ORDER
P.S. Bajaj, Member (J)
1. In this appeal, the challenge has been made by the Revenue to the order-in-original dated 30-7-2003 vide which the Commissioner of Central Excise, Jalandhar has dropped the duty demand against the respondents.
2. The respondents are engaged in the manufacture of Knitted Fabric of Man-made Textile Material, Long Pile fabric falling under Chapter 60 (subheading 6001.12 of CETA, 1985); Knitted Hosiery Cloth of Cotton falling under sub-heading 6002.92 and Hosiery goods (Articles of Apparels knitted or crocheted all sorts) falling under sub-heading 6101 of Chapter 60 of CETA. They filed declaration under Rule 173B of the Rules wherein they gave the details of these products. They also disclosed in their declaration that they would be using acrylic fibre, cotton/polyester thread, dyes and chemicals to manufacture piled knitted fabric and detailed the various processes to be undertaken for the production of the goods.
3. Proceedings were initiated against the respondents through a show cause notice dated 22-6-01 for the recovery of the duty in respect of the knitted pile fabric cleared by them during the period in dispute (1988-89 to 2000-2001) on the allegations that they had cleared the same in the guise of knitted cloth (an exempted product) during that period without payment of duty. The Revenue also recorded statements of certain buyers who purchased the knitted pile fabric from the respondents before issuing the show cause notice.
4. The respondents, on the other hand, denied these allegations and maintained that the knitted pile fabric allegedly cleared by them in the guise of knitted cloth, was unprocessed as the process carried out by them did not amount to manufacture as defined in Chapter Note 4 to Chapter Note 60 of CETA and being unprocessed; was exempt from duty under Notifications No. 5/99, dated 28-2-99, 6/2000-C.E., dated 1-3-2000, during the period in question.
5. The Commissioner who adjudicated the show cause notice, after examining the processes carried out by the respondents, has concluded that the knitted pile fabric cleared by the respondents during the period in question was unprocessed and being exempt under the Notifications No. 5/99 and 6/2000, no duty could be confirmed against the respondents.
6. The leaned SDR has contended that the process of Carding/knitting carried out by the respondents on the fabric, amounted to manufacture in terms of Chapter Note 4 to Chapter 60 of the CETA and as such, the fabric cleared by them could not be considered to be unprocessed. He has further contended that earlier to the period in dispute, the respondents had paid the duty on this knitted pile fabric and as such, later on they could not claim exemption from payment of duty under the above said notifications. He has also placed reliance on the law laid down by the Apex Court in CCE, Mumbai v. Maharashtra Fur Fabrics Ltd. [2002 (145) E.L.T. 287] and the Circular No. 14/Knitted Fabrics 89/CXI dated 1610-89 issued by the Ministry of Finance, Department of Revenue, Government of India.
7. On the other hand, the learned Counsel has contended that none of the processes carried out by the respondents on the fabric amounted to manufacture in terms of Note 4 of Chapter 60 of the CETA and that the fabric cleared by them was only unprocessed which was exempt from payment of duty under the notifications in question referred to above. He has also contended that earlier payment of duty did not create estopple against the respondents for claiming the benefit of above said exemption notification and that the ratio of law laid down in CCE, Mumbai v. Maharashtra Fur Fabrics Ltd. (supra) is not attracted to the case of the respondents.
8. We have heard both the sides and gone through the record.
9. The controversy in this appeal centres around the question as to whether the knitted pile fabric (commonly known as artificial fur-lining in the trade) falling under Chapter 60 (sub-heading 6001.12) cleared by the respondents during the period in question was processed or unprocessed fabric. The process which would amount to manufacture of the fabric falling under Chapter 60, had been defined in Note 4 to this Chapter, which reads as under :-
“In relation to products referred to in this Chapter, bleaching, mercerizing, dyeing, printing, water-proofing, shrink-proofing, tentering, heat-setting, screase-resistant, organide processing or any other process or any one or more of these processes, shall amount to ‘manufacture’.”
10. In order to know whether the process undertaken by the respondents for the manufacture of the knitted pile fabric are covered by these processes, it would be beneficial to detail the manufacturing processes undertaken by them. The Revenue itself has detailed the processes in the show cause notice which had been carried out by the respondents and those are as under :
“(a) Carding : Firstly the fibre/synthetic waste/mixed fibre and waste is fed into the carding machine, which opens the compressed material and after loosening the same, sliver is made.
(b) Knitting : Thereafter, the carded sliver plus yarn is inserted into the loops of the circular knitting machines and the fabric is made.
(c) Shearing : This process is on the back-coating machine where the cloth is sheared, polished and the pile is kept to the required level.
(d) Back-coating : The final process is on the back-coating machine where the back coating with the help of chemicals is done and fur is ready. Then, it is measured on semi-automatic measuring table and the rolls are made which are ready for show in Excise Bond room and for sale.”
But none of these processes find mention in Chapter note 4 to Chapter 60 of the CETA reproduced above. From the perusal of the show cause notice, it is evident that the respondents had installed three carding machines, two Shearing machines and one Back-coating machine during the year 1995. They are using acrylic fabric, synthetic waste and dyes and chemicals to manufacture knitted pile fabric, which were disclosed by them in their classification declaration under Rule 173B of the Rules. These raw materials were mainly procured by them from domestic market during the disputed period, and only on certain occasions, they imported these raw materials.
11. We find that even in the show cause notice, it has not been alleged that the pile fabric on which duty has been sought to be demanded, had been subjected to any such process covered by Chapter note 4 of Chapter 60 of the CETA. The processes carried out by them as detailed above, do not find mention in this Chapter note and as such, did not amount to manufacture of the pile fabric by them, falling under Chapter 60 (sub-heading 6001.12). The observations of the Apex Court in Mafatlal Spinning & Manufacturing Company [1989 (40) E.L.T. 218] that calendering and shearing of fabrics did not amount to manufacture can be read with advantage in this case. The Tribunal in the case of Oswal Industries Pvt. Ltd. [1990 (49) E.L.T. 305] has also ruled that the process of shearing or cropping carried out on the knitted acrylic fabric did not amount to manufacture and that the fabric was eligible for exemption under Notification No. 109/86-C.E. dated 27-2-86.
12.1 The contention of the learned SDR that the processes carried out by the respondents were covered by the words “any other processes” used in Chapter Note 4 to Chapter 60 of the CETA and as such, amounted to manufacture of pile fabric by them, cannot be accepted. The Apex Court in CCE v. Maharashtra Fur Fabric (supra) which has been referred to by the SDR, has interpreted the words “any other process” appearing in the proviso to Notification No. 109/86-C.E., dated 27-2-86 involved in that case, as under :-
“It is well settled principle that general terms falling from expression, take their colour and meaning as that of the preceding expression, the principle of ejusdem generis rule, therefore, in construing the words “or any other processes”, the import of specific expression will have to be kept in mind. It follows that the words “or any other processes” would have to be understood in the same sense in which the process including tentering would be understood”
12.2 These very words “or any other processes” have been used in Chapter Note 4 to Chapter 60 of the CETA, after detailing the names of the processes amounting to manufacture. Therefore, the above said interpretation of the Apex Court of these words has to be applied. The processes undertaken by the respondents detailed above on the pile fabric neither finds mention in this Chapter note directly nor can be even said to be analogous to any of the processes detailed in this Chapter note.
13. The process of back coating and its drying as undertaken by the respondents on the fabric also does not amount to manufacture in terms of Chapter note 4 to Chapter 60 of CETA. The back coating is carried out by them, on the back coating machine with the help of chemicals as is even alleged in the show cause notice. The drying is not done by them by passing the fabric through Hot Air Chamber or any other like machine. No evidence even has been brought on record by the Revenue to prove that the respondents had Hot Air Stenter or any other like machine, during the period in dispute and with the help of that stenter drying was carried out by them on the pile fabric. Rather, the process of back coating is followed by natural drying as pleaded by the respondents and not proved to be false/incorrect by the Revenue by adducing any evidence.
14. The law laid down in CC v. Maharashtra Fur Fabric (supra) on which the SDR has heavily relied upon, is not attracted to the case in hand. In that case, the assessee was having special type of machine wherein the fabric was put on the pin in the stretch condition to a specific width and subsequently back side of the base fur fabric of the sliver knitted fabric, was coated with acrylic emulsion in the stretched condition and the same was then passed through Hot Air Chamber where the water from the emulsion was evaporated. The Apex Court, under these circumstances and facts observed that the process of drying of emulsion coated fabrics by passing through Hot Air Chamber would be covered by the words “any other process”, as appearing in the Notification No. 109/86-C.E., dated 27-2-86. But in the case in hand, there is no iota of evidence on record, as even observed by the Commissioner, to prove that drying of the back coated fabric was carried out by passing it through Hot Air Chamber or any other like machine by the respondents for holding that this process was covered by words “any other process” figuring in Chapter note 4 to Chapter 60 by applying the observations of the Apex Court in the above referred case.
15. The Circular of Ministry of Finance No. 14/Knitted Fabric dated 16-10-89 referred to by learned SDR also does not advance the case of the Revenue in any manner. This circular only relates to the classification and assessment of knitted pile fabric, and speaks of procedure normally to be followed by an assessee for the manufacture of pile fabric. The learned Commissioner has clearly observed in para 5.9.8 that the show cause notice itself did not contain any of the ingredients required to substantiate the charge that the processes undertaken by the respondents amounted to manufacture in terms of Chapter note 4 to Chapter 60 of the CETA so as to attract the duty. He has also observed in para 5.9.9 that processes undertaken by the respondents in the manufacture of pile fabric sold as knitted fabric, did not amount to manufacture. Therefore the same were not dutiable under Notification No. 5/99-CE, dated 28-2-1999 and 6/2000-CE, dated 1-3-2000 during the relevant period.
16. We are fully in agreement with these findings of the Commissioner in the light of the facts and circumstances detailed above and the law laid down in the above referred cases by the Apex Court and the Tribunal. Mere payment of duty earlier on the fabric in question, by the respondents under the belief that the same was dutiable, did not create estopple against them for all times to come, for claiming the benefit of above said notifications, when the processes undertaken by them for manufacturing the fabric did not amount to manufacture in terms of Chapter Note 4 of Chapter 60 of CETA. Even for the subsequent period, duty demand in respect of same fabric, raised by the Revenue on the same facts and circumstances was dropped against the respondent by the Commissioner and that order was upheld by the Tribunal as reported in 2002 (146) E.L.T. 113 (CCE, Chandigarh v. Shital International). Therefore, the duty demand has been rightly dropped against the respondents and the impugned order passed by the Commissioner in this regard is upheld. The appeal of the Revenue is dismissed being without any merit.
