CCE Vs. SSM PROCESSING MILLS
LAWS(CE)-2008-1-54
CUSTOMS EXCISE AND GOLD(CONTROL) APPELLATE TRIBUNAL
Decided on January 22,2008

CCE Appellant
VERSUS
SSM Processing Mills and Ors. Respondents




JUDGEMENT

P.Karthikeyan, J. - (1.)THE captioned appeals have been filed by the Commissioner of Central Excise, Coimbatore. As per the impugned orders, the Commissioner dropped the proposal to deny the exemption from duty extended by Notification No. 253/82 dated 08/11/82 to 'cotton polyester blended lungi fabrics' falling under the CSH. 52.06 of Central Excise Tariff processed and cleared by the respondents. Following intelligence received, premises of SSM were searched on and the processed lungi fabrics of value Rs. 46,830.74 were seized. The declared processes undertaken by the respondents were curing, scouring, stentering, calendaring etc. Scrutiny of the private records of the respondents revealed that the respondents had subjected the impugned fabrics to chemical padding and special finishing. The exemption contained in Notification No. 253/82 dated 08/11/82, was not available to goods which were subjected to processes other than those specified in the notification. The processes such as padding with chemicals and special finishing processes were not specified in the notification. The highest amount proposed to be demanded from the respondents pertained to SSM. SSM was alleged to have undertaken also the process of mercerizing which disqualified their clearances of lungi fabrics for the exemption under the said notification. Therefore, we examine in detail the eligibility of SSM to the exemption first. After due process of law, the Commissioner decided that SSM did not undertake any process which constituted manufacture.
(2.)IN adjudication, the Commissioner found that the process of padding with starch and chemicals and special processes undertaken by SSM did not impart a characteristic of lasting nature to the fabrics. As per Board's Circular No. 52/10/89 - CXI dated 18/10/89 and clarification dated 24/10/89, assessees could avail exemption when padding process was undertaken using starch and chemicals. After arranging verification of the assessee's claim of consumption of starch in the process of production of lungi fabric, the Commissioner concluded that starch was used in the padding process by SSM. He found that 'special finishing' did not refer to any specific process in technological parlance. It meant only use of certain chemicals in the various processes undertaken by SSM to add softness and gloss to the fabrics. As regards mercerization, after referring to its meaning in the technical dictionary, he found that mercerization of dyed fabrics was technically infeasible.
In the appeal before us, Revenue has taken the ground that by availing exemption under Notification No. 253/82, the respondents themselves had agreed that chemical padding undertaken by them amounted to process of manufacture. Another ground taken is that there was no standard definition of 'standard of permanence'. Though CBEC vide their letter F. No. 52/10/89 -CX dt. 18.10.89 had clarified that use of chemicals in addition to natural starch would not deprive the benefit of notification, there was no evidence of use of natural starch in padding process. Shri Elavarasan, one of the Directors, had not mentioned use of starch in the process in his statement. There was no account of consumption of starch in the Form IV register of the respondent SSM. Documents recovered from the assessee's premises showed that their customers had asked for mercerized finishing or had indicated that mercerizing done earlier was not required in respect of certain orders. The mercerizer note book contained overwritten entries. These facts did not justify Commissioner's finding that mercerizing was not done, especially in the absence of specific claim to that effect by the respondent supported by evidence. The Commissioner had dropped the proposal to penalize the respondents under Section 11AC and under Rule 173Q without justification. The appellant prayed for modifying the impugned order which dropped the demand of duty of Rs. 2,14,87,266.67 on processed cotton polyester fabrics, demand of differential duty of Rs. 46,830.74 on the seized goods and did not impose penalties under Section 11AC and Rule 173Q.

(3.)IN the written submissions filed by the respondents it is submitted that the activity of sintering alone was undertaken on the lungies. Stentering machine was different from padding machine. All the processes cited in the Notification 253/82 -CE wore off. The same was not true in the case of processes like printing, bleaching, dyeing, mercerizing, waterproofing and organdy processing which imparted lasting character on the fabrics. Special finishing was not a process amounting to manufacture. It referred only to the softness of the fabric and had no other meaning.
4.1. The impugned processes did not amount to manufacture and were covered by Notification No. 253/82 for exemption. As per the various case law relied on by the Commissioner, in order for a process to constitute manufacture, it should impart a new and lasting character to the fabrics. It is not the case of the department that the processes undertaken impart lasting character to the fabrics. The effect of the processes undertaken by the respondents did not remain after one or two washes. As per Tariff Advice No. 36/84 dt. 27.07.84, padding solution containing ingredients like small amount of optical whitening agent, wetting agent, and fillers like china clay would also be covered by the term padding in Notification 253/82 dated 08/11/82. The Commissioner ascertained the transient nature of the effect of the process of padding based on trade enquiries. There was no finding to the contrary on record, he observed.

4.2. The processes mentioned in the notification amounted to manufacture as held by the Apex Court and Tribunal. As regards padding, the Apex Court decided in Susma Textiles Pvt. Ltd. : 2004 (167) ELT 487 (S.C.) that padding did not amount to manufacture. Padding was not a process like printing and dying which imparted a lasting character. That the assessee had claimed the benefit of the notification could not be a ground to allege that the process amounted to manufacture. Processes like padding, stentering, calendaring etc., mentioned in the Notification No. 253/82 -CX could not be a ground to infer that the impugned process amounted to manufacture. Unless there was a deeming provision in the tariff, a process to be exigible, the same should constitute manufacture. They relied on Shyam Oil Cake Ltd. v. CCE Jaipur reported in , in support of the above plea.

4.3. The process under taken, namely, chemical padding -was eligible for exemption under Notification No. 253/82, in as much as natural starch was used in the process. The Commissioner referred to the claim of the respondents regarding consumption of starch in the processing of lungi fabrics and had entered a finding that 'an exercise of verification was carried out towards this end. It fairly confirms to the consumption pattern brought out in great detail by SSM.'

4.4. Once the usage of starch is established, the allegation in the show case notice fails. Shri Elavarasan, partner did not state that search was consumed in the process carried out on lungi fabrics as no such question was put to him. An inference that search was not used did not follow from his deposition. The presence of starch in processed lungi fabrics was confirmed by the test conducted by South India Textile Research Association vide Test Report dated 27.04.99 on the sealed sample drawn and furnished to the respondents by the department. Department had drawn the sample or 19.09.89 (test memo No. 2/89 for chemical analysis). Despite several reminders, department had not divulged the result of test. Therefore, the respondents had approached SITRA.

4.5. As regards mercerizing, the Commissioner held that mercerizing was not feasible on the dyed fabrics and the said process could only damage the dyed fabrics. The test report of SITRA categorically confirmed that the process of mercerizing was not done on the fabrics. These were not controverted in the appeal. The Commissioner found that the overwriting in the mercerizer note book was more by mistake and no motive could be assigned.

4.6. Special finishing was a generic term used for conveying softness and glow achieved through curing, scouring, padding and stentering processes. The Commissioner had taken a considered view that providing special finishing did not disqualify the lungi fabrics for the exemption.

4.7. The Ld. Counsel for the respondents relied on the findings of the Apex Court in Siddheswari Cotton Mills Pvt. Ltd. v. UOI reported in in pleading that the impugned processes undertaken by the respondents did not amount to manufacture. The issue in dispute was not whether these processes are covered by the exemption notification. Liability to duty of a product was not determined on the basis of an exemption but on the question whether the process was one of manufacture.

4.8 The Ld SDR reiterates the findings in the impugned orders.



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