TMI Blog2015 (11) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ton yarn and not knitted hosiery. Knitted hosiery is the end product of the buyer. If buyer removes the wax after manufacture of knitted fabrics, that may not be of any consequence insofar as the assessee is concerned and would be totally extraneous to determine the issue at the hands of the assessee. Those units which manufacture goods out of both imported and indigenous raw material would not be entitled to the benefit of Notification No.8/97. No doubt, as per para 3 (b), if imported consumables are used, benefit of the notification would still be available. However, in the present case, we find, as a fact, that wax is not used as consumable but as raw material. For same reasons, other circulars also will not advance the case of the assessee. - Decided against assessee. - Civil Appeal No. 4112 of 2007 - - - Dated:- 27-10-2015 - A. K. Sikri And Rohinton Fali Nariman, JJ. For the Appellant : Mr. K. K. Mani, Adv. Ms. T. Archna, Adv For the Respondent : Mr. B. Krishna Prasad, Adv JUDGMENT A. K. Sikri, J. The appellant-assessee is engaged in the manufacture of cotton yarn which is 100% Export Oriented Undertaking (EOU) constituted as per Export and Import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C for Cenvat purposes . 3. The Commissioner of Central Excise, Coimbatore after hearing the matter, passed the Order-in-Original dated 21.06.2002 deciding the matter in favour of the assessee and, thus, dropped proposed demand in the show cause notice by recording the finding to the effect that: (i) Wax disc acted as a lubricant and facilitated processing and use in the manufacturing process and remained a temporary coat. (ii) By Circular No.631/22/2002-CX dated 28.03.2002, the Ministry of Finance held that consumables used in capital goods cannot be termed as 'raw material' for the manufacture of finished goods and in the case wax was only a consumable for the capital goods. (iii) Revenue was inconsistent in having dealt with wax discs as consumable in the warehousing operation of the appellant but dealt as raw material for denying the benefit of exemption. (iv) Benefit was available to cotton yarn manufactured wholly out of indigenous cotton as well as cotton yarn manufactured out of imported cotton yarn on which appropriate additional duty of customs was paid when removed into DTA. 4. However, the Central Board of Excise Customs, reviewed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yarn and provide lubrication to this product. It was not used as raw material for the production of cotton yarn, as yarn could be produced even without the said wax cotton. He also explained that the cotton yarn was sold by the appellant to the consumers for the purpose of manufacturing/fabricating the garments and after the fabrication, the said wax was removed. Therefore, on that basis, he submitted that the requirement of the notification was that the product which is cotton yarn in the instant case had to be manufactured from raw material and when the matter is considered in the aforesaid perspective since wax was not the raw material for the production of yarn, the use thereof could not disqualify the appellant from taking benefit of Notification No.8/97-C.E. 8. Mr. Bagaria also referred to Circular No.389/22/98-CX issued by the Ministry of Finance on Notification No.8/97-C.E. dated 01.03.1997 applicable to 100% EOU, which clarified certain doubts and paragraph 3 thereof reads as under: 3. The matter has been examined by the Board and it is clarified that: (a) In respect of situation (i) above the benefit of Notification 8/97-C.E. dated 01.03.1997 cannot be exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed goods. Therefore, it is clarified that benefit of concessional rate of duty under Notification No.8/97-C.E. dated 01.03.1997 (as amended) should not be denied to export oriented units using imported consumables with capital goods provided all other conditions of notification are satisfied. 10. Mr. Bagaria went on to argue that the issue was no more res integra as this Court had already taken a view on this aspect, favourable to the assesses/manufacturers. In this direction, he pointed out that the Chennai Bench of the Tribunal in the case of Super Spinning Mills Ltd. v. Commissioner of Central Excise, Tiruchirapalli 2013 (296) ELT 133 which was concerned with identical type of case, took the view in the process of waxing of hosiery cotton yarn which was done at the winding stage, wax could not be considered as raw material but was only consumable and on that basis, held that the use of imported wax would not debar the assessee from claiming benefit of the exemption Notification No.8/97-C.E. dated 01.03.1997. In order to show the parity of that case with the instant matter, learned senior counsel referred to the discussion contained in para 2 of the said decision of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missed on the ground of delay as well as on merits. He, thus, made passionate plea that this appeal be also allowed on the basis of parity. 12. Ms. Shirin Khajuria, advocate with the guidance of Mr. K. Radhakrishnan, senior advocate argued the matter on behalf of the Revenue/respondent and stoutly refuted the aforesaid submissions of the appellant's counsel. Main thrust of her argument was that the decision of Super Spinning Mills Ltd. was not applicable to the facts of the present case and in this behalf, she endeavoured to draw subtle distinction between the facts of the two cases. She further submitted that the Tribunal had appreciated the same in the impugned decision appropriately discerning the facts of the present case and, therefore, the impugned order did not warrant any interference. We shall take note of the arguments of Ms. Khajuria in some detail at the later stage. At this point of time, we would like to deal with the contentions raised by the learned senior counsel for the appellant. 13. The appellant is seeking the benefit of exemption Notification No.8/97-C.E. Since it is an exemption notification, onus lies upon the appellant to show that its case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rials or goods are required for the manufacturing process, such materials or goods would be treated as the 'raw material', whether they have actually been previously manufactured or are processed or are still in a raw or natural state. 16. These expressions have come up for interpretation before this Court on earlier occasions in few cases. Some of these judgments were taken note of in the case of Vanasthali Textiles Industries Ltd. v. CCE, Jaipur (2007) 12 SCC 115 . We may clarify at the outset that the Court in that case was concerned with the provisions at the relevant time that did not contain the definition of 'raw material' and, therefore, it banked upon the meaning that has to be given in ordinary connotation in the common parlance of those who deal with the matter. At the same time, some observations made in the said case, particularly, 'dominant ingredient test', which was applied were pressed into service by the appellant and, therefore, the discussion in the said judgment becomes relevant. As far as term 'raw material' is concerned, following discussion followed in the said judgment: 13. The expression raw material is not a defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enim the basic raw material and the finished product cannot be treated as wholly produced or manufactured from cotton. Therefore, placing reliance on Ballarpur case, it was held that the finished product is not wholly from basic raw material i.e. cotton but it has to be treated that the dye is also a raw material which is imported. 15. It is to be noted that cost of dye varied between 2 and 2.5% of the total production cost. The denim is manufactured from cotton and not from indigo. The condition for getting the benefit of the notification is that the end products should be wholly manufactured from the raw material produced and sold in India. 16. It is to be noted that dominant ingredient test has not been applied in the instant case; so also the effect of value addition. In Ballarpur case it was held in para 19 as follows: (SCC p. 573) 19. We are afraid, in the infinite variety of ways in which these problems present themselves it is neither necessary nor wise to enunciate principles of any general validity intended to cover all cases. The matter must rest upon the facts of each case. Though in many cases it might be difficult to draw a line of demarcation, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the view expressed in Dy. CST v. Thomas Stephen Co. Ltd (1988) 2 SCC 264 and Coastal Chemicals Ltd. v. CTO (1999) 8 SCC 465. In the cases at hand consumables are treated differently from raw materials . 17. In that case, the Court was concerned with the same notification wherein the appellant-company, which was 100% EOU, claiming partial exemption from duty in terms of Notification No.8/97 in respect of goods sold in DTA. One of the conditions for availing the benefit of the said notification was that the goods could have been manufactured wholly from the raw material produced or manufactured in India. For manufacturing the goods in question, the said assessee had procured the raw material from domestic manufacturer in India and had also imported (1) carboxymethyl cellulose which is used for sizing of single yarn to give strength to the yarn during weaving after which the woven towels are washed to remove completely the sizing materials and (2) ultrafresh N.M. which is used for anti-bacteria and anti-fungus treatment of terry towels. The question that fell for consideration was as to whether the aforesaid imported material used while manufacturing the goods could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem which does not form part of the end product. The assessee while arguing so is taking into consideration the end product at the hands of buyer which is not only extraneous and irrelevant but clearly impermissible. We are concerned with the article manufactured by the assessee, viz. cotton yarn, and not with the new and altogether different product, viz. knitting hosiery, manufactured by the buyer, who buys the cotton yarn as raw material/input. The article manufactured by the assessee is cotton yarn. Insofar as the assessee is concerned, its 'end product' is cotton yarn. This cotton yarn becomes input for the manufacture of hosiery by the buyer who buys the cotton yarn from the assessee. This is to be kept in mind while determining whether wax as an item used in manufacturing cotton yarn becomes part of this cotton yarn or not. 20. Concentrating on this pertinent aspect, let us revisit the manufacturing process of cotton yarn by the assessee, which is the 'end product' as far as the assessee is concerned. 21. Evidence has emerged on record, on which there is no dispute, that the final product which was cleared by the assessee, namely, cotton yarn was m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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