Manufacture

SUPREME COURT OF INDIA

Mathania Fabrics

v.

Commissioner of Central Excise, Jaipur

DR. ARIJIT PASAYAT AND D.K.JAIN, JJ.

CIVIL APPEAL NOS. 5398 OF 2002 AND 1856 OF 2005

JANUARY 4, 2008

Section 2(f), read with section 5A, of the Central Excise Act, 1944 - Manufacture - Appellant, engaged in processing of cotton fabrics claimed that processes of bleaching, mercerising, dyeing, printing, washing, drying and finishing of fabrics could not amount to manufacture - Appellant claimed benefit of exemption granted to ‘cotton fabrics processed without aid of power’ - Department denied benefit on ground that there was use of power - Tribunal denied appellant’s claim for exemption holding that use of power in operation of stirrer and electric motor for lifting water and caustic soda would amount to manufacture with aid of power - Whether since appellant was using power, Tribunal was justified in its holding - Held, yes [Para 7]

Circulars and notifications:

Notification No.5/99 and Notification No.35/99-CE, dated 28-8-1999

FACTS

The appellant was engaged in processing of cotton fabrics. It claimed to be undertaking the processes of bleaching, mercerising, dyeing, printing, washing, drying and finishing before the fabric were packed and cleared. The appellant claimed the benefit of exemption granted to cotton fabrics processed without the aid of power on ground that it was not using power in processing of fabrics. It was further claimed that Notification No.5/99 was amended by Notification No.35/99-CE dated 28-8-1999 granting exemption to cotton fabrics deemed to have been processed without the aid of power and the same was applicable retrospectively. The department denied the benefit on the ground that there was use of power and that the notification relied upon by the appellant was not retrospective. The Tribunal denied the appellant’s claim holding that the use of power in the operation of stirrer and electric motor for lifting water and caustic soda would amount to manufacture with the aid of power.

In appeal to the Supreme Court, the appellant contended that the use of power was only in certain ancillary and incidental areas such as mixing of chemicals, etc., and, therefore, the benefit could not have been denied, and that when the position in law was not clear, section 11A could not be invoked.

HELD

Strong reliance was placed on a letter of Commissioner dated 10-1-1999, to contend that there was doubt about the nature of the process involved. Said letter was significant. However, it was not known under what circumstances the letter was written. It was to be noted that the penalty amounts were equivalent to the extra demand raised but the Tribunal had reduced it to Rs.25,00,000. Therefore, the appeal was clearly without merit and same was to be dismissed. (Para 7)

CASE REVIEW

Decision in case of Mathania Fabrics v. CCE 2002 (142) ELT 49 (LB) affirmed.