REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION CIVIL  APPEAL NOS.   1689-1690 OF 2003   

COMMISSIONER OF CENTRAL  EXCISE, CHANDIGARH

— APPELLANT  

VERSUS

M/S. SHITAL INTERNATIONAL — RESPONDENT

WITH  

CIVIL  APPEAL NO. 4541 OF 2005 COMMISSIONER  OF  CENTRAL  EXCISE,  CHANDIGARH

— APPELLANT  

VERSUS

M/S. SHITAL  INTERNATIONAL

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1. These appeals filed by the Revenue under Section 35-

L(b) of the Central Excise Act, 1944 (for short “the Act”) are  

directed against the order and judgment dated 21st August  

2002  passed  by  the  Customs,  Excise  and  Gold  (Control)  

Appellate Tribunal, (for short “CEGAT”), as it existed then,  

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and  the  order  and  judgment  dated  8th November  2004  

passed  by  the  Custom,  Excise  and Service  Tax Appellate  

Tribunal  (for  short  “CESTAT”),  whereby  both  the  CEGAT  

and CESTAT rejected the claim of  the Revenue and held  

that  the  goods  manufactured  by  the  assessee  were  

“unprocessed  knitted  pile  fabrics”  classifiable  under  

chapter  sub-heading  6001.12  of  the Central  Excise  Tariff  

Act, 1985 (for short “the Tariff Act”), attracting Nil rate of  

duty.  

2. Since the question of law arising for our consideration  

in all the appeals is similar, these are disposed of by this  

common  judgment.  However,  for  the  purpose  of  

appreciating the controversy, a brief reference to the facts  

in Civil Appeal Nos.1689-1690 of 2003, relating to the same  

assessee, would be necessary.  These are:

The assessee company is engaged in the manufacture  

of knitted pile fabrics as well as knitted hosiery fabrics of  

man-made fibres.  Admittedly, till 30th September 2000, the  

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assessee was declaring the processed goods as dutiable and  

was paying Excise duty on the same.  

However, on 3rd October 2000, the assessee submitted  

a revised declaration claiming that the goods manufactured  

by it were subject to Nil rate of duty in terms of Notification  

No.  06/2000-CE  dated  1st March  2000  which  came  into  

effect  from  1st October  2000,  forming  part  of  General  

Exemption  No.  66,  prescribing  Nil  rate  of  duty  on  

“unprocessed knitted or crocheted fabrics”,  as also under  

Notification Nos. 9/96 and 18/96.  

On receipt  of  the  revised  declaration,  a  show cause  

notice  dated  12th December  2000  was  issued  to  the  

assessee,  questioning as to why its  stand be not rejected  

and CENVAT @ 16%  ad valorem with AED(ST) @ 8% and  

AED (TTA) @ 15% of the Excise duty on the goods should  

not be levied.

On 29th December 2000,  the assessee replied to  the  

above show cause notice,  denying liability  on the ground  

that the fabric was unprocessed. However, the claim of the  

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assessee did not find favour with the Deputy Commissioner,  

Central Excise, Jalandhar who vide his Order-in-Original No.  

222/20/Val/01 dated 29th June 2001, held:

“knitted pile fabrics of sub-heading 6001.12  being  manufactured  by  the  noticee  be  treated  as  processed  fabrics  and  chargeable to cenvat @ 8% Adv., AED(ST)  @  8%  Adv.  in  terms  of  notification  no.  17/2000 dated 01.03.2000.”

3. Being  aggrieved  by  the  said  orders,  the  assessee  

preferred  an  appeal  before  the  Commissioner  

(Appeals), Customs & Central Excise, Chandigarh.  

4. The Commissioner (Appeals), upon consideration of the  

processes  undertaken  by  the  assessee  came  to  the  

conclusion that these were not covered under Chapter  

Note 4 to Chapter 60 of the Tariff Act as neither of the  

processes  of  carding,  knitting  and  shearing  find  

mention in the said Chapter Note nor these processes  

can be covered under “any other process” mentioned  

in  the  said  Chapter  Note.   Placing  reliance  on  the  

decisions of the CEGAT as well as on the decision of  

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this  Court  in  Mafatlal  Fine  Spinning  And  

Manufacturing  Co.  Ltd.  Vs.  Collector  of  Central  

Excise,  Bombay1,  the  Commissioner  allowed  the  

appeal of the assessee.  

5. Aggrieved by the said order, the Revenue preferred an  

appeal  before the  CEGAT.  As mentioned previously,  

the  CEGAT,  vide  impugned  order,  dismissed  the  

appeal.   Relying  on  the  decision  of  this  Court  in  

Mafatlal  (supra), the CEGAT held that operations of  

shearing,  cropping  and  back  coating  of  the  fabric  

undertaken  by  the  assessee  did  not  amount  to  

processing of the fabric, as contemplated in the said  

Chapter Note.  

6. It would be expedient to mention that in C.A. No. 4541  

of  2005  relating  to  the  same  assessee,  the  

Commissioner,  vide  Order-in-Original  No.  

69/CE/JAL/03  dated  30th July  2003,  who  had  

adjudicated on the show cause notice dated 22nd June  

1 (1989) 2 SCC 446: 1989 (40) ELT 218 (SC)

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2001, after examining the processes carried out by the  

respondents, had concluded that the knitted pile fabric  

manufactured  by  the  assessee  was  unprocessed  and  

therefore was exempt under Notifications No. 5/99 and  

6/2000.   In  the  ultimate  analysis  the  Commissioner  

observed thus:

“Thus, from the above discussion it is proved that  the  noticee  has  supplied  knitted  pile  fabrics  as  well as knitted hosiery fabrics to the buyers sold  by raising commercial  invoices and most  of  the  pile  fabrics  supplied  by  the  noticee  as  knitted  fabrics were not having back coating and even if  process of back coating was conducted on some  quantity, the noticee have claimed that the drying  was done naturally.  There is nothing on record to  controvert the claim that back coated pile fabrics  were  not  dried  naturally  or  cannot  be  dried  naturally.  Thus, I find that the show cause notice  itself  does  not  contain  any  of  the  ingredients  required  to  substantiate  the  charge  that  the  processes undertaken by the noticee amounts to  manufacture  in  terms  of  Chapter  Note  4  to  Chapter 60 of Central Excise Tariff Act 1985 so as  to attract Central Excise Duty.

In view of the above discussion,  I  hold that the  processes  undertaken  by  the  noticee  in  the  manufacture of pile fabrics sold as knitted fabrics  do not amount to manufacture in view of Hon’ble  Supreme  Court  judgment  in  Maharashtra  Fur  Fabrics Ltd. reported as 2002 (145) ELT 287 (SC)  and the definition of processes as defined above  

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and therefore, the goods supplied by the noticee  were  not  dutiable  under  notification  no.5/99-CE  dated  28.02.1999  and  6/2000-CE  dated  01.03.2000  during  the  relevant  period  and  Central  Excise  duty  amounting to  `1,20,93,135/-  [BED `1,11,97,348 + `8,95,787] is not recoverable  under Section 11A of the Act and interest under  Section 11AB of the Act.”

Aggrieved by this order, the Revenue preferred an appeal  

before the CESTAT, which was rejected vide the impugned  

order.

7. Being dissatisfied by the said orders,  the Revenue is  

before  us  in  these  appeals.  For  the  sake  of  

convenience,  hereinafter,  both  the  CEGAT  and  the  

CESTAT will be referred to as “the Tribunal.”

8. Mr.  B.  Bhattacharya,  learned  Additional  Solicitor  

General,  appearing  for  the  revenue,  contended  that  

since in the instant case, the fabric had been subjected  

to processing in the form of shearing and electrifying  

polishing, these processes amounted to “manufacture”  

in terms of Chapter Note 4 to Chapter 60 of the Tariff  

Act and hence it was not exempted from Excise duty.  

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Learned counsel argued that the decision of this Court  

in  Mafatlal  (supra) was not applicable to the present  

case, as initially the assessee was itself paying duty as  

and when knitted pile fabric was cleared under Excise  

invoices, treating the same as processed fabrics.

9. Per contra,  Mr. V. Lakshmi Kumaran, learned counsel  

appearing  for  the  assessee,  while  supporting  the  

impugned order  of  the Tribunal,  urged that  Chapter  

Note 4 of Chapter 60 of the Tariff Act refers only to  

those processes which result in irreversible or lasting  

change in the character of the fabric and, therefore,  

since the processes of shearing and back-coating did  

not bring about any change in the grey fabric, the said  

processes  do  not  fall  within  the  ambit  of  the  said  

Chapter so as to attract Excise duty.  To buttress the  

argument  that  the  processes  carried  out  by  the  

assessee,  namely  shearing,  back  coating  etc.  are  

integral processes for the manufacture of knitted pile  

fabric  and  did  not  amount  to  manufacture  of  

“processed  fabric”  as  contemplated  under  Chapter  

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Note  4  and,  therefore,  the  assessee  was  entitled  to  

claim  exemption  under  Notification  No.  06/2000-CE,  

learned counsel relied on the decisions of the Tribunal  

in  Maharashtra Fur Fabrics Ltd.  Vs.  Collector of  

Central Excise, Bombay2 and Versatile Enterprises  

Pvt. Ltd. Vs. Collector of Central Excise, Meerut3.

10. It was strenuously contended that so far as the process  

of shearing was concerned, the issue is no more  res  

integra  in  the  light  of  the  decision  of  this  Court  in  

Mafatlal (supra)  wherein  it  had  been  held  that  

shearing process did not  have the effect  of  bringing  

about any change in the grey fabric. According to the  

learned counsel, in view of the concurrent findings of  

fact recorded by both the authorities below, the test  

enunciated  in  the  said  decision  stands  satisfied.   It  

was,  thus,  asserted  that  there  being  no  permanent  

change in the character of the fabric even when the  

grey fabric is back-coated or sheared, the ratio of the  

said decision is in all force to the facts in hand and,  2 1994 (71) E.L.T. 857 (Tri.-Del.) 3 2001 (130) E.L.T. 770 (Tri.-Del.)

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therefore, the appeals deserve to be dismissed.  In so  

far as the question of process of electrifying polish was  

concerned, learned counsel submitted that such a plea  

was neither a part of the show cause notice nor was  

raised by the Revenue either before the Commissioner  

or Tribunal, the Revenue cannot be permitted to raise  

such a plea at this stage.

11. Before  embarking  on  an  examination  of  the  rival  

submissions, it would be instructive to take note of the  

tests laid in Mafatlal (supra), to determine whether a  

process amounts to manufacture under the Excise Act.  

In the said case, this Court had observed thus:-

“Any processing that can take a case out of  Rule  49-A(1)(b)  must  be  a  process  which  renders  cotton  fabric  ceases  to  be  ‘grey  fabric’  as  commercially  known  and  understood.  The  question  whether  ‘calendering’  and  ‘shearing’,  as  actually  carried  out  by  the  appellant  has  had  the  effect of taking the cotton fabric out of Rule  49-A(1) should be decided in the light of this  test.

20. In  the  present  cases,  the  claim of  the  appellant  before  the  authorities  that  the  calendering process employed by them was  

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such as to give temporary finish by pressing  the  fabric  is  not  controverted.  No  lasting  change is brought about. There is no finding  to the contrary. Likewise the claim as to the  “shearing”  which  was  only  to  trim  protruding,  stray  fibres  from  the  fabric.  If  these are the nature of the operations,  the  ‘grey’ fabric, in the facts of these cases, does  not become new and commercially different  commodity  and  cease  to  be  ‘grey’  cloth.  There is thus no justification to take it out of  Rule 49-A(1)(b).”  

12. Therefore,  the questions arising for consideration are:  

(i)  whether  the  said  processes  undertaken  by  the  

assessee amounted to “manufacture” in terms of Note  

4 to Chapter 60 and/or (ii)  whether the processes in  

question introduce such a change in the nature of the  

fabric that it ceases to be a grey fabric?

13. The relevant  portion of  Chapter  60 of  the Tariff  Act  

along with the notes reads as follows:

“CHAPTER 60

KNITTED OR CROCHETED FABRICS

Notes:

1. This Chapter does not cover:

(a) crochet lace of heading No. 58.04;

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(b) labels,  badges  or  similar  articles,  knitted  or  crocheted, of heading No. 58.07; or

(c) knitted or crocheted fabrics, impregnated, coated,  covered  or  laminated  of  Chapter  59.  However,  knitted  or  crocheted  pile  fabrics,  impregnated,  coated, covered or laminated, remain classified in  heading No. 60.01

2. This  Chapter  also  includes  fabrics  made  of  metal  thread  and of  a  kind  used  in  apparel,  as  furnishing  fabrics or for similar purposes.

3. Throughout this Schedule, any reference to “knitted”  goods includes a reference to stitch-bonded goods in  which the chain stitches are formed of textile yarn.

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

Head- Sub- Description of goods      Rate  of  duty ing heading No.          No.                      Basic  Additional (1)      (2)                     (3) (4)   (5)

60.01         Pile fabrics, including ‘Long pile’  fabrics

       and terry fabrics, knitted or crocheted

- ‘Long pile’ fabrics:

6001.11 -  Of man-made fibres 16% 8% 6001.12 -  Of other textile materials 16% 8% 6001.19 -  Of other textile materials 16%

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-  Looped pile fabrics

6001.21 -  Of cotton 16% 8% 6001.22 -  Of man-made fibres 16% 8% 6001.29 -  Of other textile materials 16%

- Other:

6001.91 -  Of cotton 16% 8% 6001.92 -  Of man-made fibres 16% 8% 6001.99 -  Of other textile materials 16%”

14. There is no dispute that knitted pile fabrics are to be  

classified under heading No.  60.01 of  the Tariff  Act.  The  

issue is whether the processes of shearing and back-coating  

which do not figure in Chapter Note 4 to Chapter 60 of the  

Tariff Act, would fall within the ambit of “any other process”  

referred to in the said note. It is well settled  that general  

terms following particular expressions take their colour and  

meaning as that of the preceding expressions, applying the  

principle of  ejusdem generis rule, therefore, in construing  

the words “or any other process”, the import of the specific  

expressions will have to be kept in mind. (See: Collector of  

Central Excise, Bombay  Vs.  Maharashtra Fur Fabrics  

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Ltd.4).  Therefore,  the  processes,  with  which  we  are  

concerned  in  the  present  appeals  must  take  their  colour  

from  the  process  of  bleaching,  dyeing,  printing,  shrink-

proofing,  tentering,  heat-setting,  crease-resistant  

processing, specifically mentioned in the note. It is evident  

that  when  a  grey  fabric  is  subjected  to  any  of  these  

processes, a permanent or lasting change is brought about  

in  the  fabric.  Whereas,  in  the  present  case,  both  the  

appellate  authorities  below  have  found  that  neither  

shearing nor back-coating brings about any permanent or  

lasting change in the knitted pile fabric  manufactured by  

the  assessee  by  carding  and  knitting. In  this  regard,  it  

would be useful to advert to the observations made by this  

Court in Commissioner of Central Excise, Hyderabad-I  

Vs.  Charminar  Non-Wovens  Limited,5 wherein  it  was  

held that:-

“Such  concurrent  findings  by  the  lower  authorities are interfered with by this Court in  exercise of its jurisdiction under Section 35-L  of the Central Excises and Salt Act, 1944 only  when  such  findings  are  patently  perverse  or  

4 (2002) 7 SCC 444 5 (2009) 10 SCC 770

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are based on manifest misreading of any legal  provision.  Here  none  of  these  situations  is  present.  Reference in this connection may be  made  to  the  decision  of  Sidharath  Pharmaceuticals v. CCE6. In that judgment, the  learned Judges of this Court held that with the  concurrent  finding  of  facts  reached  by  the  lower authorities in classification on the basis  of  evidence  and on analysis  of  relevant  legal  provision interference is not called for by this  Court in exercise of its power under Section 35- L of the Central Excise Act, 1944.”

15. In the declaration submitted by the assessee, the said  

processes are described as follows:-

“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:  The  next  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 is done  and fur is  ready.  Then,  it  is  measured on semi- automatic measuring table and the rolls are made  

6 (2009) 16 SCC 561

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which are ready for show in the Excise Bond room  and for sale.”

In  this  background,  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.”

16. Adverting  to  the  second  issue,  noted  supra,  the  

Revenue  has  not  controverted  the  afore-stated  factual  

position, nor has it adduced any evidence to suggest that  

the processes mentioned in the afore-extracted declaration  

induce some permanent change in the “grey fabric”. A bare  

perusal of the nature of the processes, explained in the said  

declaration reveals that the processes mentioned therein do  

not  have  the  effect  of  changing  the  “grey  fabric”  into  

another commodity or bring about a permanent or lasting  

change  in  the  fabric  so  as  to  bring  out  a  new  product,  

tantamounting to manufacture in terms of Chapter Note 4  

to Chapter 60 of the Tariff Act. Support is also lent to this  

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view  by  the  decision  of  this  Court  in  Mafatlal’s  case  

(supra).

17. As  regards  the  process  of  electrifying  polish,  now  

pressed  into  service  by  the  revenue,  it  is  trite  law  that  

unless the foundation of the case is laid in the show cause  

notice, the revenue cannot be permitted to build up a new  

case  against  the  assessee.  (See:  Commissioner  of  

Customs,  Mumbai  Vs.  Toyo  Engineering  India  Ltd.7;  

Commissioner of Central Excise, Nagpur Vs. Ballarpur  

Industries Ltd.8 and  Commissioner of Central Excise,  

Bhubaneshwar-I  Vs.  Champdany Industries Limited9).  

Admittedly, in the instant case, no such objection was raised  

by the adjudicating authority in the show cause notice dated  

22nd June 2001 relating to the assessment year 1988-89 to  

2000-01.   However,  in  the  show cause  notice  dated  12th  

December 2000, the process of electrifying polish finds a  

brief  mention.  Therefore,  in  light  of  the  settled  legal  

position, the plea of the learned counsel for the revenue in  

7 (2006) 7 SCC 592 8 (2007) 8 SCC 89 9 (2009) 9 SCC 466

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that behalf cannot be entertained as the revenue cannot be  

allowed to raise a fresh plea, which has not been raised in  

the  Show  Cause  notice  nor  can  it  be  allowed  to  take  

contradictory stands in relation to the same assessee.  

18. In  light  of  the foregoing  discussion,  we  are  in  

agreement with the Tribunal that the said processes do not  

amount to “manufacture” in terms of Note 4 of Chapter 60  

of  the  Tariff  Act,  and  hence  the  fabric  in  question  is  

“unprocessed knitted fabric” falling under Sr. No.165 of the  

exemption notification No. 06/2000 dated 1st March 2000,  

attracting Nil  rate of duty as also under notification Nos.  

5/99, 9/96 and 18/96. These appeals are bereft of any merit  

and  are,  therefore,  dismissed  accordingly,  leaving  the  

parties to bear their own costs.

.……………………………………J.            (D.K. JAIN)  

                             .…………………………………….J.           (C.K. PRASAD)

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NEW DELHI; OCTOBER 22,  2010

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