Full Judgment Text
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CASE NO.:
Appeal (civil) 3536 of 2000
PETITIONER:
M/s Impression Prints
RESPONDENT:
Commissioner of Central Excise, Delhi-1
DATE OF JUDGMENT: 24/08/2005
BENCH:
S. N. Variava & Tarun Chatterjee
JUDGMENT:
J U D G M E N T
S. N. VARIAVA, J.
This Appeal is against the Judgment dated 27th December, 1999
by the Customs, Excise and Gold (Control) Appellate Tribunal (for
short CEGAT), New Delhi.
Briefly stated the facts are as follows:
The Appellants are manufacturers, amongst others, of items like
bed sheets, bed covers and pillow cases. In this Appeal, we are
concerned with the question as to whether the Appellants are entitled
to the benefit of Notification No. 65/87-CE dated 1st March, 1987 in
respect of bed sheets, bed covers and pillow cases. These items fall
under Tariff Item 6301 which consists of "made up textile articles" .
Under the Notification, these articles have a "Nil" rate of duty "if made
without the aid of power". The Appellants had not taken out any
license and were not paying duty. They were issued a show-cause-
notice as to why duty be not levied on these items and why penalty be
not imposed. The Appellants claimed that under the abovementioned
Notification these items bore a "Nil" rate of duty and that they were
therefore not liable to pay duty. Their case was not accepted on the
ground that in the process of manufacturing printed bed sheets, bed
covers and pillow cases they mixed colour with the help of colour
mixing machine which was operated with the aid of power. The
Appellants were therefore called upon to pay duty. Penalty was also
imposed on them. The Appeal of the Appellants has been dismissed
by the CEGAT by the impugned Judgment.
Mr. Bagaria points out that the expression "made up" has been
statutorily defined in Note 5 of Section XI as under:
"5. For the purposes of this Section, ‘made up’
means:-
(a) Cut otherwise than into squares or
rectangles;
(b) Produced in the finished state, ready for
use (or merely needing separation by cutting
dividing threads) without sewing or other
working (for example certain dusters, towels,
table cloths, scar squares, blankets);
(c) Hemmed or with rolled edges, or with a
knotted fringe at any of the edges, but
excluding fabrics, the cut edges of which have
been prevented from unraveling by whipping
or by other simple means;
(d) Cut to size and having undergone a
process of drawn thread work;
(e) Assembled by sewing, gumming or
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otherwise (other than piece goods consisting of
two or more lengths of identical material joined
end to end and piece goods composed of two
or more textiles assembled in layers, whether
or not padded);
(f) Knitted or crocheted to shape, presented
in the form of a number of items in the
length."
Relying upon the statutory definition as made in Note 5 of
Section XI noted above, Mr. Bagaria submitted that "made up textile
articles" are thus manufactured by the process of cutting, hemming,
sewing etc. He submitted that in this process admittedly no power is
used. He submitted that mixing of colours has been done for the
purposes of preparing cotton/printed fabrics which fall under Tariff
Items 52.06 and/or 52.07. He submitted that the use of power is only
for manufacturing those items. In support of this he relied upon
Chapter note 2 of Chapter 52 which reads as follows:
"2. In relation to products of heading Nos.
52.06 to 52.12, 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’."
He submitted that the process of printing of fabrics was
statutorily defined as amounting to "manufacture". He submitted that
the fact that even those items have a "Nil" rate of duty (under other
Notifications) did not detract from fact that the process of printing was
for a different excisable commodity. He submitted that after the
cotton/printed fabrics are manufactured the "made up textile articles"
are then manufactured without the aid of power from those
cotton/printed fabrics. He submitted that the Notification exempts
"made up textile articles" from payment of duty "if made without the
aid of power". He submits that the word "made" refers to the "made
up textiles articles". He submits that for the purposes of this
Notification it is not open to go beyond the stage of inputs which go
into the manufacture of a "made up textile article", i.e., the
cotton/printed fabric. He submitted that the benefit of this Notification
cannot be denied on the ground that in the process of manufacture of
cotton/printed fabrics power had been used.
Mr. Bagaria relied on a number of decisions, of CEGAT, involving
identical facts, wherein it has been held that the benefit of such a
Notification can not be denied.
In the case of Commissioner of Central Excise, Indore vs. Dhvani
Terefabs (Exports) Pvt. Ltd. reported in 2001 (132) E.L.T. 604 the
Assessee was manufacturing towels from knitted pile fabrics which fell
under Tariff Item 60.01. The Assessee received duty paid processed
fabric in his factory, cut those fabrics to size and hemmed the edges
with sewing machine. The Department felt that the last activity
amounted to manufacture and demanded duty on that. The Appellants
claimed benefit of Notification 65/87 which was denied to them on the
ground that the activity of knitting the fabrics was carried on on pile
knitting machine in which power was used. CEGAT held that the
knitting activity was for manufacture of knitted fabrics on which duty
was paid and that the terry towels were manufactured by merely
hemming and stitching which was done without aid of power. CEGAT
held that the benefit of the Notification was thus not lost.
In the case of Collector of Central Excise, Pune vs. Garware Wall
Ropes Ltd. reported in 1999 (111) E.L.T. 498 CEGAT, Delhi has held
that the use of power in making raw materials would not be reckoned
towards manufacture of articles of ropes, in which process, no power is
used. CEGAT held that, under the circumstances, the benefit of such a
Notification would not be lost.
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In the case of Commissioner of Central Excise, Bangalore vs.
Mysore Spinning & Manufacturing Mills reported in 1998 (99) E.L.T.
241 CEGAT, Madras has held that the Assessee, who was
manufacturing terry towels, was not deprived of the benefit of the
Notification as no power was used for cutting the terry toweling cloth
and stitching the edges of the tower to convert them into made up
articles of textiles. CEGAT has held that merely because at an early
stage the cloth has been subjected to bleaching, dyeing etc. and that
power had been used at that stage did not mean that the benefit of
the Notification would be lost.
In the case of Dassani Electra (P) Ltd. vs. Collector of Central
Excise, Calcutta-I reported in 2000 (125) E.L.T. 646 CEGAT, Calcutta
has held that the benefit of the exemption would not be lost on
generator sets which are manufactured without the aid of power
merely because power is used in the manufacture of its inputs i.e.
alternators. It is held that the manufacture of inputs would be a
separate individual activity and duty was paid on the inputs.
Relying on the abovementioned authorities, Mr. Bagaria
submitted that in the present case also the colouring was done not for
the purposes of manufacture of "made up textile articles" but for
manufacture of cotton fabrics which was a separate excisable
commodity. He submitted that the mere fact that that commodity was
also exempted from duty made no difference and thus the benefit of
the Notification was not lost. He submitted that the purpose of the
Notification was to give benefit of exemption and this purpose must
not be defeated by interpreting the Notification in a manner not borne
out by a plain reading of the Notification. In support of this submission
he relied upon the case of Collector of Central Excise & Ors. vs.
Himalayan Cooperative Milk Product Union Ltd. & Ors. reported in
(2000) 8 SCC 642. Mr. Bagaria submitted that the impugned
Judgment requires to be set aside.
On the other hand, Mr. Parasaran submitted that the Appellants
carry on one continuous process of manufacture. He submitted that
for the purposes of manufacture of "made up textile articles" the
Appellants purchase PVC sheets in rolls, cut them into small
rectangular shape and print the same. He pointed out that in the
process of printing they mixed colour with the aid of power. He
pointed out that the Appellants then stitched and folded the printed
sheets and manufactured the bed sheets, bed covers and pillow cases.
He submitted that the process being, one continuous process, it could
not be said that the bed sheets, bed covers and pillow cases were not
made with the aid of power. He submitted that this Court has, in a
number of decisions, held that the term "manufacture" would include
all stages and all processes which are necessary for manufacturing the
final product.
In support of his submission, he relied upon the case of Union of
India vs. Delhi Cloth & General Mills reported in (1963) Supp. 1 SCR
586. In this case, the Assessee was manufacturing Vanaspati. At an
intermediate stage oil, which the Revenue claimed was refined oil, was
manufactured. The question was whether they were liable to pay
excise duty on manufacture of refined oil which fell within Item 23 of
the First Schedule to the Central Excises and Salt Act, bearing the
description of "vegetable non-essential oils, all sorts, in or in relation
to the manufacture of which any process is ordinarily carried on with
the aid of power". This Court negatived the contention that the
definition of the term "manufacture" in Section 2(f) of the Act included
mere processing. This Court held that processing was distinct from
manufacture and that for a commodity to be excisable it must be a
new product known to the market as such. This Court however held as
follows:
"The definition of "manufacture" as in s. 2(f) puts it
beyond any possibility of controversy that if power is used
for any of the numerous processes that are required to
turn the raw material into a finished article known to the
market the clause would be applicable; and an argument
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that power is not used in the whole process of
manufacture using the word in its ordinary sense, will not
be available."
Relying on these observations Mr. Parasaran submitted that it has
been held by a Constitution Bench of this Court that if power is used
for any of the numerous processes then it would be manufacture with
the aid of power and that it would not be open to argue that there is
no manufacture as understood in its ordinary sense.
Mr. Parasaran also relied upon a three Judge Bench decision of
this Court in the case of J. K. Cotton Spinning & Weaving Mills vs.
Sales Tax Officer, Kanpur & Anr. reported in (1965) 1 SCR 900. In
this case, the Assessee was carrying on the business of manufacturing
textile goods, tiles and other commodities. It applied for registration
under Section 7 of the Central Sales Tax Act and requested that
certain goods be specified in the certificate of Registration for the
purposes of getting the benefit under Section 8(1) of the Act. By
virtue of Section 8(3) (b) read with Rule 13 this benefit was only
available in respect of goods which were "intended for use in the
manufacture of or processing of goods for sale". Initially, the
Assessee was granted the certificate in respect of goods claimed by
them. However, subsequently, certain goods like drawing material,
photographic material, building materials including lime and cement
and steel, and coal were deleted. The question before the Court was
whether these materials could be said to be intended for use in the
manufacture of or processing of goods for sale. The Court was thus
required to consider what was meant by "manufacture of or processing
of". While considering this question this Court held that the expression
"in the manufacture" would normally encompass the entire process
carried on for converting raw material into goods. It was held that if a
process or activity is so integrally connected to the ultimate production
of goods so that but for that process manufacture or processing of
goods is impossible or commercially inexpedient then the goods
required in that process would be covered by the expression "in the
manufacture of". It was held that it was not necessary that the words
"in the manufacture of" would only refer to ingredients or commodities
used in the actual manufacture. It was held that the words "in the
manufacture" do not refer only to ingredients which are directly and
actually needed for making the goods.
Mr. Parasaran also relied upon the case of Ujagar Prints & Ors.
vs. Union of India & Ors. reported in (1989) 3 SCC 488. In this case,
one of the questions was whether the process of bleaching, dyeing,
printing, sizing, shrink-proofing etc. carried on in respect of cotton or
man-made grey fabrics amounts to manufacture for the purposes of
and within the meaning of Section 2(f) of the Central Excises and Salt
Act. Section 2(f) as it then stood read as under:
"2(f) ’manufacture’ includes any process incidental or
ancillary to the completion of a manufactured product;
and\005.."
The Constitution Bench of this Court, after considering the law, held
that such activity amounts to manufacture within the meaning of
Section 2(f) of the said Act.
Reliance was also placed upon the case of Collector of Central
Excise, Jaipur vs. Rajasthan State Chemical Works, Deedwana,
Rajasthan, reported in (1991) 4 SCC 473. In this case this Court was
considering whether the two assessees therein were entitled to the
benefit of an exemption Notification. In that Notification exemption
was not available to goods "in or in relation to the manufacture of
which no process is ordinarily carried on with the aid of power". One
of the assessee therein manufactured common salt. For
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manufacturing common salt, brine was pumped into salt pans by using
diesel pump and then lifted to a platform by the aid of power. The
question was whether the pumping and lifting with the aid of power
constituted processes in or in relation to manufacture. The other
assessee was manufacturing lime from coke and limestone. The raw
materials were lifted to a platform at the head of kiln with the aid of
power. The question was whether the activity of lifting with the aid of
power constituted process in or in relation to manufacture. This Court
considered the earlier authorities of this Court, set out hereinabove,
and inter-alia held as follows:
"20. A process is a manufacturing process
when it brings out a complete transformation
for the whole components so as to produce a
commercially different article or a commodity.
But, that process itself may consist of several
processes which may or may not bring about
any change at every intermediate stage. But
the activities or the operations may be so
integrally connected that the final result is the
production of a commercially different article.
Therefore, any activity or operation which is
the essential requirement and is so related to
the further operations for the end result would
also be a process in or in relation to
manufacture to attract the relevant clause in
the exemption notification. In our view, the
word ‘process’ in the context in which it
appears in the aforesaid notification includes
an operation or activity in relation to
manufacture."
\005\005\005\005\005\005\005\005\005\005\005\005\005....................................
26. We are, therefore, of the view that if any
operation in the course of manufacture is so
integrally connected with the further
operations which result in the emergence of
manufactured goods and such operation 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. In this view of the matter, we are
unable to accept the contention that since the
pumping of the brine into the salt pans or the
lifting of coke and limestone with the aid of
power does not bring about any change in the
raw material, the case is not taken out of the
notification. The exemption under the
notification is not available in these cases."
Reliance was further placed upon the case of Collector of Central
Excise vs. Kamal Chemical Industries reported in (1992) 61 E.L.T. 692.
In this case also, power has been used for handling raw material i.e.
for transferring the acid from tankers to overhead tanks. It was held
that this activity was part of the process in or in relation to
manufacture and thus the benefit of the Notification would be lost.
Based on the above authorities, it was submitted by Mr.
Parasaran that in considering whether the "made-up of textile fabrics"
are made/manufactured with the aid of power one cannot dissect or
bisect the process of manufacture of the final product. He submitted
that, in cases like this where the process is a continuous and
integrated one it is irrelevant that at an intermediate stage another
excisable product had come into existence.
Faced with these authorities Mr. Bagaria submitted that these
authorities are on the facts of those cases and on the basis of the very
wide wording being considered viz. "in or in relation to the
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manufacture of which no process is ordinarily carried on with the aid of
power". He submitted that the word "made" does not include the
entire process but only refers to the manufacture of printed bedsheets,
bed covers and pillow cases from cotton fabrics.
We have considered the rival submissions. It must be mentioned
that in the beginning we were impressed by Mr. Bagaria’s submissions.
However we find that the authorities of this Court, relied upon by Mr.
Parasaran, hold that "manufacture" in Sec. 2(f) of the Central Excise
Act includes any process incidental or ancillary to the completion of a
manufactured product. It has been held that this puts it beyond any
possibility of controversy that if power is used for any of the numerous
processes that are required to turn the raw material into the finished
article then the manufacture will be with the use of power. It has been
held that if power is used at any stage then an argument that power is
not used in the whole process of manufacture, using the word in its
ordinary sense, will not be available. It has been held that the
expression "in the manufacture" would normally encompass the entire
process carried on for converting raw material into goods. It has been
held that if a process or activity is so integrally connected to the
ultimate production of goods so that but for that process, manufacture
or processing of goods is impossible or commercially inexpedient then
the goods required in that process would be covered by the expression
"in the manufacture of". It has been held that it was not necessary
that the words "manufacture" would only refer to the stage at which
ingredients or commodities are used in the actual manufacture of the
final product. It has been held that the word "manufacture" does not
refer only to the using of ingredients which are directly and actually
needed for making the goods. These authorities are binding on us. It
is also settled law that to avail of an exemption the party has to
strictly comply with the exemption Notification. Therefore the wording
of the Notification becomes relevant. The Notification grants exemption
to "made up textile articles" only "if made without the aid of power".
These words mean the same thing as "in the manufacture of which no
power is used". We are unable to accept submission that the word
"made" only refers to stage of manufacture from cotton fabrics to
printed bedsheets, bed covers and pillow cases. The Chapter Notes
relied upon by Mr. Bagaria only specify that the activities mentioned
therein amount to manufacture (made up). The Chapter notes have
been put in to eliminate arguments that those activities do not amount
to manufacture. They do not detract or make a difference to the legal
position as laid down by this Court. In all such cases one would have
to see what are the products which are being manufactured. Where
the activity/business is of manufacture of the final good and where
there is one continuous and/or integrated process it makes no
difference that at some intermediate stage an excisable commodity
has come into existence. What one has to see is whether the activity is
so integrally connected to the production of ultimate goods that but
for that process the manufacture of the ultimate goods is impossible
or commercially inexpedient. If it is so integrally connected then that
process would be covered by the expression "made with the aid of
power". It is not necessary that the words "made with the aid of
power" only refer to ingredients or commodities used in the final
manufacture.
Now let us look at the manufacturing process used by the
Appellants for manufacture of the final product i.e. "made up textile
articles". The Tribunal has set out this activity as follows:
"3) Bed Sheets, Bed Covers and Pillow Cases:
Manufacturing processes of these items has been
explained by Shri Pradip Thapar in his statement recorded
on 4.6.93:
"Sheeting: The sheets are put on the table, after
which the screen printing is done manually as per the
colour and design being printed. A separate screen is used
for every colour. These screens are designed and made in
our premises. After the design is printed, the sheeting is
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removed from the table into a bin. On accumulation of a
certain quantity (of sheets) the same is put up for
steaming. This steaming is done by heating the water
either by coal or gas.
3. The colours are mixed in paste and thinned down by
water so that each colour can be printed through the each
of the screen. If the quantity is small, we mix the colour
by hand, otherwise with larger quantities of 25 kgs. is
mixed with a mixer to get the proper mixing. The mixer is
operated with the aid of power. Since there is no
electricity in our premises, we operate two generators off
and on to facilitate our functioning. The capacity of our
generators is 6.5 HP and 25 KVA. In a single shift of 8
hours, it is operated for maximum of 4 hours per day. The
average consumption of diesel is approximately 1.5 to 2.5
litres per hour. We have four tables for printing purposes,
the sizes of which are 17 metres in length (2 tables) and
13 metres (other two tables). The length and breadth of
our sheet is the same as that of a Bombay Dyeing sheet, is
approximately 89 x 100 cm. The pillows covers are made
after cutting the same from the already printed sheets,
which are naturally dried by just hanging in the open air.
The cutting of the sheets is done manually. The screens
are made in the following manner:
4. The screen which is coated with a photo emulsion
and is exposed to tube light, with the aid of power i.e.
generator. At times when there is no power, the screens
are exposed to sun light.
5. Shri Ganga Ram Colour Master of the appellants has
stated that the unit was receiving plain cloth in thans and
thereafter the same was cut and placed on tables for
printing; the number of screens was equal to the number
of colours; that towels were being received in sets in
different sizes i.e. Medium, large etc. and thereafter the
same was printed just like sheets; that then the same was
dried up in the open air; that after the cloth got dried the
same was steamed with the aid of steam generated out of
water with the help of coal or gas; that thereafter
stitching, pressing/ironing and packing is done; that PVC
sheeting received in thans was first cut and thereafter
printed on tables and packed. Shri Ganga Ram also stated
that colour mixing was done with the aid of power as well
as manually. He further informed that the frame was
exposed to the tube light for about 2-1/2 minutes."
6. The appellants’ submission is that they do not
manufacture bed sheets or bed covers or pillow cases since
they do not carry out the process of stitching of the edges
and that sheets got converted into bed sheets and pillow
cases only after stitching of the edges. Further in the light
of the statement of Shri Ganga Ram who has categorically
stated that stitching was done in the appellants’ factory
and in the light of the factual position that sheets were cut
to definite sizes of approximately 89 x 100 cms which has
been admitted by Shri Pradip Thapar to be same as that of
sheets manufactured by M/s Bombay Dyeing, we hold that
the appellants manufacture these items and that their
subsequent submission that they were getting fabric cut
into sheets and other made up articles on job work, is only
an after thought which cannot be accepted."
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It is fairly not disputed that this is the manufacturing process. It must
be noted that initially it had been contended that stitching had been
done on job work basis. This was found to be factually incorrect and
before us this plea has not even been urged. From the above set out
process it is clear that the activity of manufacturing printed bedsheets,
bed covers and pillow cases starts with the screen printing and
colouring. Without this activity it would not be possible to make
printed bedsheets, bed covers and pillow cases. The activity of printing
and colouring is much more integrally connected to the manufacture of
printed bedsheets, bed covers and pillow cases than say the activity of
pumping brine into salt pans for manufacture of salt or the activity of
lifting raw material to the platform at the head of the kiln for
manufacture of lime. Without the printing and colouring it is impossible
to manufacture printed bedsheets, bed covers and pillow cases. In
such cases it is irrelevant that at an intermediate stage some other
excisable commodity comes into existence. The cotton fabrics are
manufactured in the process of manufacture of printed bedsheets, bed
covers and pillow cases. We thus see no infirmity in the impugned
Judgment when it holds that the benefit of the Notification is not
available.
Mr. Bagaria next submitted that penalty has been levied under
Section 11AC of the Central Excise Act. He submitted that this Section
was introduced only with effect from 28th September 1996. He relied
upon the case of Commissioner of Central Excise, Coimbatore vs. Elgi
Equipments Ltd. reported in (2001) 9 SCC 601 and submitted that it
has been held that this Section only operates prospectively and not
retrospectively. He submitted that thus penalty could not have been
imposed. We find that no such point had been raised before the
Tribunal and no such point is raised even in the Memorandum of
Appeal before this Court. In any event the adjudication had taken
place in 1998 at which time Section 11AC was on the statute book.
We thus see no substance in the Appeal. The same stands
dismissed with no order as to costs.