TMI Blog2009 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Central Excise Tariff Act, 1985 ("CET" for short) is entitled to the exemption under Notification No.30/2004 dated 9/7/2004 is the basic question raised in this petition. 2. According to the revenue, serial No.10 of the Notification No.30/2004 specifically provides that the inputs used in the manufacture of goods falling under Heading 55.06 must be "staple fibres" and therefore the exemption is available only if the inputs used are 'staple fibres' falling under Heading 55.03 and the exemption would not be available if the inputs used are goods falling under Heading 55.01. 3. According to the petitioners, the Notification No.30/2004 read with the new tax regime for the Textile sector announced by the Hon'ble Finance Minister on 8/7/2004 clearly shows that the exemption is not restricted to the duty paid inputs falling under Heading 55.03 but it is also applicable to the duty paid inputs falling under Heading 55.01. 4. The petitioners contend that, if the argument of the revenue that the term 'staple fibres' in serial No.10 of the Notification No.30/04 applies only to the "staple fibres" falling under Heading 55.03 is accepted, then the Notification would be violati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (covered under Heading 55.01) by a process known as 'tow to top process'. By notification No.30/04, excise duty on tops was exempted provided the inputs used in the manufacture of tops were staple fibres procured from outside and the manufacturer of tops does not have the facility to manufacture goods falling under Heading 55.01 to 55.04 of the CET. Dispute in the present case is, whether the petitioners who have manufactured tops from duty paid inputs falling under Heading 55.01 are entitled to the exemption contained in Notification No. 30/04? 8. Under the CET, excise duty on man-made synthetic staple fibres is payable at three stages specified in Chapter 55 of the CET as follows :- Heading No. Subheading No. Description Rate of duty Rate of duty Basic Additional 55.01 Synthetic Filament tow 16% 55.03 Synthetic staple fibres, not carded, combed or otherwise processed for spinning 16% 55.06 Synthetic staple fibres, carded, combed or otherwise processed for spinning 16% 9. With the introduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new regime. Firstly, the mandatory Cenvat chain will stand abolished. Secondly, there will be no mandatory excise duty on pure cotton, wool and silk, whether it is fibre, yarn, fabric or garment. Thirdly, blended textiles and pure non-cotton (polyester, viscose, acrylic and nylon) will have a different tax regime. Fourthly,there will be a mandatory excise duty on man-made staple fibre at 16 per cent; on polyester filament yarn (including textured yarn) at 24 per cent; and on other man-made filament yarn (including textured yarn) at 16 per cent. 145. Every manufacture - be it handloom or powerloom or composite mill - will have the option to choose between two routes. One will be the exemption route and the other will be the Cenvat route. Under the exemption route, no excise duty will be payable at any stage (except on man-made fibre and filament yarn). Under the Cenvat route, credit can be taken for all excise duties paid at earlier stages. For the purposes of the optional Cenvat route, it is necessary to specify in the Tariff schedule the applicable excise duty rates. For the pure cotton sector, the uniform rate will be 4 per cent on yarn, fabrics, garments and made- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d synthetic staple fibres and filament yarns). Except for these duties, textile goods (yarn, fabrics, garment, articles of chapter 50 to 63) will be fully exempt if no credit of duties is taken under the Cenvat Credit Rules." In the concluding para of the aforesaid letter dated 8-7-2004, the Joint Secretary (TRU) stated as follows : "10. All rate changes in customs and excise duties are explained in detail in the Explanatory Notes. You would appreciate that number of changes have been carried out through amendments in notifications, rules and Acts. Though every care has been taken to reflect the intention of the Government clearly in all these documents, the chances of human error cannot be ruled out. I would, therefore, request you to kindly go through the explanatory notes, notifications and Finance Bill carefully and bring to my notice at the earliest any omission / error that might have crept in. ................" 12. In the Explanatory Notes to the budget proposals, the new tax regime for the textile sector was explained as follows:- "14.0 Chapters 50 to 63 (Textiles) 14.1 Polyester filament yarns, including polyester textured yarns (of sub-headings 5402.20, 540 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtile sector introduced on 8/7/2004, the manufacturer of textile goods had the option of following either the CENVAT method or the exemption method by paying the mandatory excise duty under the new tax regime. 15. The petitioners had opted to follow the exemption method. Accordingly, from 9/7/2004 the petitioners had cleared 'Tops' falling under Heading 55.06 manufactured from duty paid 'Tow' falling under Heading 55.01 without payment of duty, on the ground that under the new tax regime read with Notification No. 30/04 no excise duty was payable on tops manufactured from 16% excise duty paid tow. The petitioners contend that these facts are reflected in the monthly ER-1 returns regularly filed by them from 9/7/2004. 16. However, almost after four years, i.e. in March 2008, the excise officers on the basis of audit objection raised a dispute to the effect that the exemption Notification No.30/04 is available only if the polyester tops are manufactured by procuring from outside duty paid staple fibres falling under Heading 55.03. Since the petitioners had manufactured tops by procuring duty paid 'Tow' and not duty paid 'staple fibres' covered under Heading 55.03, it was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty and interest as more particularly set out in the said order. Appeal filed against the said order in original is pending. 22. When the present Writ Petition was taken up for the final hearing, counsel on both sides submitted that irrespective of the fact that the appeal filed against the adjudication order is pending, it would be just and proper to decide the Writ Petition on merits since the dispute relates to the interpretation of the term 'staple fibres' used in serial No.10 of Notification No. 30/04. Accordingly, we have heard Counsel on both sides. 23. Before dealing with the rival contentions, we may reproduce the Notification No.30/04 in full which reads thus:- "Notification New Delhi, dated the 9th July, 2004 No.30/2004-Central Excise 18 Asadha,1926 (Saka) G.S.R.(E) - In exercise of the powers conferred by sub-section (1)of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue)No.07/2003-Central Excise dated the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 6 per cent. 8. 55.05 All goods, except such goods which arises during the course of manufacture of filament yarns, monofilaments, filament tows or staple fibres or manufacture of textured yarn (including draw twisted and draw wound yarn) of heading Nos. 54.02, 54.03, 55.01, 55.02, 55.03 or 55.04 Explanation:- For the purposes of this exemption, 'manufacture of filament yarns, monofilaments, filament tows or staple fibres' means manufacture of filaments or staple fibres of organic polymers produced by processes, either; (a) by polymerization of organic monomers, such as polyamides, polyesters, polyurethanes, or polyvinyl derivatives; or (b) by chemical transformation of natural organic polymers (for example cellulose,casein, proteins or algae), such as viscose rayon, cellulose acetate, cupro or alginates. 9 55.08, 55.09, 55.10, 55.11, 55.12, 55.13, 55.14 All goods 10 55.06, 55.07 Staple fibres procured from outside and subjected to carding, combing or any other process required for spinning, by a manufacturer who does not have the facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inputs falling under Heading 5.03 but also to inputs falling under Heading 55.01 can e summarised as follows :- (a) s per Note No.1 to Chapter 54 of the CET, the term 'man-made fibres' in the entire first Schedule to the CET means staple fibres. While presenting the budget proposals on 8/7/2004, the Hon'ble Finance Minister had stated at para 144 and 145 of the budget proposals that he is introducing new tax regime for the textile sector under which the mandatory duty at 16% would be payable on man-made staple fibres / man-made fibres. Thus, in the new tax regime the term 'staple fibre' and 'fibre' have been used as interchangeable term and therefore the term 'staple fibre' n the Notification No. 30/04 would apply to fibre falling under Heading 5.01 as well as staple fibre falling under Heading 55.03. (b) Even in the Explanatory Notes to the budget proposals [see para 14 (2)], tow and staple fibres have been considered as fibres. Therefore, the term 'staple fibre' at serial No.10 of Notification No. 30/04 are liable to be construed to apply to fibres falling under Heading 55.03 and 55.01. (c) As per the new tax regime the mandatory excise duty at 16% is payable on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a manufacturer is entitled to clear the inputs without payment of duty for manufacture of final products within the factory. Therefore, to ensure that the inputs are duty paid for availing the exemption under Notification No.30/04 it is provided that the manufacturer of goods falling under Heading 55.06 / 55.07 must not have the facility to manufacture inputs falling under Heading 55.01 to 55.04 because, the inputs procured from outside are bound to be duty paid. Accordingly, it is submitted that the term 'staple fibres in the Notification must be held to apply to duty paid inputs falling under Heading 55.01 to 55.04. (e) If the product emerging from the tow to top process is admittedly 'synthetic staple fibres carded, combed or otherwise processed for spinning' specified under Heading 55.06, then, obviously the 'tow' used as inputs, would be synthetic staple fibres which are uncarded, uncombed or otherwise not processed for spinning. In other words, 'tow' (55.01) which is nothing but uncarded, uncombed or otherwise unprocessed synthetic staple fibre would be squarely covered by the term 'staple fibres' used at serial No.10 of Notification No. 30/04. (f) Relying on the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of classification, because, 'tow' of a length, not exceeding 2 metre is classified as 'unprocessed staple fibre' under Heading 55.03 and 'tow' of a length exceeding 2 metre is classified as 'synthetic filament tow' under Heading 55.01. Therefore, when there is a basic difference between the 'tow' and 'staple fibres' and the Notification No.30/04 specifically uses the term 'staple fibre' and it is not open to the petitioners to contend that the term 'staple fibre' covers 'tow'. Consequently, the argument of the petitioners that the term 'staple fibre' has been used as an interchangeable term for 'tow' cannot be accepted. 29. Mr.Sethna submitted that the legislature has deliberately used the word 'staple fibre' and not merely 'fibre' at Sr. No.10 of the Notification with a view to restrict the grant of exemption. He submitted that no doubt, the word 'fibre' would include 'Tow' as well as 'staple fibre'. However, as the legislature has deliberately chosen the word 'staple fibre', it is clear that unless the starting raw material is 'staple fibre', the exemption is not available. In the present case, admittedly the process had not commenced with staple fibre as raw material, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the desired length to obtain unprocessed staple fibre which is thereafter subjected a process to obtain processed staple fibre falling under Heading 55.06. The important difference between staple fibre used in the manufacture of Tops under the conventional method and the 'tow to top' method is that in the case of conventional method, in view of cutting tow to a length less than 2 metres, the continuity of the fibres is broken, whereas in the 'tow to top process' the continuity of the fibres is not lost. However, the fact remains that even in the 'tow to top process', the tow on being cut to a desired length, unprocessed staple fibre emerges which is thereafter processed in to 'processed staple fibre' falling under Heading 55.06. Therefore, it is clear that in the present case, staple fibre emerges as an intermediate product within the factory and it being not procured from outside as provided in the Notification, the benefit of the exemption is not available to the petitioners. 33. Mr.Sethna submitted that admittedly the processed staple fibre (55.06) is manufactured by the petitioners from tow of higher quality because the processed staple fibre is thereafter blended with po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.30/04 was issued in implementation of the new tax regime announced on 8-7-2004 ? While presenting the budget proposals in the Lok Sabha on 8-7-2004, the Hon'ble Finance Minister had announced a new tax regime for the textile sector and the Notification No.30/04 was issued along with the budget proposals. The Joint Secretary (TRU) while forwarding the budget proposals together with various Notifications to the Chief Commissioners / Commissioners on 8-7-2004 specifically stated that every care has been taken to reflect the intention of the Government in the Notifications and in spite of the above, if any error is found in the Notifications, the same should be brought to his notice immediately. Thus, it is clear that the Notification No.30/04 was issued in implementation of the new tax regime. 39. The next question to be considered is, what was the new tax regime for the textile sector announced by the Hon'ble Finance Minister on 8-7-2004 ? 40. Prior to the introduction of the new tax regime, excise duty payable on the textile goods were enumerated in Chapters 50 to 63 of the CET. The dispute in the present case relates to the excise duty on manmade staple fibres covered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners inter alia manufacture processed staple fibre (Tops) falling under Heading 55.06 out of 16% excise duty paid inputs viz. Synthetic filament tow ('Tow') falling under Heading 55.01 by a process known as 'Tow to Top process. The question is, under the new tax regime read with Notification No. 30/04, whether excise duty is payable on clearance of Tops (55.06) manufactured from 16% duty paid Tow (55.01)? 46. Notification No.30/04 does not provide for exemption on synthetic / artificial filament tow (55.01 / 55.02). Therefore, on manufacture and clearance of tow (55.01 / 55.02) mandatory excise duty at 16% has to be paid under the new tax regime. Where tow (55.01 / 55.02) is manufactured but cleared after cutting it into pieces of a length less than 2 metre, then, it is classified under Heading 55.03 / 55.04. In such a case, mandatory excise duty at 16% is payable on clearance of tow of a length less than 2 metre (55.03 /55.04). Where mandatory duty paid tow of a length exceeding 2 metre (55.01 / 55.02) or tow of a length less than 2 metre (55.03 / 55.04) is converted in to processed staple fibres (Tops) falling under Heading 55.06 /55.07, under the new tax regime, no ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of Tops (55.06 / 55.07). If it is held that the term 'staple fibres' in the Notification No.30/04 is restricted to inputs falling under Heading 55.03 / 55.04, then it would mean that 16% excise duty has to be paid on clearance of Tops (55.06 / 55.07) even though it is manufactured from 'tow' falling under Heading 55.01 / 55.02 on which 16% excise duty has already been paid. Such a construction of the Notification which defeats the mandate of the new tax regime cannot be accepted. Therefore, reading the term 'staple fibre' harmoniously with the new tax regime, it must be held that the term 'staple fibres' applies to inputs falling under Headings 55.01 to 55.04 which are used in the manufacture of Tops (55.06 / 55.07). 50. It is true that Chapter 55 of the CET classifies Tow under Headings 55.01 / 55.02 or 55.03 / 55.04 based on the length of the tow. In view of Chapter Note 1 to Chapter 55, tow of a length exceeding 2 metre are classified under Heading 55.01 / 55.02 and tow of a length not exceeding 2 metre are classified under Heading 55.03 / 55.04 as 'staple fibres not carded, combed or otherwise processed for spinning'. However, both these products are covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unprocessed staple fibre (55.03 / 55.04)', the legislature has made it clear that the exemption is generally available to duty paid inputs falling under Heading 55.01 to 55.04 which are used in the manufacture of tops. 53. The fact that the Notification No.30/04 refers not only to the process of carding and combing but also to any other process clearly shows that the Notification is intended to cover inputs not only falling under Heading 55.03 / 55.04 but also inputs falling under Heading 55.01 / 55.02, because Tops (55.06 / 55.07) are obtained by carding and combing the unprocessed staple fibre (55.03 / 55.04) and Tops (55.06 / 55.07) are also obtained from Tow (55.01 / 55.02) by a process other than carding and combing, viz by the process known as 'Tow to Top process. Therefore, to construe that the term 'staple fibre' in the Notification No.30/04 applies only to the uncarded / uncombed staple fibre (55.03 / 55.04) would be contrary to the express words used in the Notification. 54. Apart from the above, the Notification No.30/04 specifically provides that the exemption would not be available to a manufacture of goods falling under Heading 55.06 / 55.07 having facility to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only at the stage of Tow (55.01 / 55.02) but also at the stage of Tops (55.06 / 55.07). Thus, to avoid any absurd situation, it is just and proper to construe the Notification in consonance with the new tax regime by holding that the term 'staple fibres' in the Notification refers to inputs falling under Heading 55.01 to 55.04. 56. The argument of the revenue that the exemption under Notification 30/04 is available only if the starting raw material is the 'staple fibre falling under Heading 55.03 / 55.04' is also without any merit, because, if the legislature intended to restrict the exemption to the inputs such as 'staple fibres falling under Heading 55.03 / 55.04' then it would have specifically stated so. However, the legislature has described the inputs as 'staple fibre' which clearly means that the Legislature intended to give larger meaning to the term 'staple fibre' instead of giving a restricted meaning. Therefore, in the absence of any indication to the contrary, it would not be proper to restrict the meaning of the term 'staple fibre' to 'staple fibre falling under Heading 55.03 / 55.04'. 57. The contention of the revenue that the Notification No.30/04 is int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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