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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
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1. CENTR.EXCISE APPEAL No. 10 of 2005
SPBL LTD
V/S
THE UNION OF INDIA & ORS
2. CENTR.EXCISE APPEAL No. 7 of 2006
SHRIGANESH TEXFAB LTD.
V/S
UNION OF INDIA & ANR.
Mr. RAMIT MEHTA for Mr. LR MEHTA, for the appellant /
petitioner
Mr. RISHABH SANCHETI and Mr. VK MATHUR, for the
respondent in Appeal No. 10/2005.
Mr. VIVEK SHRIMALI for Mr. RAVI BHANSALI for respondent
in Appeal No. 7/2006.
Date of Order : 10.7.2008
HON'BLE SHRI N P GUPTA,J.
HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J.
ORDER
—–
These two appeals involve common factual matrix,
though relate to two different assesses, and have been
filed against different orders of the learned authorities
below. However, they have been admitted by framing
identical questions of law, and do involve common question
of law, and are, therefore, being decided by this common
order.
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For the sake of convenience we take the facts of
Appeal No. 10/2005.
The facts of the case are, that the assessees are
process houses, engaged in the manufacturing, and
processing of man made fabrics, falling under Chapter 54 &
55 of Central Excise Tariff Act. The assessees were issued
notices by the Joint Commissioner, as in the opinion of the
said authority, the assessee has not paid central excise
duty amounting to Rs. 7,57,266/- on clearance of 84407.50
meter of man made fabrics, cleared after 1.3.2001.
The necessary allegations were, that prior to
1.3.2001, the assessee was paying central excise duty on
the said man made fabric under ‘Compounded Levy Scheme’ in
accordance with the notifications in force from time to
time, including the one dated 1.3.2000. Since 1.3.2001 the
‘Compounded Levy Scheme’ was withdrawn, and duty on
advalorem basis was levied. On account of this change, the
assessee declared the stock of finished/processed man made
fabrics lying in their factory at 2400 Hrs on 28.2.2001 as
977737.40 meters, and in addition also submitted, that the
stock of 84407.50 meters of fabrics, which has been passed
through the stenters was also lying at open decatising
machine TMT.KD, zero-zero and folding, machine which was
taken by the Department as not fully processed, and being
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pending for some processes, and not reached to the
“finished goods stage” (earlier RG-1). It may be observed
that in the other appeal the figures of the demand of
excise duty and the figures of the two categories of man
made fabrics differ otherwise the facts are common.
According to the Department, during scrutiny of RT-12, it
was observed, that the assessee had taken the aforesaid
quantity of 84407.50 meters of fabrics, under the column of
quantity manufactured, during the month of February, 2001,
and cleared the said goods without payment of excise duty,
treating it as manufactured, under the ‘Compounded Levy
Scheme’ in the month of Feb., 2001, while according to the
Department the fabrics was still pending for some
processes, to make it fully processed, and to reach at
“finished goods stage”, and should not be taken under the
fabrics manufactured during the month of Feb., 2001, and
should be taken in production of March, 2001, and on the
clearance of this fabrics the appropriate amount of duty
was required to be paid. Accordingly, show cause notice
dated 19.12.2001 was issued, asking to show cause, as to
why the Central Excise duty of Rs. 7,57,266/- should not be
demanded, and penalty under Rule 173Q read with Rule 25 of
the Central Excise Rules, 1944 was also proposed.
The case of the assessee was, that since
16.12.1998 onwards “the processed textile fabric”
manufactured was subject to levy of Central Excise duty
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under the ‘Compounded Levy Scheme’, to be assessed on the
basis of number of chambers of Hot Air Stenter, and the
average value of the processed textile fabric, under the
“Hot Air Stenter Independent Textile Processors Annual
Capacity Determination Rules”, which requires certain
formalities to be completed by manufacturer. Under the said
Scheme, a textile fabric would be deemed to have been
manufactured, as soon as it emerges out of stenter machine,
or any machine whatsoever, which aids to the process of
heat setting or drying of fabric, and since in the present
case, admittedly the quantity of processed fabric under
dispute was entered in RG-1 after passing through the
stenter, and lying in decatising machine- TMT/KD, Zero Zero
& folding machine. Under Annual Capacity Determination
Rules, duty was paid on the fabric which undergoes the
process of heat setting or drying of fabric on a Hot Air
Stenter, and any process undertaken thereafter need not
found to be the basis of determination of Annual Capacity
under the Rules. Thus, according to the assessee, the
quantity of fabric which passed through and processed on
the stenter machine upto mid night of 28.2.2001, was
undisputedly covered under the ‘Compounded Levy Scheme’ and
the duty was deemed to have been paid thereon, as such no
duty can be claimed on that stock. It was contended, that
the stock was physically verified on 28.2.2001 at 24.00
Hrs, and also the two stocks of fabrics, and they had also
given a letter to the Assistant Commissioner mentioning
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that 86341.00 meters of finished goods were lying in their
process house, for OD/TMT/Zero Zero finish/Folding, and
this has not been entered in RG-1 on 28.2.2001, but it was
completed from stentering process, for which duty had
already been paid under the ‘Compounded Levy Scheme’. It
was also contended, that of course the goods were entered
in RG-1 after cut off time, but then, since the duty
already stood paid under the ‘Compounded Levy Scheme’, duty
was not payable over again. Obviously levy of penalty was
also contested. The learned Joint Commissioner by the order
in original confirmed the demand of excise duty, and
imposed a penalty of Rs. 1,00,000/- ( in both the cases ).
The learned Commissioner posed the question to be
considered, being, as to whether 84407.50 meters man made
fabric which was lying unfinished for decatising process
with the assessee on the midnight of 28.2.2001, can be
allowed to be cleared at nil rate of duty, by treating that
the stentering on the said fabric was done on or before
midnight of 28.2.2001, and then found, that there is no
dispute, that the aforesaid quantity of fabric had not
reached at “finished stage”, on which the assessee
ordinarily clear the fabric from their factory premises
after processing, and some process on the said unfinished
fabric i.e. decatising, folding and packing etc. were done
by the assessee after the midnight of 28.2.2001. Then it
was found, that decatising process is a steam pressing
process which is carried out to get better finishing and
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shining on the fabric, and it is done on the decatising
machine, and after decatising the fabric is sent to the
process of folding and packing, and thereafter the assessee
take the fabric in the daily production register, as
‘finished fabric’. With this it was found, that he has no
doubt to hold, that the said fabric which was lying
unfinished with the assessee on the midnight of 28.2.2001,
had reached at the final stage after 1.3.2001 only, and
therefore the same was to be cleared on payment of duty at
advalorem rate.
Appeal was filed against this order, and the
learned Commissioner endorsed the finding, by holding, that
the impugned fabrics had not reached at the final stage,
and were lying for carrying out certain other processes,
like decatising, folding and packing etc. at the time when
the ‘Compounded Levy Scheme’ was withdrawn, and all the
remaining processes, on the said unfinished fabrics were
done by the assessee after 1.3.2001, to make the same as
‘processed textile fabrics’, a finished product.
Further appeal was filed before the learned
Tribunal, and the learned Tribunal found, that the duty is
imposed on the processed textile fabrics, and that, unless
and until all the fabrics is ready after carrying out all
the required processes, it cannot be regarded as “processed
textile fabrics”, and that, admittedly the process of
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decatising and folding have not been undertaken on the
fabrics in question by 28.2.2001, the said fabrics cannot
be said to have suffered the duty under Section 3A of the
Central Excise Act. Thus, the impugned order was confirmed.
Of course, the levy of penalty was set aside, on the
ground, that the issue involved being one of the
interpretation, no penalty is imposable.
The appeals were admitted by framing the
following substantial questions of law:-
“(i)- Whether in the facts and circumstances of
the case the Duty under Section 3A of the
Central Excise Act, 1944 read with Rule 96ZQ of
the Rules of 1944 was leviable on the duty
payable under Stenters Rules at the stage of
finishing process?
(ii)- Whether change of law w.e.f. 1st March,
2001 brought change in respect of Duty which
became payable and paid until 28th Feb., 2001.?”
Assailing the impugned orders, the learned counsel
for the assessee reiterated the submissions as made before
the learned Joint Commissioner, Commissioner, and the
learned Tribunal, and also invited our attention to the
whole process of manufacture. Learned counsel also made
available for our perusal the Hot Air Stenter Independent
Textile Processors Annual Capacity Determination Rules,
2000, on account of which, the compounded levy was being
made.
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Learned counsel for the Revenue supported the
impugned orders.
We have heard learned counsel for the parties,
have considered the submissions, and have gone through the
impugned judgments, so also the relevant provisions of law.
According to Rule 2 of the said Rules being Hot
Air Stenter Independent Textile Processors Annual Capacity
Determination Rules, 2000, hereafter referred to as the
Rules of 2000, these Rules shall apply to processed textile
fabrics, falling under heading Nos. 52.07, 52.08, 52.09,
54.06, 54.07, 55.11, 55.12, 55.13 or 55.14, or processed
textile fabrics of cotton, or man made fabric, falling
under heading Nos. or sub-heading Nos. 58.01, 58.02,
5806.10, 5806.40, 6001.12, 6001.22, 6001.92, 6002.20,
6002.30, 6002.43, or 6002.93 of the First Schedule to
Central Excise Tariff Act, 1985 for determining the annual
capacity, and the average value of production of an
independent processor, if such textile fabrics are
manufactured or produced with the aid of a hot air stenter.
Then, a look at Rule 96ZQ of the Central Excise Rules,
1944, hereafter referred to as the Rules of 1944, shows,
that according to that provision, an independent processor
of textile fabrics falling under heading Nos. 52.07, 52.08,
52.09, 54.06, 54.07, 55.11, 55.12, 55.13 or 55.14, or
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processed textile fabrics of cotton or man made fibers,
falling under heading Nos. or sub-heading Nos. 58.01,
58.02, 5806.10, 5806.40, 6001.12, 6001.22, 6001.92,
6002.20, 6002.30, 6002.43, or 6002.93 of the First Schedule
to Central Excise Tariff Act, 1985, shall debit an amount
of duty of Rs. 2.0 lakhs per chamber per month, Rs. 2.5
lakhs per chamber per month, Rs. 3.0 lakhs per chamber per
month or Rs. 3.5 lakhs per chamber per month, as the case
may be, on the annual capacity of production, as determined
under the said Rules of 2000. According to sub-rule (2) of
the said Rule, the amount of duty payable under sub-rule
(1) shall be debited by the independent processor in the
account, current maintained by him under Sub-rule (1) of
Rule 173G of the Central Excise Rules, 1944. Then, as per
sub-rule (3) Fifty per cent of the amount of duty payable
for a calendar month under sub-rule (1) shall be paid by
the 15th of the month, and the remaining amount shall be
paid by the end of that month. Thus, a combined reading of
Rule 2 of the Rules of 2000, and Rule 96ZQ of the Rules of
1944, does clearly show, that in cases, where the assessee
is an independent processor of textile fabric, falling
under heading Nos. 52.07, 52.08, 52.09, 54.06, 54.07,
55.11, 55.12, 55.13 or 55.14, or processed textile fabrics
of cotton or man made fibers, falling under heading Nos. or
sub-heading Nos. 58.01, 58.02, 5806.10, 5806.40, 6001.12,
6001.22, 6001.92, 6002.20, 6002.30, 6002.43, or 6002.93 of
the First Schedule to Central Excise Tariff Act, 1985 was
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required to pay excise duty, dependent on its production
capacity, as assessed under the Rules of 2000, and at the
rate prescribed under Rule 96ZQ of the Rules of 1944, and
was to pay duty specified therein; meaning thereby, that if
the assessee manufactures textile fabric, as falling under
either of the aforesaid sub headings, its liability arises
as above.
That being the position, and it being the
fundamental to the provision of Central Excise Act, that
the liability to pay excise duty arises on the manufacture
of the commodity concerned, and collection of excise duty,
on removal of commodity from the premises, is only a matter
of convenience. Even if the assessee manufactures goods
leviable excise duty, and they are not removed, still
liability to pay excise duty, does arise.
In that view of the matter, in this matter it is
to be seen, as to at what stage can it be said, that the
assessee manufactured the textile fabric in question, i.e.
whether the manufacture is complete when all the processes
including packing are complete, and it is entered in RG-1,
or in any case it is ready for dispatch, or can it be said
to have been manufactured at the stage, at which it was
lying on the cut off time, being 24.00 Hrs of 28.2.2001.
This is the aspect covered by question no.1, though the
question as framed is slightly different.
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So far question no.2, as framed, is concerned,
that, in our view does not arise, as it is nobody’s case,
that the change of law w.e.f. 1.3.2001, brought any change
in respect of duty becoming payable and paid till
28.2.2001. Here the precise question is, as to whether the
goods can be said to be duty paid under the Rules of 2000,
or not, because if the goods are found to be duty paid,
then duty cannot be demanded under the new provisions, and
the question as to whether the goods were duty paid,
obviously depends on the answer to question no.1, inasmuch
as if the goods are found to have been manufactured before
cut off time, then they deemed to be duty paid, by virtue
of Rule 96ZQ, and if they are found to be in the process of
manufacture, which manufacture is complete after cut off
time, then obviously it cannot be said, that any duty has
been paid, and obviously the assessee shall be liable to
pay excise duty on advalorem basis.
In view of the above, we may refer to relevant
sub-heading. In the present case the item concerned falls
under sub-heading no. 55.13, which reads as under:-
“—————————————————-
(1) (2) (3) (4) (5) (6)
—————————————————–
55.13 Other Woven Fabrics of
synthetic staple fibres
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5513.10 -Not subjected to any
process 8% Nil -
-Subjected to the process
of bleaching, dyeing,
printing, shrink-proofing,
tentering, heat-setting,
crease-resistant processing
or any other process or any
one or more of these
processes:
5513.21 --Bleached woven fabrics 8% 8% -
5513.22 --Dyed woven fabrics 8% 8% -
5513.23 --Printed woven fabrics 8% 8% -
5513.29 --Other woven fabrics 8% 8% -"
Reverting once again to Rule 96ZQ, and Rules of
2000, it may be noticed, that the sub heading covered is
55.13 as a whole, and not any sub part thereof.
In view of the above, a bare reading of Heading
55.13 shows, that it covers other woven fabrics of
synthetic staple, and its sub-heading 5513.10 covers fibres
not subjected to any process, subjected to the process of
bleaching, dyeing, printing, shrink-proofing, tentering,
heat-setting, crease-resistant processing, or any other
process, or any one or more of these processes. Thus, if
the fabric is subjected to any one or more of these
processes, it would fall under sub-heading 5513.10.
To put it more clearly, or in other words, in
order to fall under sub-heading 5513.10, it is not
necessary, that the fabric should have undergone all other
processes, as assumed to be necessary by the learned
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authorities below. We may also refer to note-4 appearing in
Chapter-55, which reads as under:-
“4. In relation to products of Heading Nos.
55.11, 55.12, 55.13 and 55.14, bleaching,
dyeing, printing, shrink-proofing, tentering,
heat-setting, crease resistant processing or
any other process or any one or more of these
processes shall amount to ‘manufacture’.”
Thus, this bare language leaves no manner of
doubt, or confusion, that if the product covered by heading
55.13 is subjected to any one or more of the above
processes, it does amount to manufacture, and the term
‘manufacture’ does not depend upon all processes being
complete.
In view of the above, in our view, when the entire
processes of stentering was already over, and only thing
remaining to be done was, decatising, folding, and packing,
that being not the requirement, as a sine qua non, for
amounting to “manufacture”, it cannot be said, that duty
did not stand levied on the said stock of 84407.50 mtrs, or
for that matter 54760.95 mtrs. under the Rules of 2000,
simply because, decatising, folding, and pressing was yet
to be done at the cut off date and time.
Thus, the question no. 1 as framed is answered in
favour of the assessee, and against the Revenue, and it is
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held, that the duty, under Section 3A read with Rule 96ZQ
of the Rules, stood levied under the Rules of 2000, at the
stage, when one or more processes quoted above were
completed, and did not stand deferred to await the
finishing processes, like decatising, folding or packing.
Thus, we do not find the impugned orders to be sustainable
at all.
The net result is, that both the appeals are
allowed, the impugned orders are set aside, and the notices
issued by the learned Joint Commissioner are quashed.
( KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J.
/Sushil/