Lamination of fabric with plastic constitutes manufacture for central excise purposes.

During a transit check on 7 October 2003, a tempo belonging to M/s Shriram Processes was intercepted carrying laminated fabrics without duty-paying documents. The goods were seized and tested by the Central Revenue Control Laboratory, which reported that they were woven fabrics laminated with polypropylene and classifiable under Central Excise Tariff Heading 5903.90.

A show-cause notice dated 18 August 2005 was subsequently issued to the assessee for the period August 2000 to December 2003, demanding central excise duty of ₹87,80,513, along with interest and penalties.

The original order dated 22 March 2007 was remanded by the Tribunal on 27 July 2007. A subsequent order dated 22 October 2008 was again remanded on 1 March 2017. The impugned order dated 28 March 2024 was passed in the second de novo proceedings.

The assessee contended that lamination did not amount to manufacture, that the activity was job work, and that it was entitled to job-work and SSI exemptions, cum-duty benefit, and proper valuation. Penalty imposed on Shri Vinay Aggarwal, the assessee’s authorised signatory, was separately challenged.

Whether lamination of cotton, jute, or man-made fabrics with LDPE, PP, or HDPE amounted to “manufacture” and attracted central excise duty?

Whether the assessee was entitled to exemption under Notifications Nos. 214/86-CE and 83/94-CE for goods manufactured on a job-work basis, particularly where the principal manufacturer had furnished the requisite undertaking?

Whether the assessee was entitled to SSI exemption under Notifications Nos. 8/2000-CE, 8/2001-CE, 8/2002-CE, and 8/2003-CE?

Whether the valuation of goods cleared on job work could include notional profit, and whether the assessee was entitled to cum-duty benefit for goods cleared on its own account?

Whether invocation of the extended limitation period was justified?

Whether penalty could be imposed on Shri Vinay Aggarwal under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2002 in the absence of confiscation of the goods?

The Tribunal applied the constitutional-bench principle in Union of India v. Delhi Cloth and General Mills Co. Ltd., that manufacture requires a transformation resulting in a new and distinct article having a different name, character, or use.

It followed the Supreme Court’s decision in Laminated Packings (P) Ltd. v. Collector of Central Excise, which holds that lamination of paper or fabric with plastic, resulting in an identifiable product with distinct commercial identity and use, amounts to manufacture.

Notifications Nos. 214/86-CE and 83/94-CE exempt job-work goods only where the principal manufacturer furnishes the prescribed undertaking to use the goods in the manufacture of excisable final products or to export them.

Rule 10A of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000 governs valuation of goods manufactured by a job worker and does not authorise addition of notional profit.

The sale price of goods cleared on the assessee’s own account is to be treated as cum-duty value where applicable.

Penalty under Rule 209A of the 1944 Rules and Rule 26 of the 2002 Rules requires conduct rendering the goods liable to confiscation; in the absence of an order of confiscation, such penalty is unsustainable.

The Tribunal held that laminated fabric and the corresponding unlaminated fabric were commercially distinct products with different names, characteristics, and uses. Applying Delhi Cloth and General Mills and Laminated Packings, it concluded that lamination constituted manufacture, rejecting reliance on the contrary Tribunal decision in Shree Jee Laminators.

However, the Commissioner had incorrectly denied job-work status merely because the assessee supplied some inputs in addition to materials supplied by the principals. The Tribunal reasoned that incidental inputs supplied by a job worker do not alter the essential character of the activity as job work.

Accordingly, exemption was available to the extent the principal manufacturers had furnished the required undertakings; the declaration furnished by M/s Antak Agencies was therefore relevant for determining the eligible clearances.

The Tribunal further found that the SSI exclusion covered plastic strips falling under Chapter 39, not laminated HDPE fabrics. The assessee was consequently entitled to the applicable SSI exemptions.

For job-work clearances lacking the required undertaking, valuation had to be undertaken under Rule 10A without adding notional profit. For the assessee’s own clearances, the sale price had to be treated as cum-duty value and duty recomputed accordingly.

The extended period was upheld because the assessee was aware of the notification requirements but had obtained the necessary undertaking only from one principal.

Nevertheless, the penalty on Shri Vinay Aggarwal was set aside because the impugned order contained no confiscation order in respect of the goods.

It upheld that lamination amounted to manufacture and that the resulting goods were dutiable.

Job-work exemption was allowed to the extent the requisite declarations or undertakings had been furnished by the principal manufacturers; other job-work clearances were to be valued under Rule 10A.

The assessee was granted SSI exemption, and cum-duty treatment was directed for goods cleared on its own account.

The assessee was directed to recompute and pay the duty, with consequential reduction of interest and mandatory penalty based on the recomputed liability; invocation of the extended limitation period was upheld.

The penalty imposed on Shri Vinay Aggarwal under Rule 209A of the 1944 Rules read with Rule 26 of the 2002 Rules was set aside.