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CASE NO.: Appeal (civil)  5398 of 2002

PETITIONER: Mathania Fabrics         

RESPONDENT: Commnr. of Central Excise Jaipur

DATE OF JUDGMENT: 04/01/2008

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T

(With Civil Appeal No.1856/2005)

Dr. ARIJIT PASAYAT, J.

1.      These two appeals involve identical questions and are,  therefore, disposed of by this common judgment.  Appeals are  directed against the orders passed by the Customs, Excise and  Service Tax Appellate Tribunal, New Delhi (in short the\022  \021CESTAT\022) and Customs, Excise & Gold Control Appellate  Tribunal, New Delhi (in short the \021CEGAT\022).  The appeals filed  by the appellants were dismissed by CESTAT holding that they  were not entitled to benefit of concerned notifications. In case  of appellant M/s Vimal Textile Mills, the concerned  Notifications were Notification No.28/94-CE dated 1.3.1994  the Notification No.8/96-CE dated 23.7.1996 and its  successor Notifications.  CESTAT denied the benefit relying on  a larger Bench\022s decision in the case of M/s Mathania Fabrics  v. Commissioner of Central Excise, Jaipur [2002 (142) ELT 49  LB]. Same is the subject matter of challenge in C.A.No.5398 of  2002.  

2.      Background facts in a nutshell are as follows:

    Appellants are engaged in the processing of cotton fabrics  falling under Chapter 52. They claimed to be undertaking the  processes of bleaching, mercerising, dyeing, printing, washing,  drying and finishing before the fabrics were packed and  cleared.            Note 3 to Chapter 52 reads as follows:            \023In relation to the manufacture of  products of Heading Nos. 52.07, 52.08 and  52.09, bleaching, mercersing, dyeing, printing,  water proofing, shrink-proofing, organdie  process or any other process or any one or  more of these processes shall amount to  manufacture.\024             3.      In Civil Appeal No.1856 of 2005 the stand taken by the  appellants was that they were not using power in the  processing of the fabrics and, therefore, the benefit which they  were earlier availing was available. They had not used any

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power while undertaking the activities of bleaching,  mercersing, dyeing, printing, washing, drying and finishing  before the fabrics were packed and cleared. It was further  submitted that the Notification No.5/99 was amended by  Notification No.35/99-CE dated 28.8.99 and the same was  applicable retrospectively and the Explanation below serial  No.102 of Notification No.5/99 was substituted as under:         \023Explanation- For the purposes of this  exemption, cotton fabrics subjected to any one  or more of the following processes with the aid  of power, shall be deemed to have been  processed without the aid of power or steam,  namely:- (a)     lifting to overhead tanks or emptying in  underground tanks handling of chemicals  such as acids, chlorine, caustic soda.\024

4.      It was, therefore, submitted that there was doubt about  the applicable provisions and, therefore, Section 11A of the  Central Excise Act, 1944 (in short the \021Act\022) was not applicable.  5.      Stand of the Revenue on the other hand was that the  amendment to the Notification was not retrospective and in  effect it substituted the explanation. Reference was also made  to the Explanation by Notification No.35/99-CE dated 4th  August, 1999 which reads as follows: \023Explanation - For the purpose of this  exemption, cotton fabrics subjected to any one  or more of the following processes with the aid  of power, shall be deemed to have been  processed without the aid of power or steam  namely: chemicals for lifting the water and for  drying the fabrics does not amount to use of  power in the processing of cotton fabrics.\024    

6.      CESTAT held that there was nothing in the Notification  dated 4.8.99 to suggest that the amendment carried out was  to be given retrospective effect. It was held that factually the  adjudicating authority had found that power had been used.    7.      Appellants took the stand that the processes undertaken  amounted to manufacture but for the deemed definition of  manufacture as noted above the processes undertaken by the  appellants would not amount to manufacture.  In respect of  the above processes undertaken by the appellant and no  power was used.  Appellants claimed benefit of exemption  granted to \023cotton fabrics processed without the aid of power\024.   Appellants took the stand that since they had not used the  power in respect of the above processes, the benefit was   available.  They submitted that the use of power was only in  certain ancillary and incidental areas such as mixing of  chemicals etc. and therefore the benefit could not have been  denied.  Department denied the benefit on the ground that  there was use of power and the view was found by the  tribunal.  In any event it was submitted that when the position  in law was not clear and the authorities had to issue  clarification, Section 11A of Act cannot be invoked. Tribunal  after referring to the definition of manufacture under Section  2(f) of the Act and the decisions of this Court in J.K. Cotton  Spg.Wvg. Mills Co. Ltd. v. Sales Tax officer, Kanpur [1997(91)  ELT 34 SC] and CCE, v. Rajasthan State Chemical Works  [1991(55) ELT 444 SC] held that the use of power in the  operation of stirrer and electric motor for lifting water and  caustic soda would amount to manufacture with the aid of  power.  In view of the decision of this Court in Rajasthan State  Chemicals Works case (supra) the stand about the

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applicability of Section 11A was held to be untenable. It held  that the period involved was subsequent to the decision.  Strong reliance is placed on a letter of Commissioner of  Central Excise dated 10.1.1999, to contend that there was  doubt about the nature of the process involved.  Said letter is  significant. In view of this Court\022s decision it is not known  under what circumstances the letter was written. It is to be  noted that the penalty amounts were equivalent to the extra  demand raised but the Tribunal has reduced to it to  Rs.25,00,000/-. Therefore, the appeal No. 1856 of 2005 is  clearly without merit and we dismiss it.        8.      So far as Civil Appeal No. 5398 of 2002 is concerned, the  period involved is 14.12.1980 to 15.12.1985 when the first  notice was issued on 9.12.1986. It appears that in the show  cause notice reply there was no reference to this aspect.  So  far merit is concerned, the plea was that there is no aid of  power used. It is to be noted that in paragraph 9 of the order,  CEGAT observed as follows: \023If pumping of brine into salt pans and lifting  of coke and lime stone to the platform with the  aid of power can be treated as part of the  continuous process of manufacture, there is  no reason to hold otherwise when power is  used for lifting water and pouring the same in  the kier and bleaching vessel. It is not the case  of the assessee that water is not an essential  ingredient for the process of kiering and  bleaching. The pouring of water into kier and  bleaching vessel are steps integrally connected  with the whole process. We, therefore, hold  that the appellant is not entitled to claim the  benefit of Notification No. 173/77 dated  18.6.77 as amended by Notification No.  130/82 CE dated 20.4.82 as part of the  process was being carried out with the use of  power.\024       9.      Therefore, factually the stand that there was no use of  power is unsustainable.  Coming to the period of limitation the  five years period has to be reckoned backward from 8.2.1989  when the show cause notice was issued.  The Commissioner  shall work out the liability and the penalty amount has to be  equivalent to the amount of tax demand.       10.     The appeal is allowed to the aforesaid extent. No costs.