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
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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.

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‘Compounded Levy Scheme’ was withdrawn, and duty on advalorem basis was levied.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 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 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 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 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 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.
 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 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 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.

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)
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55.13 Other Woven Fabrics of

synthetic staple fibres

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 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 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/