2007 (6) TMI 112 - AT - Central Excise

Manufacture - Department contended that rags generated after elaborate process undertaken on imported worn clothing amount to manufacture and liable for excise duty - Matter being decided partially in favour of appellant and partially in department

Summary

Issues Involved:
1. Excisability of rags.
2. Eligibility for exemption from Customs duty under Notification No. 52/2003-Cus.
3. Interpretation of tariff items with blank duty rates.
4. Applicability of the manufacturing process definition.

Issue 1: Excisability of Rags

The appellant, a 100% EOU, imported unmutilated worn clothing, which was then mutilated into rags. The Commissioner ruled that rags are not excisable goods, as they are not specified in the Central Excise Tariff with a rate of duty. The appellant argued that the mere mention of rags in the tariff should make them excisable, citing the Supreme Court's decision in Associated Cement and Hind Rubber Factory, which interpreted "excisable goods" as those specified in the tariff schedules, regardless of whether a duty rate is specified.

The Tribunal held that mere mention in the tariff is not sufficient for excisability; the goods must arise from a manufacturing process. Since the process of mutilation does not amount to manufacturing, rags from worn clothing are not excisable, even if mentioned in the tariff.

Issue 2: Eligibility for Exemption from Customs Duty

The Commissioner denied the exemption under Notification No. 52/2003-Cus for inputs used to manufacture non-excisable finished products. The appellant contested this, arguing that rags should be considered excisable. The Tribunal upheld the Commissioner's decision, stating that since rags are not excisable, the exemption does not apply.

Issue 3: Interpretation of Tariff Items with Blank Duty Rates

For the period post-1-3-2005, rags were listed under Heading 63.10 in the tariff, but with blank duty rates. The appellant argued that such items should still be considered excisable. The Tribunal referenced the Additional Note to the General Rules for Interpretation, which states that tariff items include those with blank duty rates. Thus, rags listed under Heading 63.10 are considered tariff items, but not necessarily excisable if they do not arise from a manufacturing process.

Issue 4: Applicability of the Manufacturing Process Definition

The Commissioner found that the process of converting unmutilated worn clothing into rags constitutes manufacturing, as it results in a different product that is marketable. However, for the period up to 28-2-2005, the Commissioner noted that rags were not specified in the tariff schedules and thus not excisable. The Tribunal agreed with the Commissioner's findings, emphasizing that the process must be considered manufacturing under the Central Excise Act for the goods to be excisable.

Separate Judgments:

Member (Technical): Rejected the appeal entirely, stating that rags are not excisable and the denial of exemption is correct.

Member (Judicial): Partially allowed the appeal, remanding the case for fresh consideration for the period prior to 1-3-2005, and agreed that post-1-3-2005, rags are tariff items but not excisable due to the blank duty rate.

Third Member (Judicial): Concurred with the Member (Judicial), stating that the appeal should be partially allowed and remanded for fresh decision based on the interpretation of tariff items and manufacturing process.

Final Order: The appeal is partially allowed and remanded for fresh decision in light of the observations made, aligning with the majority decision.