Custom, Excise & Service Tax Tribunal
Madura Coats Private Ltd vs Commissioner Of Central Excise, ... on 22 December, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH CHENNAI Appeal No.E/316/2010 [Arising out of Order-in-Original No.05/COMMR/CE/2010 dt. 02.03.2010 passed by the Commissioner of Central Excise Tirunelveli] Madura Coats Private Ltd. Appellant Versus Commissioner of Central Excise, Tirunelveli Respondent
Appearance:
Shri N. Venkatraman, Senior Advocate For the Appellant Shri K. Veerabhadra Reddy, JC (AR) For the Respondent CORAM :
Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of hearing : 25.10.2017 Date of Pronouncement :22.12.2017 FINAL ORDER No. 43213 / 2017 Per Madhu Mohan Damodhar M/s.Madura Coats Pvt. Ltd., the appellants herein, were engaged in manufacture and clearance of unprocessed and processed cotton /man-made fabrics of various varieties falling under chapters 52 & 55 of CETA. The goods were cleared both for captive consumption and for export. For manufacture of processed fabrics, machineries for bleaching and dyeing are available in appellants. Cotton fabrics not subjected to any process fall under sub headings 5207.10 and 5208.10. Likewise synthetic fabrics not subjected to any process fall under sub headings 5511.10, 5512.10 and 5513.10 of CETA. Both are unconditionally exempted from payment of duty. Cotton or synthetic fabrics, when subjected to the process of cropping, fall under sub headings 5207.39/5208.39 (till 28.02.2001 under 5207.29/5208/29) and 5511.29/5512.29/513.29 of CETA and they attract duty. Prior to 01.04.1995, fabrics which were subjected to certain processes like cropping were exempted under erstwhile Notification No.253/82 dated 08.11.1982. as amended (applicable to cotton fabrics falling under Chapter 52) and under erstwhile Notification No.297/79 dated 24.11.1979 as amended (applicable to man-made fabrics falling under chapter 55). However, from 01.04.1995, the exemption to these fabrics was restricted only to a manufacturer who did not possess, the facilities for carrying out bleaching, dyeing or printing or any one or more of these processes with the aid of power or steam vide Notification Nos.40/95 and 43/95 dated 16.03.1995 applicable respectively to cotton and man-made fabrics. This conditional exemption was extended for subsequent periods as per Notifications issued from time to time. On a surprise visit made by the departmental officers to the appellants unit on 10/11.11.2000, it was found that they were in possession of two cropping machines which were used to cut loose threads, hanging ends, shearing, protruding apart from brushing to clean superficial foreign materials like dust, fluff etc. Scrutiny of registers revealed that cropping of grey fabric was done by the appellant. As appellants possessed facilities for carrying out the processes mentioned in the aforesaid notifications, Department therefore felt that they were not eligible to clear the cotton/synthetic fabrics subjected to the process of cropping without payment of duty by availing the benefit of the aforesaid notifications. Accordingly, show cause notice dt. 3.7.2001 was issued to the appellant inter alia proposing that the cotton and man-made fabrics falling respectively under chapters 52 and 55 should be classified as cropped fabrics, demand of differential duty of Rs.8,22,61,848/- with interest thereon on said cropped fabrics for the period June 1996 to October 2000 and imposition of penalties under various provisions of law. These proposals were confirmed in the impugned Order-in-Original dt. 02.03.2010 by the adjudicating authority who also imposed equal penalty of Rs.8,22,61,848/- on the appellant under Section 11AC of the Act. Aggrieved, appellants are before this forum.
2. On 25.10.2017 when the matter came up for hearing on behalf of appellant Ld. Senior Advocate Shri N. Venkatraman made number oral submissions which can be broadly summarized as under :
(i) Though cleaning of the process of cropping involve cutting, protruding, shearing fabrics / yarn and cleaning of fluff etc. it did not bring out any change in the grey fabrics. There is no allegation that grey fabrics manufactured and subjected to process of cropping have lost their original characteristics and that a new product with distinct name, character and use has emerged. Hence the conclusion of adjudicating authority that the grey fabrics subjected to process of cropping are processed fabrics is misconceived.
(ii) Similar issues have been agitated in higher courts and decided in favour of the appellant therein.
(iii) In the case of Mafatlal Fine Spinning & Mfg. Co. Ltd. Vs Collector of Central Excise 1989 (40) ELT 218 (SC), the Honble Supreme Court held that fabrics continued to be unprocessed (grey) even after calendering and shearing and that these are not manufacturing processes.
(iv) The process of cropping undertaken by the appellant in the grey fabrics manufactured by them is in no manner different from the process of shearing undertaken in the case of Mafatlal Fine Spinning case.
(v) In Siddeshwari Cotton Mills Pvt. Vs UOI - 1989 (39) ELT 498 (SC) while addressing the issue of whether calendering is a process of manufacture, inter alia, the Honble Apex Court held that the process of manufacture would be one which impart a change of lasting character to the fabrics either by the addition of some chemicals or otherwise. In Oswal Industries (P) Ltd. Vs Collector of Central Excise 1990 (49) ELT 305 (Tribunal) it was inter alia held that process of shearing or cropping carried out on knitted acrylic fabrics is not manufacture and hence would be eligible for exemption under Notification No.109/86-CE dt. 27.2.1986 read with Notification No.297/79-CE dt. 24.11.1979. Appeal against the above decision was dismissed by the Honble Supreme Court as reported in Collector Vs Oswal Industries Pvt. Ltd. -1991 (52) ELT A80; That the process of calendering involved in the above cited case law is different from the process of cropping involved in the appellants case. The issue resolved therein is whether the grey fabrics subjected to the process of calendering can be made liable for excise duty when the said process does not amount to the process of manufacture and it does not change the characteristics of the said fabrics and (ii) whether the expression any other process in the Section would include calendering process when the process involved in calendering is not similar to the other processes specifically notified thereunder.
(vi) Ld. Sr.counsel also relied upon the following case laws/ orders:
(a) Japan Dyeing Works Vs. Collector of CE 1992 (61) ELT 289 (Tri.)
(b) Versatile Enterprises Pvt. Ltd. Vs. Collector of CE., Meerut 2001 (130) ELT 770 (Tri.Del.)
(c) JCT Ltd. Vs. CCE, Jaipur 2001 (133) ELT 651 (Tri. Del.)
(d) Dhanalakshmi B Mills Ltd. Vs. Collector of CCE., Coimbatore 1999 (112) ELT 149 (Tr.)
(e) Indore Wire Company Ltd. Vs. UOI 2006 (203) ELT 179 (SC)
(f) New Shorrock Mills Vs CCE. 2006 (202) ELT 192 (Tri.-LB)
(g) Order-in-Appeal No.112/2004 dated 31.03.2004.
3.1 On behalf of department, Ld. A.R Shri K. Veerabhadra Reddy supports the impugned order. He further submitted that the issue of Mafatlal Fine Spinning relied upon by appellant cannot be made applicable to this appeal since that judgment addressed the process of shearing which is different from cropping operation. Cropping activity enhances quality of fabrics.
3.2 As correctly pointed out by the adjudicating authority cropping is not a simple process but involves various operations by which lasting is brought about in the fabrics.
3.3 So also, the judgment of Oswal Industries in respect of calendering process also cannot be applied to shearing activity.
3.4 Ld. A.R also submits that though the appellant conducted the activity of cropping on the grey fabrics and also entered details thereof in the incentive register, however they did not indicate the fact of same in statutory requirements like RT-12 , RG-1 etc. 3.5 Ld. A.R also pointed out that test reports received from the Chemical Examiner and Textile Committee, Madurai confirmed the fabrics declared as loom state meant for export and inland were indeed subjected to process of cropping.
4. Heard both sides and have gone through the facts. As evident from the facts narrated in the beginning, prior to 1.4.1995 fabrics which were subjected to certain processes like cropping were exempted by notifications. To better understand the issue in dispute, it would be useful to reproduce the relevant chapter sub headings as well as the relevant chapter notes of Chapter 52 and 55 under CETA 1985 as under :
Chapter 52 - Cotton 5207 Woven fabrics of cotton, containing 85% or more by weight of Cotton 5207.10 - Not subjected to any process.
- Subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing, shrink proofing, organdie processing, or any other process or any one or more of these processes :
5207.29 - Other Woven fabrics 5208 Woven fabrics of cotton, containing less than 85% by weight of Cotton, mixed mainly or solely with man-made fibres.
5208.10 - Not subjected to any process.
- Subjected to the process of bleaching, mercerizing, dyeing, printing, water-proofing, shrink proofing, organdie processing, Or any other process or any one or more of these processes:
5208.29 - Other Woven fabrics.
Chapter Note 3 of Chapter 52 (Cotton) reads that in relation to products of heading Nos.52.07, 52.08 and 52.09, bleaching, mercerizing, dyeing, printing, water-proofing, shrink proofing, organdie processing or any other process or any one or more of these processes shall amount to manufacture.
Chapter 55 Man made fibres.
55.11 Woven fabrics of synthetic staple fibres, containing 85% or more by weight of synthetic staple fibres.
5511.10 - Not subjected to any process.
- Subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing, shrink proofing, organdie processing, or any other process or any one or more of these processes:
5511.29 - Other Woven fabrics 55.12 Woven fabrics of synthetic staple fibres, containing less than by weight of synthetic staple fibres, mixed mainly or solely Cotton.
5512.10 - Not subjected to any process.
- Subjected to the process of bleaching, mercerising, dyeing, printing, water-proofing, shrink proofing, organdie processing, or any other process or any one or more of these processes:
5512.29 - Other Woven fabrics Chapter Note 4 of Chapter 55 (Man made staple fibres) reads that in relation to products of heading Nos. 55.11, 55.12, 55.13 and 55.14, bleaching, dyeing, printing, shrink proofing, tentering, heat setting, create-resistant processing or any other processes or any one or more of these processes shall amount to manufacture.
5. The core issue that comes up for appellate decision in this appeal concerns whether the process of "cropping" carried out by the appellant on the grey fabrics will attract mischief of Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 as "any other process" that shall amount to 'manufacture'.
6.1 Discernably, the Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 do not give the exhaustive list of processes "that shall amount to manufacture". These Chapter notes instead only give the indicative processes like "bleaching, mercerizing, dyeing....". The Chapter notes further indicate that "any other process" or "any one or more of these processes" shall amount to manufacture.
6.2 Obviously, the question then arises is whether any process other than those indicative list given in the said Chapter notes, can be brought within the ambit of a 'process amounting to manufacture' for the purpose of these chapter notes.
6.3 A closer examination at the indicative list of processes in the chapter notes would lead to the inescapable conclusion that, all those processes when subjected to woven fabrics of cotton/synthetic staple fibres bring about irreversible change in the characteristics of such fabrics and further, all these processes may also require treatment or intervention of chemicals to achieve the desired result. This being so, we are of the considered opinion that the term "any other process" will necessarily be of the same genre of processes which bring about permanent change in the characteristics of the fabrics. This is the doctrine of Noscitur A Socis, namely, that the meaning of doubtful word can be ascertained by reference to the meaning of words associated with that word. This doctrine has been elucidated in Brooms Legal Maxims, Twelfth Edition as under :
"It is a rule laid down by Lord Bacon, that copulatio verborum indicat acceptationem in eodum sensu the coupling of words together shows that they are to be understood in the same sense. And, where the meaning of a particular word is doubtful or obscure, or where a particular expression when taken singly is inoperative, the intention of the party who used it may frequently be ascertained by looking at adjoining words, or at expressions occurring in other parts of the same instrument, for quf non valeant singular juncta juvant words which are ineffective when taken singly operate when taken conjointly: one provision of a deed, or other instrument, must be construed by the bearing it will have upon another."
In the construction of statures, likewise, the rule noscitur a sociss is frequently applied, the meaning of a word, and consequently, the intention of the legislature, being ascertained by reference to the context, and by considering whether the word in question and the surrounding words are, in fact, ejusdem generis, and referable to the same subject-matter. Especially, must it be remembered that the sense and meaning of the law can be collected only by comparing one part with another and by viewing all the parts together as one whole, and not one part only by itself "nemo enim aliquam partem recte intelligere possit antequam totum iterum atque iterum perlegerit"
The Wharton's Concise Law Dictionary elucidates the doctrine of Noscitur a sociis as under :
A test of construction of a single word: where there is a string of words in an Act of Parliament, and the meaning of one of them is doubtful, that meaning is given to it which it shares with the other words. So, if the words 'horse, cow, or other animal' is held to apply to brutes only.
The above doctrine was reiterated by the Hon'ble Supreme Court in the case of K. Bhagirathi G. Shenoy v K.P. Ballakuraya, (1999) 4 SCC 135 : AIR 1999 SC 2143 wherein the Apex Court in para 6, inter alia held that "a word in a statutory provision is to be read in collocation with its companion words and that the pristine principle based on the maxim noscitur a sociis is relevant in understanding the import of such words".
6.4 The Hon'ble Supreme Court in the case of Oswal Agro Mills Ltd. Vs CCE 1993 (66) ELT 37 (SC) on the applicability of doctrine of Noscitur A Sociis and ejusdem generis has held as follows :
"The doctrine of reading down has been applied only to sustain the constitutionality of the statute. There is no quarrel with the proposition that in ascertaining the meaning of the word or a clause or sentence in the statute in its interpretation, everything which is logically relevant should be admissible. It is no doubt true that the doctrine of Noscitur A Sociis, meaning thereby, that it is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them i.e. when two or more words which are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general is restricted to a sense analogous to a less general. The philosophy behind it is that the meaning of the doubtful words may be ascertained by reference to the meaning of words associated with it. This doctrine is broader than the doctrine of ejusdem generis. This doctrine was accepted by this Court in catena of cases but its application is to be made to the context and the setting in which the words came to be used or associated in the statute or the statutory rule. [para 6]"
6.5 Applying the doctrine of Noscitur a sociis, we therefore have no hesitation to hold that "any other process" will necessarily have to be one like bleaching, mercerizing, shrink-proofing etc. resulting in permanent change in the characteristics of the fabrics and mostly involving use of a chemical agent. Per contra, "cropping" involves removal of fibres from surface of the fabrics, by cutting projecting fibres and yarn, the terms "cropping" and "shearing" are very often used interchangeably. The only apparent difference being that in shearing the fibres are cut in an angular manner on the surface of the fabric itself. Both these processes are intended to give a clean and smooth appearance to the fabric and to control pill formation. In our view, the cropping or for that matter, shearing processes cannot be considered as being of the same genre as bleaching, mercerizing, dyeing, printing etc. 6.6 The Tribunal in the case of Siddeshwari Cotton Mills Pvt. Ltd. 1984 (18) ELT 297 (Tribunal) had inter alia held that the process of calendering, which is a simple finishing process of passing the fabric between heated cylinders / rolls in a calendering machine to smoothen and flatten fabric or to confer surface glaze, is a finishing process and will fall within the ambit of the expression "any other process" occurring in Section 2(f) of the Act and erstwhile tariff item 19-I. The Tribunal held that since calendering is "any other process" the appellant therein would not be eligible for exemption. However, on appeal, the Hon'ble Supreme Court in their judgment, reported in 1989 (39) ELT 498 (SC), set aside the Tribunal's order and remanded the matter for fresh disposal in accordance with law. The Hon'ble Apex Court however interpreted the expression "any other process" in their judgment. The relevant portions of the said order are reproduced below :
"......... If, accordingly, the processes such as bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, organdie-processing, are not unrelated to the concept of manufacture and bring about such a change in the cotton fabric as to render it a commercially different product, then by parity of reasoning, any other process in Section 2(f)(v) which is a part of the scheme of the extended meaning of manufacture must also share the same characteristic of those other expressions. That apart, even if the amendment is beyond Entry 84 of List 1 and is supportable under or referrable to the residuary Entry 97 of List 1, on the principles of construction appropriate to the provision in Section 2(f)(v), is any other process in Section 2(f)(v), though otherwise of wide import, must share the characteristics of and be limited by the preceding expressions.
7. The expression ejus-dem-generis - of the same kind or nature - signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. If a list or string or family of genus-describing terms are followed by wider or residuary or sweeping-up ........
........ .........
8. The preceding words in the statutory provision which, under this particular rule of construction, control and limit the meaning of the subsequent words must represent a genus or a family which admits of a number of species or members. If there is only one species it cannot supply the idea of a genus.
In the present case the expressions bleaching, mercerising, dyeing, printing, water-proofing, rubberising, shrink-proofing, organdie processing which precede the expression or any other process contemplate processes which impart a change of a lasting character to the fabric by either the addition of some chemical into the fabric or otherwise. Any other process in the section must, share one or the other of these incidents. The expression any other process is used in the context of what constitutes manufacture in its extended meaning and the expression unprocessed in the exempting notification draws its meaning from that context. The principle of construction considered appropriate by the Tribunal in this case appears to us to be unsupportable in the context in which the expression or any other process has to be understood.
9. It was then contended by Sri Sorabjee that plain-calendering process neither adds anything to the cotton fabric nor the effect brought about by it is lasting. It is, according to learned counsel, nothing more than pressing the cotton fabric by running it between plain rollers to improve its appearance. Learned counsel submitted that it was purely a temporary finish and that having regard to the nature of the process it is plainly manifest that it does not impart to the fabric either of the two ingredients necessary to bring the process into the family of processes envisaged by the preceding expressions in the section. Sri A.K. Ganguly, learned counsel for Revenue, however, submitted that this aspect requires investigation of the factual aspects and that since the Appellate Tribunal had not specially examined this aspect and recorded its finding thereon, it would be appropriate to remit the matter to the Appellate Tribunal for a fresh disposal of the appeal in the light of the pronouncement of this Court on the proper rule of construction to be applied in the understanding of the expression any other process in Section 2(f)(v) and to consider whether the particular process of calendering adopted by the appellant would satisfy that requirement. We think we should accept this submission of Sri Ganguly."
6.7 The Tribunal's decision in Siddeshwari Cotton Mills Ltd. 1984 (18) ELT 297 (Tribunal) was relied upon by the Tribunal in the case of Mafatlal Fine Spinning & Mfg. Co. Ltd. in their order dt. 10.02.1987 wherein the Tribunal held that "calendering" and "shearing" are more than "finishing-processing" rendering "grey fabrics to cease to be unprocessed. The Hon'ble Apex Court set aside the Tribunal's order as reported in 1989 (40) ELT 218 (SC) and held that fabrics continued to be unprocessed (grey) even after calendering and shearing which though are finishing processes, but are not manufacturing processes. The relevant portion of the Hon'ble Apex Court is given below :
"10. Both calendering and shearing involve an assortment and variety of processes, some of which might and some others might not affect or alter the nature of the fabric. Both the expressions, calendering and shearing are collective expressions representing a number of sub-species of operations which, depending upon the nature of the particular operation, may or may not alter the nature of the grey fabric as such.
Shri Sorabjee submitted that in the present case calendering was not done by grooved rollers or cylinders but only by plain rollers and the Shearing operation was only to cut-off protruding stray fibres from the grey fabric, and that actual processes of calendering and shearing involved in the present case were amongst the simplest of the processes and did not have the effect of brining about any change in the grey-fabric.
11. These matters depend on particularities of the facts of each case and are to be decided on a case by case basis. The Tribunal proceeded on the basis that Calendering and Shearing amounted to process of finishing and that by itself, without more, satisfied the conditions that would take the case out of Rule 49A(1). The test applied by the Appellate Tribunal, as well as by the authorities below, is not the appropriate one on the language of Rule 49A. Any processing that can take a case out of Rule 49A(1)(b) must be a process which renders cotton-fabric cease to be grey fabric as commercially known and understood. The question whether calendering and shearing, as actually carried out by the appellant has had the effect of taking the cotton fabric out of Rule 49A(1) should be decided in the light of this test.
12. In the present cases, the claim of the appellant before the authorities that the calendering process employed by them was such as to give temporary finish by pressing the fabric is not controverted. No lasting change is brought about. There is no finding to the contrary. Likewise the claim as to the Shearing which was only to trim protruding, stray fibres from the fabric. If these are the nature of the operations, the grey fabric, in the facts of these cases, does not become new and commercially different commodity and cease to be Grey cloth. There is thus no justification to take it out of Rule 49A(1)(b).
13. Accordingly, these appeals are allowed, the appellate order of the Tribunal and the decisions of the authorities below set-aside and the liability for payment interest is directed to be computed under Rule 49A(1)(b). No Costs."
As already discussed herein above, the processes "cropping" and "shearing" are very similar in nature and the terms are often used interchangeably. This being so, the interpretation of the Hon'ble Apex Court in this judgement relating to the process of "shearing" will be applicable on all fours to the process of "cropping".
6.8 The Mafatlal Fine Spinning & Mfg. judgement of the Apex Court was subsequently followed by the Tribunal in a Special Bench of the Tribunal in Oswal Industries Pvt.Ltd. Vs CCE 1990 (49) ELT 305 (Tribunal). The issue in dispute therein was whether the process of "shearing" or "cropping" carried out on knitted acrylic fabrics would be eligible for exemption under Notification No.109/86- dt. 27.2.86 read with Notification No.297/79-CE dt. 24.11.1979. The Special Bench, inter alia held as under :
"7. It was contended by Shri Chakraborty during his arguments supporting the Collectors order that the term cropping in the exemption Notification would cover only cutting away the loose ends from the fabrics. Thus, only fabrics from which loose ends were cut away mechanically would be eligible for the exemption. The loose ends would be only the ends of the threads at the edges and not all over the surface of the fabrics. Since in the present case, the process carried out covered the cutting or trimming of the pile on the surface of the fabrics, it went beyond the scope of the notification and hence duty has been correctly determined. This argument does not appeal to us. The definition of the term cropping in the exemption Notification in question is, no doubt shorter than the one given in the Reference books referred to in the decisions cited by both the parties. But that, to our mind, does not advance the case of the department. Cutting away mechanically of loose ends from the fabrics cannot mean that the cutting should be confined only to the loose ends of yarn at the edges. The loose ends in the fabrics in the knitted fabrics are there not only at the edges but also on the surface. Since the definition of the term Cropping in the Notification does not itself say that the cutting the loose ends is to be limited only to the loose ends present in the fabric at the edges and not on the surface, this criterion cannot be imported into the matter for deciding the applicability of the exemption Notification as has been done by the Collector. The shorter definition of the term in the exemption Notification does not have the effect of curtailing the normal meaning of the terms given in the Standard Technical Books referred to in the Mafatlal decision of the Supreme Court. Accordingly, we accept the plea of the appellants that the process in question does not attract duty as held by the department."
The appeal filed against the above decision was dismissed by the Hon'ble Apex Court as reported in 1991 (53) A80 (SC).
7. In the light of the discussions herein above and in particular, following the ratio of the judgments of the Apex Court cited supra, we have no doubt that process of "cropping", which merely involves cutting away mechanically loose ends from the fabric to give a clean and smooth appearance will not fall within the ambit of "or any other process" for the purposes of Chapter Note 3 of Chapter 52 or Chapter Note 4 of Chapter 55 of the Schedule to the Central Excise Tariff Act, 1985. As abundantly explained and interpreted in the case laws supra, "cropping" does not cause permanent change in the grey fabrics to any new product with distinct name, character or use and the grey fabrics do not lose their original characteristics. This being so, any conclusion that the impugned cotton / synthetic grey fabrics subjected to "cropping" are "processed" fabrics requiring classification under CETA 5207.39 & 5208.39 (under 5207.29 and 5208.29 till 28-02-2001) and 5511.29, 5512.29 and 5513.29 respectively, is surely a misinterpretation and hence consequential demand of duty made by the adjudicating authority is not supported by law. The impugned order cannot then sustain and will have to be set aside, which we hereby do. Appeal is allowed with consequential relief, if any, as per law.
(Pronounced in court on 22.12.2017)
(Madhu Mohan Damodhar) (Archana Wadhwa)
Member (Technical) Member (Judicial)
gs
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Appeal No.E/316/2010