Case: COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX Vs. ADITYA BIRLA NUVO LTD. AND OTHERS

1. The Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as the Tribunal) had, vide its decision dated 22.11.2006, decided the appeals of three Assessees who are Respondents herein. These are M/s. Aditya Birla Nuvo Ltd., M/s. Levi Strauss (India) Pvt. Ltd. and M/s. Arvind Clothing Limited (hereinafter referred to as Aditya, Levi and Arvind respectively). The question that is decided by the Tribunal in the said three appeals pertains to the Exemption Notification No. 38/2003 dated 30th April, 2003. These three Assessees had claimed benefit of the aforesaid notification, which was denied by the Commissioner vide Order-in-Original dated 01.08.2006. They had challenged the order before the Tribunal and had succeeded in the appeals filed by them. It is because of this reason, the Department has filed the instant appeals challenging the said common judgment of the Tribunal. In the first instance, we would like to reproduce the relevant portion of the Notification No. 38/2003 which is as under: Notification: 38/2003 dated 30-Apr-2003 Textile articles - Exemption - Amendment to Notification No. 7/2003-C.E. In exercise of the powers conferred by Sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), read with Sub-section (3) of Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance and Company Affairs (Department of Revenue) No. 7/2003-Central Excise, dated 1st March, 2003, namely- In the said notification, in Table, after S. No. 45 and entries relating thereto, the following S. Nos. and entries shall be inserted, namely- XXX XXX 2. A bare reading of the aforesaid Notification makes it clear that the benefit thereof is given to those Assessees when, at their hands, article of apparel or clothing accessories is subjected to any one or more of the processes, which are mentioned herein. However, any of such process as mentioned herein is to be carried out by the Assessee subsequent to purchase of the article of apparel or clothing accessories in question. It further clarifies that insofar as process of affixing a brand name or trade name is concerned, that is not included, meaning thereby if the Assessee carried out affixing a brand name or trade name, then he would not be entitled to the benefit of the exemption notification. The process which is carried out by these three Assessees is taken note of by the Tribunal and about which there is no dispute and the said process is stated by the Tribunal in the following manner: Ms Aditya Birla Nuvo Ltd. The Appellants would place orders on various inputs and the suppliers would send the inputs directly to the job workers, who would avail CENVAT Credit and manufacture Ready Made Garments (RMG). The RMG would be affixed with the brand name of the Appellant The job worker would clear the RMG in bulk condition. Duty would be paid by the job worker on the RMG cleared in bulk condition on a value arrived at on the basis of cost of raw materials plus the processing charges. On receipt of the RMG, each RMG would be removed from the bulk pack to retail pack and put in individual polythene cover. The price tag would be affixed to each RMG. In the case of shirts, the said goods are thereafter put in a product box. A label indicating the style code, the price of the RMG, the size is affixed to the product box together with a small piece of the fabric, commercially known as swatch. Each RMG is thereafter arranged and stored for further transportation for which purpose they are put in a corrugated box. M/s. Levis Strauss (India) Pvt. Ltd. v. CCE, Bangalore-I, Commissionerate The Appellant is a dealer/trader in RMG, which have the name Levis and Dockers on them. These goods were got manufactured by the Appellant from independent contract manufactures on payment of job charges, after supply of inputs such as fabrics/accessories. After paying duty, the job workers send the goods to another unit called Vishesh Enterprises who did the activity of affixing MRP, tagging, packing and labeling the goods. The goods were thereafter sold obtaining space at the premises of a concern called MERX Logistics. M/s. Arvind Clothing Limited v. CCE, Bangalore-I Commissionerate The Appellants supply all inputs for manufacture of garments to the job workers and the inputs are consigned to them. The inputs are duty paid. The job workers receive the input, take CENVAT credit and manufacture garments. They clear the garments in bulk on payment of excise duty valuing the goods under Section 4 on the value of raw material + job charges. These garments are sent back to the warehouse of the appellant. On receipt of the duty paid garments in bulk into their warehouse, the Appellant carries out price tagging, stickering, washing instructions, tagging and retail packing. 3. The aforesaid processes undertaken by all these three Assessees fall within the processes that are mentioned in the Notification and there is no dispute about it. The only question is as to whether such process was undertaken by these Assessees after the purchase of material. The submission of the Department in this behalf is that since it is the Assessees who had assigned the work, that is fabrication of the apparel etc. to the job workers with the supply of material as well, and the job workers after undertaking the job had supplied the said material back to the Assessees, this does not amount to purchase. We may mention at this stage that though the Tribunal has undertaken a detailed discussion on this aspect holding that this would amount to purchase within the meaning of Section 2H of the Central Excise Act, 1944, it is not even necessary to go into the same as we find that the case is squarely covered by a Constitution Bench judgment of this Court in Ujagar Prints Vs. Union of India (UOI) and Others etc. etc., . By the aforesaid judgment dated 27.01.1989 passed by the Constitution Bench in Civil Misc. Petition that was filed for clarification of earlier Constitution Bench judgment rendered by the same Bench on 04.11.1988 in Ujagar Prints Vs. Union of India (UOI) and Others etc. etc., , following clarification was given by the Constitution Bench: In respect of the civil miscellaneous petition for clarification of this Courts judgment dated 4th November, 1988, it is made clear that the assessable value of the processed fabrics could be the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses deemed to be the price at the factory gate for the processed fabric. The factory gate here means the deemed factory gate as if the processed fabric was sold by the processor. In order to explain the position it is made clear by the following illustration: if the value of the grey-cloth in the hands of the processor is Rs. 20/- and the value of the job work done is Rs. 5/- and the manufacturing profit and expenses for the processing be Rs. 35/-, then in such a case the value would be Rs. 30/-, being the value of the grey-cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable-value. 2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable-value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processors factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorized agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processors expenses, costs and charges plus profit, but it is not necessary to include the traders profits who gets the fabrics processed, because those would be post-manufacturing profits. 4. The aforesaid clarification makes it clear that for the purpose of arriving at the value of the job at the hands of job workers, factory gate is treated as deemed factory gate as if the processed fabric was sold by the Assessee. It cannot be disputed that the fact situation in these cases is identical where the job workers had paid the excise duty at the time of supply of these processed fabric to the Respondent Assessees. Once that could be treated as sale, the necessary corollary is that so far as the Assessees are concerned, they had purchased processed fabric from the job workers and, therefore, would satisfy the condition of subsequent purchase contained in Notification No. 38/2003. 5. In fact, this position is accepted even by the Department which can be discerned from Circular No. 737/53/2003 dated 19.08.2003. Though certain doubts for carrying out the obligation under Standards of Weights and Measures Act, 1976 were clarified by the said Circular, incidentally it touched upon this very process that is undertaken by the Assessees herein and remarked that such process would be covered by Notification No. 38/2003 and would be fully exempt from payment of excise duty. Para 4 of the said Circular which makes the aforesaid position crystal clear is re-produced below: Section 39 of the Standards of Weights & Measures Act, 1976 applies to commodities, which are cleared, sold, disturbed etc. in packed condition. In terms of Rule 1(1) of the Standards of Weights & Measures (Package Commodity) Rules, 1977, a prepackaged commodity means a commodity, which, without the purchaser being present, is placed in a package so that the quantity of goods contained therein, has a predetermined value and such value cannot be altered without opening the package. Further, in terms of the said Rules, the term package is to be construed as package containing such pre-packed commodity. Thereafter, only when such pre-packed commodities are sold in retail packages, the provisions of Standards of Weights & Measures Act and rules regarding declaration of the retail sale price (and consequently valuation of the goods based on such RSP) arises. Many a times garments are cleared in bulk where the manufacture neither packs the same nor declares the retail sale price therein. Such garments are ultimately displayed in the retailers outlets, which may or may not attach a price tag thereto. Some times, the dealer/retailer packs, re-packs, labels or re-labels the goods, which may result in such goods fall within the purview of Standards of Weights & Measures (Package Commodity) Rules. However, in such cases central excise valuation is not important, as such activities undertaken on duty paid goods are fully exempt vide Notification No. 38/2003 dated 30-4-2003. Thus, it is clear that in such cases, the manufacture of the garments is under no legal obligations to declare the retail sale price while clearing the garments from his factory in bulk and in unpacked condition.

Decision:
0[ds]3. The aforesaid processes undertaken by all these three Assessees fall within the processes that are mentioned in the Notification and there is no dispute about it.We may mention at this stage that though the Tribunal has undertaken a detailed discussion on this aspect holding that this would amount to purchase within the meaning of Section 2H of the Central Excise Act, 1944, it is not even necessary to go into the same as we find that the case is squarely covered by a Constitution Bench judgment of this Court in Ujagar Prints Vs. Union of India (UOI) and Others etc. etc., . By the aforesaid judgment dated 27.01.1989 passed by the Constitution Bench in Civil Misc. Petition that was filed for clarification of earlier Constitution Bench judgment rendered by the same Bench on 04.11.1988 in Ujagar Prints Vs. Union of India (UOI) and Others etc. etc., , following clarification was given by the Constitution Bench:In respect of the civil miscellaneous petition for clarification of this Courts judgment dated 4th November, 1988, it is made clear that the assessable value of the processed fabrics could be the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses deemed to be the price at the factory gate for the processed fabric. The factory gate here means the deemed factory gate as if the processed fabric was sold by the processor. In order to explain the position it is made clear by the following illustration: if the value of the grey-cloth in the hands of the processor is Rs. 20/- and the value of the job work done is Rs. 5/- and the manufacturing profit and expenses for the processing be Rs. 35/-, then in such a case the value would be Rs. 30/-, being the value of the grey-cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable-value.2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable-value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processors factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorized agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processors expenses, costs and charges plus profit, but it is not necessary to include the traders profits who gets the fabrics processed, because those would be post-manufacturing profits.4. The aforesaid clarification makes it clear that for the purpose of arriving at the value of the job at the hands of job workers, factory gate is treated as deemed factory gate as if the processed fabric was sold by the Assessee. It cannot be disputed that the fact situation in these cases is identical where the job workers had paid the excise duty at the time of supply of these processed fabric to the Respondent Assessees. Once that could be treated as sale, the necessary corollary is that so far as the Assessees are concerned, they had purchased processed fabric from the job workers and, therefore, would satisfy the condition of subsequent purchase contained in Notification No. 38/2003.5. In fact, this position is accepted even by the Department which can be discerned from Circular No. 737/53/2003 dated 19.08.2003. Though certain doubts for carrying out the obligation under Standards of Weights and Measures Act, 1976 were clarified by the said Circular, incidentally it touched upon this very process that is undertaken by the Assessees herein and remarked that such process would be covered by Notification No. 38/2003 and would be fully exempt from payment of excise duty. Para 4 of the said Circular which makes the aforesaid position crystal clear is re-produced below:Section 39 of the Standards of Weights & Measures Act, 1976 applies to commodities, which are cleared, sold, disturbed etc. in packed condition. In terms of Rule 1(1) of the Standards of Weights & Measures (Package Commodity) Rules, 1977, a prepackaged commodity means a commodity, which, without the purchaser being present, is placed in a package so that the quantity of goods contained therein, has a predetermined value and such value cannot be altered without opening the package. Further, in terms of the said Rules, the term package is to be construed as package containing such pre-packed commodity. Thereafter, only when such pre-packed commodities are sold in retail packages, the provisions of Standards of Weights & Measures Act and rules regarding declaration of the retail sale price (and consequently valuation of the goods based on such RSP) arises. Many a times garments are cleared in bulk where the manufacture neither packs the same nor declares the retail sale price therein. Such garments are ultimately displayed in the retailers outlets, which may or may not attach a price tag thereto. Some times, the dealer/retailer packs, re-packs, labels or re-labels the goods, which may result in such goods fall within the purview of Standards of Weights & Measures (Package Commodity) Rules. However, in such cases central excise valuation is not important, as such activities undertaken on duty paid goods are fully exempt vide Notification No. 38/2003 dated 30-4-2003. Thus, it is clear that in such cases, the manufacture of the garments is under no legal obligations to declare the retail sale price while clearing the garments from his factory in bulk and in unpacked condition.