether the use of power at the knitting stage as also at the processing stage can be termed as power used inthe manufacture of tere towels which is a 'made up article'. A lot of case law was cited and relied upon by the appellants in regard to this aspect including the decisions of the Apex Court in the case of Rajasthan State Chemical Works and Standard Fire Works cited above. In all these decisions, it hasbeen clearly held that power used in a process ends with the introduction of a excisabe product, therefore, it is to be seen whether in the process of manufacture use of power gives rise to a new excisable commodity. In the case of tere towels, three stages are there (a) power is used at the stage of knitting fabrics, (b) knitted grey fabrics are exigible. Power is also used to at the stage of processing. Both at knitting stage and processing stage, exigible commodities emerge but at the third stage i.e. at thestage of cutting, hemming and stitching stage, no power is used. Therefore, use of power at the earlier stage of getting knitted fabrics and processed fabrics cannot be said that this use of power is also use of power at the cutting, hemming and stitching stage. Thus, we hold that no power is used incutting, hemming and stitching of tere towels andtherefore, they are entitled to the benefit of Notification No.65/87.
13. Another appeal has been filed by M/s. Dhvani Terefabs(Exports) contesting the decision of the Revenue authorities that cutting of running fabric is a process of manufacture. The allegation of the Department is that upto 17th Nov'94 M/s. Dhvani Terefabs(Exports) were cutting the running knitted processed fabrics and send it to a job worker for a hemming and stitching. Ld. Commissioner while adjudicating the case held that cutting is a process of manufacture upto 17.11.94. Against this M/s. Dhvani Terefabs(Exports) have file the appeal. The Commissioner further hasheld that after that there is no process involved. Against this, the Department has filed the appeal. The Department has also filed the Misc.application for additional documents acceptance. Misc. application is not contested by the other side and therefore is allowed. In so far as the question of cutting is concerned, we note that in the present case cutting of running knitted processed fabrics does not make the goods marketable becaue for levy of duty or being termed as 'goods', they must be marketable. Fabrics cut into small length inthe instant case need further process i.e. the process of hemming andthe stitching, no evidence is placed before us or brought on record that the goods were being marketed after cutting. Since they become marketable only after stitching and hemming and process of stitching and hemming cannot be termed as incidental or ancillary to the process of cutting, therefore, they cannot be termed as manufacture. In this view of the matter, we allow the appeal of M/s. Dhvani Terefabs(Exports) and reject the appeal of Revenue.
14. On careful consideration of the submissions made we hold that demand for the period 1.3.94 to 31.3.94 is not hit by limitation.
15. We further note that interest has been demanded for the period prior to 28.9.96. We note that provision for charging of interest was brought on the statute book on 28.9.96. Since the demand is for the period prior to 28.9.96, therefore, no interest is chargable.
15. We have carefully considered the submissions about the penalty. We have already held that cutting, hemming and stitching is without the and of power and is, therefore eligible for the benefit of notification No.65/87-CE. Hence penalty is reduced to Rs.20,000 (Twenty thousand) on m/s Dhvani Tere-fabs (Exports) Pvt Ltd.
16. Having regard to the above discussions and findings, we hold as under:
1) Demand of duty for the period 1.3.94 to 31.3.94 is confirmed.
2) Tere towels being manufactured by M/s. Dhvani Terefabs(Exports) are eligible for the benefit of notification No.65/87-CD.
3) Cutting the knitted processed fabric in the small length in the process of manufacture of tere towels does not amount to manufacture.
4) The appeal of Revenue is rejected.
5) Demand of duty for the period 1.3.94 to 31.3.94 is not hit by limitation.
6) Interest is not chargeable.
7) Penalty on M/s Dhvani Terefabs(Exports) Pvt Ltd is reduced to Rs.20,000 (Twenty thousand).