Commissioner of C. EX., Meerut vs Versatile Enterprises Ltd.

The Facts : M/s. Versatile Enterprises Pvt. Ltd. (the Assessee) is a job worker. The Assessee receives ''unprocessed grey pile fabrics. It is put through the processes of pile opening (if required), back coating, and pile cutting & polishing. After this, the resultant commodity (the goods) are measured and packed. The question is, is the Assessee manufacturing; is it liable to pay excise duty under the Central Excise Act, 1944 (the Act).

The Assessee filed a declaration of classification with effect from 15-5-1995 under sub-heading 6001.11 and 6001.12 of the Central Excise Tariff Act, 1985 (the Tariff Act). The goods of the Assessee were approved under sub-heading 6001.12 and were charged to duty @ 10% under Notification No. 47/95 dated 16-3-1995.

Subsequently, the Assesse filed a representation dated 8-11-1995 and requested that the commodity be treated as exempt from the excise duty as the processes undertaken by it did not amount to manufacture.

The adjudicating officer by his order dated 21-3-1996 held that the excise duty @ 10% was leviable on the goods.

The Assessee filed an appeal. It was dismissed on 20-2-1997. However the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (the Tribunal) allowed the second appeal of the Assessee on 26-10-1999 [2001 (130) E.L.T. 770 (Tri. - Del.)] on the basis of the special bench decision of the 1994 (71) ELT 857 (the Maharashtra Fur case).

Subsequently, the Excise Department (the Department) filed an application u/s 35H of the Act before the High Court requiring the Tribunal to refer the statement of case on the substantial question for the opinion of the Court. This application was allowed. Hence, the present reference.

Substantial Question of Law

We have heard Shri S.P. Kesharwani, counsel for the Department and Shri V.B. Upadhyay and Shri Ramesh Singh, counsel for the Assessee on the following question of law :

Whether the process of (i) back coating of the fabric with acrylic emulsion, (ii) shearing or cropping and (iii) electrifying polish, carried on silver knitted or yarn gray fabrics amount to manufacturer?

The Decision

The word ''manufacture'' is defined u/s 2(f)1 the Act. The definition of the word ''manufacture'' under the Act is an inclusive definition. Clause (ii) of Section 2(f) provides that it includes any process as defined to be amounting to manufacture in any section or chapter note in the Tariff Act.

According to the Tribunal, the following three processes are carried out by the Assessee :

(i) back coating of the fabric with acrylic emulsion;

(ii) shearing or cropping; and

(iii) electrifying polish, carried on silver knitted or yarn gray fabrics.

The question is, do they amount to manufacturer.

It is accepted between the parties that the commodity is covered by chapter 60 of the first schedule, under sub-heading 6001.12. Chapter 60 is titled ''knitted or crocheted fabrics''. The heading 60.01 is titled as; ''Pile fabrics, including "Long pile" fabrics and terry fabrics, knitted or crocheted''.

''Long pile'' fabric is further sub-divided. The sub-heading 6001.12 under this and is titled ''Of man-made fibres''.

Note 4 of this Chapter is relevant and is as follows :

In relation to products referred to in this Chapter, bleaching, mercerising, dyeing, printing, waterproofing, shrink-proofing, tentering, head-setting, crease-resistant, organdie processing or any other process or any one or more of these processes shall amount to ''manufacture.

The three processes that are being applied by the Assessee are not specifically mentioned in the aforesaid note 4. However, this note also includes the words ''or any other process''. The question is, whether these three processes combined together come within the ambit of ''any other process'' as used in note 4 or not?

The adjudicating officer by his order has held that the goods of the Assessee is not unprocessed grey fabrics as received by it and are not the same commodity.

The Commissioner (Appeals) after considering the fact that the Assessee was taking back the duty paid by them from the suppliers has held that the processes carried out by the Assessee had made the goods in a finished, saleable condition besides adding to its value.

The Tribunal has not recorded any finding in the case but has allowed the appeal merely on the decision given by Special bench of the Tribunal in Maharashtra-Fur case.

The Maharashtra-Fur case was taken in appeal to the Supreme Court by the Department. It was allowed See Collector of C. Ex., Bombay v. Maharashtra Fur Fabrics Ltd. 2002 (145) E.L.T. 287 (S.C.). The Court held that:

� The Assessee was back coating the fabrics with acrylic emulsion that was water based and they were required to be dried;

� This back coating was akin to stentering; and

� This process was amounting to manufacturing within the meaning of note 4 of Chapter 60 of the Tariff Act.

The impugned order of the Tribunal in the case is based upon the decision of Special bench in the Maharashtra-Fur case that was overruled by the Supreme Court. The Impugned order cannot stand.

The counsel for the Assessee has brought our notice the following observations of the Supreme Court in Commissioner of Central Excise, Chandigarh Vs. Shital International, (the Shital cases).

17.... we find it difficult to hold that the processes of shearing or back-coating are of the same nature as other processes mentioned in the said chapter note and therefore, would fall within the scope and ambit of "any other process.

And submitted that the back coating and shearing are not within the scope of any other process.

In the present case, apart from shearing and back coating, the question of electrifying polish is also involved. In the Shital case, the Supreme Court had refused (see paragraph 19 of the report) to go into the question whether the electrifying polish was within the meaning of ''any other process'' or not on the ground that it was not raised before the authorities below.

Apart from the above, in the Shital case, both the appellate authorities had found that neither shearing nor back-coating broght about any permanent or lasting change in the knitted pile fabric manufactured by the assessee in that case. In the present case, no such finding is recorded by the Tribunal. The adjudicating officer and the Commissioner (Appeals) have recorded the finding against the Assessee and in favour of the Department.

In view of above, the reference cannot be answered in favour of the Assessee on the basis of Shital case. However, the reference can also not be answered in favour of the Revenue, as there is no required finding by any of the authorities.

In our opinion, there is no justification in expressing our opinion at this stage. It would be proper to send the reference back to the Tribunal to decide the appeal again after recording finding on the following two questions.

(i) Whether the three processes carried by the Assessee are akin to any of the specific process mentioned in note 4 of chapter 60?

(ii) Whether after applying the aforesaid three processes, the goods are different marketable item than the ones received by the Assessee or not?

In view of above, the reference is sent back unanswered. The Tribunal may decide the appeal of the Assessee again after recording the finding on the aforesaid two questions.

The parties may appear before the Customs Excise and Service Tax Appellate Tribunal, New Delhi in the week commencing 4th April, 2011. The Assessee may file certified copy of this order before the Tribunal. Thereafter, the Tribunal may fix the date for hearing and decide it in accordance with the law. It will also be open to the parties to adduce any further evidence as far as the aforesaid two questions are concerned.

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1 Section 2(f) of the Act at the relevant time was as follows :

[(f) "manufacture" includes any process-

(i) incidental or ancillary to the completion of a manufactured product;

(ii) which is specified in relation to any goods in the section or Chapter notes of [The First Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to [manufacture; or]

(iii) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;]

and the word "manufacture" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account;]