Central Excise Act, 1944 – ss.11AB, 11AC, 35-L(b) – Appellant’s case that on the basis of information received by its intelligence agency Unit No.1 and Unit No.2 were processing cotton fabrics with the aid of power but without following any of the procedures laid down under the Act of 1944 as well as the Rules framed thereunder – After taking a stock and recording the statements of the partners of Unit Nos.1 and 2 along with other employees of both the Units, the Commissioner, Customs and Central Excise issued show cause notice dated 14.07.2003 on the premise that both the Units were not entitled to exemption from paying customs duty – He made a demand of excise duty u/s.11-A(1), interest on the amount of duty u/s.11AB and penalty u/s.11AC of the Act of 1944 – The CESTAT set aside the order of the Commissioner – Correctness:
Held: This Court is of the considered view that the CESTAT fell in error while coming to the conclusion that the conversion of grey fabrics to cotton fabrics did not include an integral process of stentering undertaken with the aid of power and thus the benefit of the Exemption Notification was available to Unit No.1 – In the present case, the show cause notice indicates that Unit No.1 was receiving grey fabrics which were thereafter bleached and mercerized at the said Unit – The fabric in wet condition was then shifted to Unit No.2 and subjected to squeezing and stentering – The dry fabrics were thereafter returned to Unit No.1 where they were bailed and packed – It was thereafter that the cotton fabrics were finally cleared – The CESTAT misdirected itself while emphasizing upon the distinct identities of the two Units and in the process ignoring the fact that both the Units were together involved in the process of manufacture of cotton fabrics from grey fabrics – It has come on record that after the grey fabrics were bleached and mercerized at Unit No.1, they were taken to Unit No.2 which was an adjoining Unit within the same premises – After the wet fabrics were subjected to squeezing and stentering at Unit No.2, the dry fabrics were brought back to Unit No.1 for being bailed and packed – It is clear that the entire activity of undertaking the various processes amounted to “manufacture” for the purposes of s.2(f) of the Act of 1944 – The CESTAT thus committed an error in bifurcating the continuous process of manufacture to come to the conclusion that each Unit though undertaking a distinct process of manufacture, the activities of one Unit could not be clubbed with the other – The Order-in-Original rightly considers the entire process of manufacture which is conversion of grey fabrics into cotton fabrics for being cleared by Unit No.1 as one and has thus fastened liability on it. [Paras 8, 11-13]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Ankit Gyan. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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