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The Commissioner of Customs (Exports) Versus M/s. Prashray Overseas Private Limited, Customs Excise & Service Tax Appellate Tribunal

2016 (5) TMI 1106 - MADRAS HIGH COURT

Levy of CVD on import of silk fabrics - (i) Whether the imported goods are eligible for claiming benefits under the Central Excise Exemption Notification No.030/2004 dated 9.7.2004 when there was no compliance of the conditions as contemplated under the said Notification? and (ii) Whether the Central Excise General Exemption Notification No.030/2004 dated 9.7.2004 is applicable only for the indigenously manufactured goods or even for the imported goods manufactured abroad? - Held that:- in the a .....

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the first respondent cannot be taken to have fulfilled the condition stipulated in the proviso to the Notification No.030/2004 dated 9.7.2004, unless he had shown that in the entire process of manufacture of woven silk fabrics falling under Tariff Item No.5007, there are no inputs (used directly or indirectly and whether found in the final product or not), which attract any levy of duty under tariff items relevant to those inputs. - In cases where the exemption Notification stipulates two c .....

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Additional Solicitor General For the Respondent : Mr. Joseph Prabakar JUDGMENT V. Ramasubramanian, J Both the appeals are filed by the Commissioner of Customs under Section 130 of the Customs Act, 1962, challenging a common order passed by the Customs, Excise and Service Tax Appellate Tribunal, holding that imported silk fabrics were not liable for payment of counter veiling duty, during the relevant period, in view of the fact that no duty was payable even on indigenous silk yarn during the mat .....

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pter 50, raw silk including Mulberry raw silk, Mulberry dupion silk and non-Mulberry silk are included in Tariff Item Nos. 5002 00, 5002 00 10, 5002 00 20 and 5002 00 30. Similarly silk waste and the other varieties of silk waste are included in Tariff Item 5003 00, 5003 00 10, 5003 00 20, 5003 00 30, 5003 00 40 and 5003 00 90. 4. The Tariff Items 5001, 5002 and 5003, including sub headings thereunder, do not bear any duty of excise. However, silk yarn (other than yarn spun from silk waste not p .....

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alling under Chapter heading 5007, from payment of the whole of the duty of Excise leviable under the Central Excise Act. 5. It appears that the first respondent imported fabrics of silk classifiable under Central Excise Tariff Heading 5007 20 90, under 24 Bill of Entry and claimed Nil duty benefit in terms of the Central Excise Notification No.030/04 dated 9.7.2004. The claim was rejected by the original adjudicating authority on the ground that the Notification dated 9.7.2004 was a conditional .....

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by the Commissioner of Customs (Appeal). The first respondent/assessee filed further appeals to the CESTAT. The CESTAT allowed the appeals by a common order dated 29.9.2008. Aggrieved by the said order, the Revenue has come up with the above appeals. 8. In the main grounds of appeal, the Revenue has raised the following substantial questions of law for the consideration of this Court: (i) Whether the imported goods are eligible for claiming benefits under the Central Excise Exemption Notificatio .....

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s conditional, inasmuch as there was a proviso which read as follows:- "Provided that nothing contained in this Notification shall apply to the goods in respect of which credit of duty vide Corrigendum F.No.334/3/2004 - TRU (PT.I), dated 9.7.2004 on inputs goods has been taken under the provisions of the CENVAT Credit Rules 2002". 10. According to the learned Additional Solicitor General, a domestic manufacturer of the goods specified in the table under the exemption notification dated .....

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on which a duty of Excise could have already been paid in India. Therefore, the learned Additional Solicitor General contended that an importer who is incapable of satisfying the conditions stipulated in the exemption notification, cannot seek the benefit of the exemption notification. 11. However, it is contended by Mr.Joseph Prabakar, learned counsel for the first respondent that the goods imported by the first respondent are silk fabrics, which are manufactured from out of raw silk or silk wa .....

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f Excise, the question of claiming CENVAT credit on the duty component of those inputs would also not arise. Hence, the learned counsel for the first respondent contended that in respect of products, whose inputs are also exempt from payment of duty of Excise, the proviso to the notification No.030/04 dated 9.7.2004 becomes meaningless. As a consequence, all the domestic manufacturers will be eligible to claim exemption without establishing the satisfactory compliance of the condition stipulated .....

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nt establishes that there was no manufacturing process involved in the production of silk fabrics or that all the inputs used in the manufacturing process did not suffer any duty of Excise, the first respondent would not be entitled to advance the above arguments. 13. We have carefully considered the rival submissions. 14. Before we proceed to deal with the rival contentions, it may be necessary to take note of two important developments that have taken place in the recent past. It appears that .....

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ich we have extracted in paragraph 9 above, was amended. After the said amendment, the proviso to the notification reads as follows: "Provided that the said excisable goods are manufactured from inputs, on which, appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been .....

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for the time being in force." 15. Contending that the amendment to the Notification is unconstitutional, inasmuch as it seeks to annul the effect of the decision of the Supreme Court in SRF Limited, a batch of writ petitions have been filed before this Court. But simultaneously, the Central Government also moved a petition before the Supreme Court for a Review of the Judgment in SRF Limited. On 9.9.2015, the Supreme Court condoned the delay and ordered notice in the Review Petition. Theref .....

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analysis of the rival contentions. STATUTORY PROVISIONS 17. It is common knowledge that the goods manufactured in India, subject to certain exceptions, are exigible to duty of Excise. The same goods when imported into India are chargeable to Customs Duty. If due to various reasons, the goods imported into India, even after suffering Customs Duty, cost lesser than those manufactured domestically, the domestic manufacturers would be at a disadvantage. Therefore, in order to provide a level playing .....

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uced or manufactured in India" means the Excise Duty for the time being in force which would be leviable on a like article if produced or manufactured in India. If a like article is not so produced or manufactured in India, the expression would mean the duty that would be leviable on the class or description of articles to which the imported article belongs. Sub-section (8) of Section 3 makes it clear that the provisions of the Customs Act, 1962 and the Rules and Regulations made thereunder .....

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r the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article; Provided that in case of any alcoholic liquor for human consumption imported into India, the Central Government may, by notification in the Official Gazette, specify the rate of additiona .....

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being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty. (8) The provisions of the Customs Act, 1962 and the rules and re .....

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. 19. Section 5A of the Central Excise Act, 1944 empowers the Central Government to exempt, either absolutely or subject to such conditions as may be specified, excisable goods of any description from the whole or any part of the duty of excise leviable thereon. This power is expected to be exercised by the Central Government, if it is satisfied that it is necessary in the public interest to do so. The Proviso to Section 5(A)(1) makes it clear that the exemption granted by the Central Government .....

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rters, the imported article would normally be entitled to the same benefit that is given to a domestic manufacturer. In other words, if the goods manufactured in India are exempt from payment of duty of excise, the imported goods of the same description would not also suffer countervailing duty. 21. Therefore, when the Central Government issued a Notification bearing No.030/2004 dated 9.7.2004, in exercise of the powers conferred by Section 5A of the Central Excise Act, 1944, exempting goods fal .....

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mplates different types of exemptions. The exemption could be conditional or absolute. It could be partial or whole. According to the Department, if the exemption is absolute and total, an importer may be entitled to the benefit thereon. But, if it is conditional even in respect of a domestic manufacturer, an importer cannot juxtapose himself in the position of a domestic manufacturer and claim the benefit. 22. It appears that the same issue has repeatedly come up for consideration before the Ho .....

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der for exemption from payment of countervailing duty. The exemption Notification was actually a partial exemption and the Notification stipulated two conditions namely (a) that the product should have been manufactured from raw naptha or any chemical derived therefrom and (ii) that on such raw material, the appropriate amount of duty of excise should have already been paid. In other words, the benefit of exemption was available under the Notification only to a manufacturer, who used a particula .....

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e taken only to be directory in nature. But, the said contention was repelled by the Bombay High Court. 24. In Thermax Private Limited Vs. the Collector of Customs [1992 (4) SCC 440], the assessee, who imported certain goods from Japan for the purpose of using the same for refrigeration/air conditioning of two factories, claimed the benefit of two exemption Notifications bearing Nos.93/ 76 and 63/85, which provided concession of 25% ad valorem. The Notifications stipulated two conditions to be f .....

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ation itself. But, the assessee obviously could not specify the second of the conditions, as the same was attracted only when the Central Excise Rules are applied. Therefore, the assessee paid the CVD and then made a claim for refund. But, the claim was rejected. 25. Their appeals against two orders of rejection, suffered different consequences at the hands of the First Appellate Authority. Therefore, both the assessee as well as the Department filed appeals. The Tribunal allowed the Department& .....

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n the importer will be automatically entitled to the benefit, irrespective of the non fulfillment of the second condition namely the adherence to the procedure of Chapter X of the Rules. In paragraph 11 of the report, the Supreme Court held that the Tribunal was wrong in denying the benefit to the assessee merely on the ground that the procedure stipulated in Chapter X of the Rules is inapplicable to importers as such. 26. In Hyderabad Industries Limited Vs. Union of India [1995 (5) SCC 15], an .....

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Metal and Engineering Works Vs. Union of India [(1985) 3 SCC 620]. 27. In Khandelwal, the Court was concerned with the import of brass scrap. The brass scrap so imported consisted of damaged articles like taps and pipes not manufactured in India or elsewhere. The assessee argued that additional duty of customs under Section 3(1) could be levied only if an article, which was imported into India, could be manufactured in India or elsewhere. This argument was rejected in Khandelwal by holding that .....

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dustries Limited, a Five Judges Bench of the Supreme Court (in a majority opinion of 3:2), held that Section 3(1) of the Customs Tariff Act, 1975 is a charging section independent of Section 12 of the Customs Act. The view taken in Khandelwal that even if the article had not undergone a process of manufacture or production, it is still subjected to the levy of additional duty, was held, in Hyderabad Industries Limited, to be incorrect. 29. In Motiram Tolaram Vs. The Union of India [1999 (6) SCC .....

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nufactured only with the same raw material by the foreign manufacturer, but since no duty was payable under the Indian Law on the raw material, as it was manufactured by a foreign manufacturer, the condition stipulated in the Notification was impossible of being complied with by an importer. While rejecting the said contention, the Supreme Court held as follows : "Vinyl acetate monomer is an item which is manufactured in India and a rate of excise duty is leviable thereon. On the polyvinyl .....

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sioner of Central Excise Vs. Usha Martin Industries [(1997) 7 SCC 47] and Motiram Tolaram. In Usha Martin Industries, the exemption Notification had imposed a condition that the exempted product should contain a raw material 'on which, the appropriate amount of duty of excise had already been paid'. The Department took a stand that in cases where the raw material had attracted -NIL- duty, the condition stipulated in the Notification cannot be fulfilled and that therefore, the benefit of .....

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olving the conflict between Usha Martin Industries and Motiram Tolaram, the Five Judges Bench of the Supreme Court held in Dhiren Chemical Industries that the conclusion reached in Usha Martin Industries was not correct. Paragraphs 7 to 9 of the opinion in Dhiren Chemical Industries are extracted as follows : "In our view, the correct interpretation of the said phrase has not been placed in the judgment in the case of Usha Martin. The stress on the word 'appropriate' has been mislai .....

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aid and has been paid at the 'appropriate' or correct rate. Unless the manufacturer has paid the correct amount of excise duty, he is not entitled to the benefit of the exemption notification. Where the raw material is not liable to excise duty or such duty is nil, no excise duty is, as a matter of fact, paid upon it. To goods made out of such material, the notification will not apply." 32. In Commissioner of Customs, Amritsar Vs. Malwa Industries Limited [2009 (235) ELT 214 SC], th .....

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d that an exemption Notification should be read literally and that a person claiming the benefit of an exemption Notification, must show that he satisfied the eligibility criteria. But, once it is found that the exemption Notification is applicable to the case of the assessee, the same should be construed liberally. The expression 'same factory' found in the Notification was interpreted by the Supreme Court in Malwa Industries Limited, to mean factory belonging to the importer where the .....

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must establish clearly that he is covered by the provision concerned and in case of doubt or ambiguity, the benefit of it must go to the State." 34. In Hari Chand Shri Gopal, an argument revolving around the doctrine of substantial compliance was raised. But, the Court pointed out that this doctrine is a judicial invention equitable in nature, designed to avoid hardship, where a party does all that can reasonable be expected of it, but failed or faulted in some minor or inconsequential asp .....

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Kay Kay Industries [2013 (14) SCC 94]. But, it was in a different context. The case related to a company, which availed MODVAT credit on the inputs on the strength of the invoices raised by its supplier. But, on verification, it was found that the supplier of inputs had not discharged fully the duty liability for the period covered by the invoices. Therefore, the benefit availed earlier was disallowed. The First Appellate Authority concurred with the view of the Adjudicating Authority. But, the .....

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Chemical Industries, the Supreme Court held that the Constitution Bench was concerned in Dhiren Chemical Industries, with a Notification for exemption. But, in Kay Kay Industries, the Supreme Court was concerned with a Notification issued under Sub-Rule (6) of Rule 57A of the Rules, dealing with the availing of MODVAT credit. Therefore, the Court held that the decision of the Constitution Bench in Dhiren Chemical Industries would have no application to cases of that nature. 37. In Aidek Tourism .....

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s available under the Notification dated 28.2.1993 subject to the condition that the particular goods namely saloon cars are used solely as taxis. There were also four more conditions stipulated in the Notification. A Two Member Bench of the Supreme Court, allowing the claim of the assessee, held that the ratio of the decision in Thermax Private Limited would be squarely applicable to the case, going by the spirit and objective behind the Notification. 38. Aidek Tourism Services Pvt. Ltd. was fo .....

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9. The contention of the Department in S.R.F. Limited was that an importer could have never satisfied the aforesaid condition, as the inputs or capital goods used in the manufacture of those imported goods would not have suffered any duty of excise, making the assessee even eligible for a CENVAT credit. But, the Supreme Court held in S.R.F. Limited that the contention of the Department was completely contrary to the judgment in Thermax Private Limited. Accordingly, the Supreme Court allowed the .....

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ollows : "Provided that the said excisable goods are manufactured from inputs, on which, appropriate duty of excise leviable under the First Schedule to the Central Excise Tariff Act or additional duty of customs under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has been paid and no credit of such excise duty or additional duty of customs on inputs has been taken by the manufacturer of such goods (and not the buyer of such goods), under the provisions of CENVAT Credit Rules, 2004 .....

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delay and ordered notice in the review. Therefore, it is clear that the law has travelled in a zig zag fashion from one extreme to the other. This is at least apparently so. 42. But, a careful look at the various types of Notifications issued by the Central Government from time to time in exercise of the powers conferred by Section 5A(1) of the Central Excise Act, 1944 and the manner in which the Supreme Court interpreted the Notifications, would make clear one important fact. This fact is that .....

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already suffered a duty of excise. (iii) Notifications, which contained a condition that the inputs used in the manufacture of the exempted goods should not only have suffered a duty of excise, but the manufacturer should not also have claimed CENVAT credit on the quantum of such duty of excise suffered on the inputs and (iv) Notifications, which contain a condition that the manufacturer should not have claimed CENVAT credit on the duty of excise leviable on the inputs. 43. That the Notificatio .....

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and Engineering Works The Court was not concerned with an exemption Notification, but concerned with an article, which was not manufactured in India and hence, the question was whether in respect of such an article, Section 3(1) of the Tariff Act could be invoked Thermax Private Limited Notifications 93/76 and 63/85. The product should be used for a particular purpose in any one of the places set out in the table under the Notification and the procedure specified in Chapter X of the Central Exc .....

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the Customs Tariff Act was held to be a charging section independent of Section 12 of the Customs Act. Motiram Tolaram Dealt with an exemption Notification No.185/83, which imposed a condition that the input used for the manufacture of the product should have suffered an appropriate amount of duty under the Indian Law. Usha Martin Industries Exemption Notification dated 30.11.1963 as amended upto 7.4.1981, which imposed a condition that the exempted product should contain a raw material, on whi .....

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t between the two was resolved by the Constitution Bench in Dhiren Chemical Industries by holding that where the raw material is not liable to excise duty, no excise duty could have been paid upon it and that therefore, to such goods made out of such material, the Notification will not apply. Malwa Industries Limited The exemption Notification No.4/2006, which imposed a condition that the exempted goods are used in the same factory fell for consideration. The expression 'same factory' wa .....

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the clear statutory pre-requisite is not met. Kay Kay Industries The Court was not concerned with an exemption Notification. It was concerned with Notification No. 58/97 issued in exercise of the powers conferred by Rule 57A(6). Aidek Tourism Services (P) Limited Dealt with a Notification bearing No.64/93, which imposed a condition that the exempted good namely a saloon car, after clearance, should have been registered for use, solely as a taxi and the manufacturer has paid excise duty at 40% ad .....

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ation imposed a condition that the input used for the manufacture of the exempted goods had already suffered a duty of excise or not and (b) as to whether the manufacturer of the exempted goods had claimed CENVAT credit in respect of a duty paid on the inputs or not. 45. Wherever the Notifications prescribed conditions, which were merely procedural in nature, but did not involve the payment of any duty of excise on the inputs, the Court interpreted the Notifications in favour of the assessee, in .....

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a distinction between (i) a Notification, which merely stipulates a condition that the manufacturer ought not to have claimed CENVAT credit in respect of the duties paid on the inputs and (ii) a Notification that imposes a condition that a duty of excise should have been paid on the inputs and no CENVAT credit should have been claimed in relation to the same. This is for the reason that the very entitlement to claim CENVAT credit would arise only in cases where a duty of excise had been paid on .....

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no CENVAT credit should have been claimed on the same. 48. In simple terms, we can understand the proposition by looking at the different alternative scenarios as follows : S.No. Conditions stipulated in the Notification Possible scenarios Result 1 A condition that the inputs ought to have suffered a duty, without any further rider in relation to CENVAT credit (i) In the first scenario, there may be cases where a manufacturer of exempted goods, who satisfies the condition, might have claimed CEN .....

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o manufacture exempted goods with inputs, which have suffered a duty of excise 2 A Notification with the only stipulation that no CENVAT credit has been availed on the duties leviable on the inputs In this type of a case there can be only one scenario. The same is that a person should not have claimed CENVAT credit in relation to the duties of excise leviable on the inputs, to satisfy this condition. He can fulfill this condition only if he has already suffered duties of excise on the inputs use .....

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and no CENVAT credit had been taken Even in this type of Notification, there is only one possible scenario Consequently, a person will be entitled to the benefit of the exemption Notification only if both conditions are satisfied. 49. Therefore, the interpretation to be given to a Notification stipulating a pre-condition that the inputs should have suffered a duty and no CENVAT credit should have been claimed, should be the same as the interpretation to be given to a Notification, which imposes .....

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on the inputs that were used in their manufacture. 50. Keeping the above legal principles in mind, if we come back to the case on hand, it will be seen that the arguments of Mr.Joseph Prabhakar, learned counsel for the first respondent are two fold. His first argument is that the raw materials, from out of which, silk fabrics are manufactured, even if they are manufactured in India, are not liable to excise duty as seen from Chapter Heading 50. Therefore, his first contention is that when the in .....

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in the table in paragraph 48. A stipulation that CENVAT credit ought not to have been claimed, has inbuilt within itself, the stipulation that the inputs had suffered some duty. If the inputs had not suffered any duty, then the question of claiming CENVAT credit would not arise. As a consequence, an importer will not be entitled to the benefit of the exemption Notification, as he would not be in a position to satisfy the condition that is inbuilt into the proviso under the Notification dated 9. .....

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Notifications. This first contention travels beyond the exemption Notification, and falls back upon the Chapter Headings and the rates of duty stipulated therein. 53. As we have seen, Chapter Heading 50 shows that Tariff Item Nos. 5001, 5002 and 5003 respectively, relating to silk worm cocoons, raw silk and silk waste, attract nil rate of duty. Therefore, if silk worm cocoons, raw silk or silk waste alone are used in the manufacture of silk fabrics falling under Tariff Item No.5007, the inputs .....

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e on which additional duty is imposed under Section 3(1) of the Customs Tariff Act, 1975, is to ensure that the importer pays the same duty on his goods as the domestic manufacturer pays, then it goes without saying that the importer cannot be asked to pay something when the domestic manufacturer is not liable to pay any duty at all, in view of the inputs falling under Tariff Items that attract nil rate of duty. Therefore, to some extent, the first contention of the learned counsel for the first .....

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turer or in respect of an importer. 55. But, that is not the end of the matter. The expression 'input' is defined in Rule 2(k) of the CENVAT Credit Rules as follows : "(k) "input" means- (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cut .....

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el oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building or laying of foundation or making of struc .....

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ical process, in which, nothing else other than raw silk or silk waste or silk cocoon is used, the first respondent cannot claim to satisfy the prescription in the proviso. 57. Drawing our attention to the manufacturing process indicated in paragraph 33 of the counter affidavit filed by the first respondent, Mr.Joseph Prabhakar, learned counsel for the first respondent contended that the process of production of silk fabrics comprises of four stages namely (i) hatching of eggs (ii) silk producti .....

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graph 33. From the literature available on the manufacture of silk fabrics, it is seen that there are several stages involved in the process. The process of manufacture of silk fabric, as seen from the literature available on the subject, is as follows : "Silk Fabric Manufacturing Process - Sorting and softening the cocoons : The filature is the factory in which the cocoons are processed into silk thread. In the filature the cocoons soaked in hot water to loosen the sericin. Only a part of .....

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bundles from which silk thread can be woven at manufacturing centers. Forming silk yarn : Twisting the reeled silk forms silk thread, also called yarn. First the skeins of raw silk are categorized by color, size, and quantity. Next they are soaked in warm water mixed with oil or soap to soften the sericin. The silk is then dried. The silk yarn is put through rollers to make the width more uniform. Degumming thrown yarn : To achieve the distinctive softness and shine of silk, the remaining serici .....

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n the inputs and (b) the non availing of CENVAT credit on the same. Though the Notification bearing No.030/2004 dated 9.7.2004 does not stipulate the first condition, we have held that the first condition is inbuilt into the second condition. Therefore, the first respondent cannot be taken to have fulfilled the condition stipulated in the proviso to the Notification No.030/2004 dated 9.7.2004, unless he had shown that in the entire process of manufacture of woven silk fabrics falling under Tarif .....

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