TMI Blog2008 (6) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... sident and Rakesh Kumar, Member (T) S/Shri N.K. Bajpai, Sr. Advocate and R.S. Rana, Advocate, for the Appellant. Shri Deepak Garg, DR, for the Respondent. [Order per : Rakesh Kumar, Member (T)].- There are five appeals involved in this case. Appeal Nos. E/590/05 and E/591/05 have been filed by M/s. Century Denim (hereinafter referred to as the Assessee) against order-in-appeal No. 5 and 6-CE/IND/Appl-II/04 dated 27-1-05 passed by Commissioner of Central Excise (Appeals), Indore by which the duty demand of Rs. 12,58,10,773/- (Rupees Twelve Crore Fifty Eight Lakhs Ten Thousand Seven Hundred and Seventy Three) for period from 1-4-99 to 30-6-01 and of Rs. 43,54,274/- (Rupees Forty Three Lakhs Fifty Four Thousand Two Hundred and Seventy Four) for period from 1-7-01 to 28-2-02 were upheld. The oldest appeal E/1805/2000 is the Revenue's appeal against Order-in-Original dated 26-3-99 passed by Commissioner of Central Excise, Indore by which a duty demand of Rs. 1,97,11,939/- (Rupees One Crore Ninety Seven Lakhs Eleven Thousand Nine Hundred and Thirty Nine) for the period from 1-4-97 to 30-1-98 was dropped. This appeal of Revenue, along with another appeal of the Revenue wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emand order of the Hon'ble Supreme Court. Thus the Appeal No. E/1805/2000-D, E/887/2002-D and E-406/2003-NB pertain to duty demand of Rs. 1,97,11,939/- (Rupees One Crore Ninety Seven Lakhs Eleven Thousand Nine Hundred and Thirty Nine) against the assessee for period from 1-4-97 to 30-1-98, Appeal No. E/390/05 pertain to the duty demand of Rs. 12,58,10,773/- (Rupees Twelve Crore Fifty Eight Lakhs Ten Thousand Seven Hundred and Seventy Three) against the assessee for period from 1-4-99 to 30-6-01 and appeal No. E/591/2005 pertains to duty demand of Rs. 43,54,274/- against the assessee for period from 1-7-01 to 28-2-02. The issue involved in all these appeals is common. 2. The assessee is a 100% EOU manufacturing in their factory at Khangore, M.P., grey as well as coloured Denim fabrics. Denim is a hundred per cent cotton fabric and the cotton used is of indigenous origin. However, for manufacture of Blue Denim, an imported dye called "Indigo Pure" is used by the assessee. The assessee, as a 100% EOU, are allowed, as per the EXIM policy, to sell a part of their production, as determined by the Development Commissioner, to DTA, The DTA clearances of a 100% EOU or a unit in Free Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a raw material used in the manufacture of 'blue denim', relied upon the Hon'ble Supreme Court's judgment in case of CCE v. Ballarpur Industries Ltd. reported in 1989 (43) E.L.T. 804 (S.C.). 2.2 Hon'ble Supreme Court while remanding this matter to the Tribunal vide its order dated 26-11-07 has directed for de novo adjudication of the issue involved in this case after considering - (a) whether the 'indigo Pure' can be considered as consumable on the facts of the case, and (b) whether the view of the facts that the cost of dye varies between 2 and 2.5% of the total production cost of blue denim, and the blue denim is manufactured from cotton, not from indigo, and also in view of value addition due to dyeing, the concept of dominant ingredient is applicable for deciding the question as to whether the blue denim, in the manufacture of which the only imported item used is 'indigo Pure' for dyeing of warp yarn, can be treated as manufactured wholly out of indigenous raw materials. 3. Shri N.K. Bajpai, Advocate, the learned Senior Counsel on behalf of the Revenue and Shri Deepak Garg, the learned Departmental Representative made oral as well as written submissions, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and it imports the goods their essential character - the blue colour, it, satisfies the definition of "raw material', as given in para 7(34) of the 1992-97 EXIM policy and it does not satisfy the definition of 'consumables' as given in para 7 of the above-mentioned EXIM policy. (5) In para 15 of the Hon'ble Supreme Court's judgment, there is a mention of the fact that the cost of dye varied between 2% to 2.5% of the total production cost. The Hon'ble Court has also observed that the condition for getting the benefit of exemption notification is that the end-product should be made wholly from raw material produced or manufactured in India. What has been observed by the Hon'ble Court in para 15 has to be read with its own remarks in para 17 which are reproduced below - "It is true that the notification does not make distinction on account of value. Stress is on the word 'wholly". In view of the above, once the judgment of the Hon'ble Court is read in its entirety, it would be seen that the Court itself has not held value addition as relevant for the purposes of determining the eligibility of denim fabrics for exemption under the notification. It is well settled that a judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee to support their contention that 'wholly' should be read as 'predominantly', has no relevance to this case, as in that judgment, the Hon'ble Supreme court was dealing with an item of beneficial legislation relating to grant of tax benefits to a charitable institution under Income-tax Act and not with an exemption notification. The principles of interpretation which apply for pieces of beneficial legislation would not apply to interpretation of an exemption notification which has to be construed strictly. (11) In view of misdeclaration made by the assessee in the classification declarations filed by them and the allegation of conscious suppression having been proved, the proviso to Section 11A(1) and penal provisions of Section 11AC are clearly attracted. 4. Shri Joseph Velapally, Advocate, the learned senior counsel on behalf of the assessee made the following submissions:- (1) Hon'ble Supreme Court, in para 15 of its order dated 26-10-07 has held that the denim is manufactured from cotton, not from Indigo. This finding is conclusive of the fact that Indigo pure cannot be considered to be a raw material. (2) The assessee have specifically produced evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumable as even according to the Revenue, Indigo pure, being essential part of dyeing process, is used as an input in the manufacturing process. (6) According to the Revenue, in view of the word 'wholly' in the notification No. 8/97-CE, the dominant ingredient test is not relevant and unless it is shown by the assessee that they had used 100% indigenous materials for manufacturing of denim fabrics, they would not be eligible for exemption under this notification. Such a submission cannot be urged by the Revenue in view of para 15, 16, 17 and 19 of the Hon'ble Supreme Court judgment dated 26-20-07 in the assessee's own case as the Hon'ble Court in para 17 of its judgment has specifically held that the dominant ingredient test has relevance to the matter in issue and therefore has to be considered. It is not for the Revenue or any subordinate authority to question the correctness of the view taken by the Hon'ble Apex Court. The fact that Indigo pure dye forms insignificant part of denim fabric produced by the assessee is clear from the facts that - (a) in terms of cost of product, the cost of Indigo dye is just 2 to 2.5% of the cost of production of denim fabrics and (b) in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular No. 389/22/96-CX dated 5-5-98, the assessee would become eligible for the exemption under Notification 8/97-CE. The assessee's contention on these points is two fold - firstly - the word 'wholly' in the Notification No. 8 must be interpreted as predominantly and secondly, in any case, the imported Indigo pure is a consumable, not a raw material and therefore as per the Board's circular dated 5-5-98 they are eligible for the exemption under Notification 8/97-CE. We will now consider these points one by one. 6. Is Indigo Pure dye a "raw material" or a "consumable" used in the manufacture of Blue Denim Fabrics? 6.1 Earlier the Tribunal, vide its Order No. 47-48/01-D dated 31-1-01 in the case of the assessee and M/s. Maral Overseas Ltd. had decided this very issue against the assessee, relying upon the Hon'ble Supreme Court's judgment in case of CCE v. Ballarpur industries Ltd. (supra) wherein the test laid down by the Hon'ble Court for determining the question as to whether a particular substance is a 'raw material' for a finished product, was the importance and indispensability of that substance in the manufacture of the finished product, irrespective of whether that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials", as given in para 7(11) and 7(34) respectively of 1992-1997 EXIM policy are as under:- "7(11) 'Consumable' means any item which participates and is required for a manufacturing process, but does not form a part of the end-product. Item which are substantially or totally consumed during a manufacturing process will be deemed to be consumables." "7(34) 'Raw material' means - (i) basic materials which are needed for the manufacture of goods, but which are still in a raw, natural, unrefined and unmanufactured state, and (ii) for a manufacturer, any material or goods which are required for manufacturing process, whether they have actually been previously manufactured, or are processed or are still in a raw or natural state". 6.2.1 From the above definition of "raw material" and "consumables" in the EXIM policy, it will be seen, that - (a) the term 'raw material' is broader than the term 'consumable', as while 'raw material' covers any material or goods which are required for manufacturing process, the term 'consumables' covers only those items which participate and are required for a manufacturing process, but do not form part of the finished/end-product, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vation in para 15 of its order means is that cotton is the principal raw material for denim - it does not mean that cotton is the only raw material for denim. A finished product can have more than one raw material required for its manufacture and every material, which is required for manufacture and without which the finished product can not come into existence, irrespective of the quantity in which it is required, has to be treated as a raw material. Just because the quantity of Indigo dye present in denim is just 1.1% by weight or cost of Indigo dye is 2% to 2.5% of the production cost of denim fabrics, the Indigo dye will not cease to be a raw material for denim fabrics. If the assessee's argument is accepted, the paint can not be treated as raw material for car or chromium required in a small quantity for making stainless steel cannot be treated as raw material for stainless steel, which would be absurd. Since Indigo dye is present in denim fabrics and it is this dye which gives the denim cloth its defining characteristics and blue denim cloth cannot come into existence without the process of dyeing of warp yarn prior to weaving, Indigo dye has to be treated as raw material for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 1978 (2) E.L.T. J350 (S.C.) has held that - "It is well established that in a taxing statute there is no room for intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication, the matter is different." Thus the ratio of the above judgment is that an exemption notification must be interpreted in the light of the words employed by it and not on any other basis. This judgment has been followed by the Hon'ble Supreme Court in the case of Novopan India Ltd. v. CCE, Hyderabad reported in 1994 (73) E.L.T. 769 (S.C.) where it was held that an exemption being in the nature of exception, is to be construed strictly at the stage of determination whether the assessee falls within its terms or not and in case of ambiguity, the benefit must go to the State - but once the exemption is found applicable, the full effect must be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended something which it omitted to express. In this case there is no such situation. There is nothing in the notification to even indicate that the intention of the exempting authority was to condone the use of imported raw materials in small quantities. (4) Hon'ble Supreme Court in the case of Grasim Industries Ltd. v. Collector of Customs [2002 (141) E.L.T. 593 (S.C.)] has held as under - "When the words are clear and there is no obscurity there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for Court to take upon itself the task of amending or altering the statutory provision" (para 8). What the notification partially exempts from duty are -"the finished products, rejects and waste and scrap specified in the Schedule to the Central Excise Tariff Act, 1985 and produced or manufactured, in a hundred percent export oriented undertaking or a unit in Free Trade Zone, wholly from the raw materials produced or manufactured in India, and allowed to be sold in India in accordance with para 102 and 114 of the Export Import Policy, 1st April, 1992 - 31st March, 1997. -" Here there is no ambiguity or obscenity in the words which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form, after physical verification. The Indigo pure, being an imported material, imported free of duty, was being rewarehoused under in-bond Bills of entry and the rewarehousing certificates were being singed by the jurisdictional Central Excise officers. In view of this, notwithstanding, the fact that use of imported Indigo dye was not mentioned in the classification declarations, the jurisdictional central excise officers cannot be unaware of its use in the manufacture of blue denim cloth. We, therefore, concur with the Commissioner's finding that only normal limitation period would be available to the Revenue for recovery of short paid duty and for the same reason, penalty under Section 11AC would not be attracted. 10. In view of our findings in para 6, 7, 8 and 9, while holding that during the period of dispute, the assessee was not eligible for exemption under notification 8/97-CE, we - (a) uphold the Commissioner s order-in-original dated 18-1-02 and reject the appeal No. 887/02-D filed by the assessee against this order and the appeal No. 406/03-NB filed by the Revenue against this order, and (b) uphold the order-in-appeal No. 5 6-CE/IND/Appl-II/04 dated 27-1-05 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
