Case: Commnr. Of Central Excise, Chandigarh Vs. M/S. Shital International

These appeals filed by the Revenue under Section 35-L(b) of the Central Excise Act, 1944 (for short "the Act") are directed against the order and judgment dated 21st August 2002 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, (for short "CEGAT"), as it existed then, and the order and judgment dated 8th November 2004 passed by the Custom, Excise and Service Tax Appellate Tribunal (for short "CESTAT"), whereby both the CEGAT and CESTAT rejected the claim of the Revenue and held that the goods manufactured by the assessee were "unprocessed knitted pile fabrics" classifiable under chapter sub-heading 6001.12 of the Central Excise Tariff Act, 1985 (for short "the Tariff Act"), attracting Nil rate of duty.2. Since the question of law arising for our consideration in all the appeals is similar, these are disposed of by this common judgment. However, for the purpose of appreciating the controversy, a brief reference to the facts in Civil Appeal Nos.1689-1690 of 2003, relating to the same assessee, would be necessary. These are:The assessee company is engaged in the manufacture of knitted pile fabrics as well as knitted hosiery fabrics of man-made fibres. Admittedly, till 30th September 2000, the assessee was declaring the processed goods as dutiable and was paying Excise duty on the same.However, on 3rd October 2000, the assessee submitted a revised declaration claiming that the goods manufactured by it were subject to Nil rate of duty in terms of Notification No. 06/2000-CE dated 1st March 2000 which came into effect from 1st October 2000, forming part of General Exemption No. 66, prescribing Nil rate of duty on "unprocessed knitted or crocheted fabrics", as also under Notification Nos. 9/96 and 18/96.On receipt of the revised declaration, a show cause notice dated 12th December 2000 was issued to the assessee, questioning as to why its stand be not rejected and CENVAT @ 16% ad valorem with AED(ST) @ 8% and AED (TTA) @ 15% of the Excise duty on the goods should not be levied.On 29th December 2000, the assessee replied to the above show cause notice, denying liability on the ground that the fabric was unprocessed. However, the claim of the assessee did not find favour with the Deputy Commissioner, Central Excise, Jalandhar who vide his Order-in-Original No. 222/20/Val/01 dated 29th June 2001,pile fabrics of sub-heading 6001.12 being manufactured by the noticee be treated as processed fabrics and chargeable to cenvat @ 8% Adv., AED(ST) @ 8% Adv. in terms of notification no. 17/2000 dated 01.03.2000.Being aggrieved by the said orders, the assessee preferred an appeal before the Commissioner (Appeals), Customs & Central Excise, Chandigarh.4. The Commissioner (Appeals), upon consideration of the processes undertaken by the assessee came to the conclusion that these were not covered under Chapter Note 4 to Chapter 60 of the Tariff Act as neither of the processes of carding, knitting and shearing find mention in the said Chapter Note nor these processes can be covered under "any other process" mentioned in the said Chapter Note. Placing reliance on the decisions of the CEGAT as well as on the decision of this Court in Mafatlal Fine Spinning And Manufacturing Co. Ltd. Vs. Collector of Central Excise, Bombay ((1989) 2 SCC 446 : 1989 (40) ELT 218 (SC)), the Commissioner allowed the appeal of the assessee.5. Aggrieved by the said order, the Revenue preferred an appeal before the CEGAT. As mentioned previously, the CEGAT, vide impugned order, dismissed the appeal. Relying on the decision of this Court in Mafatlal (supra), the CEGAT held that operations of shearing, cropping and back coating of the fabric undertaken by the assessee did not amount to processing of the fabric, as contemplated in the said Chapter Note.6. It would be expedient to mention that in C.A. No. 4541 of 2005 relating to the same assessee, the Commissioner, vide Order-in-Original No. 69/CE/JAL/03 dated 30th July 2003, who had adjudicated on the show cause notice dated 22nd June 2001, after examining the processes carried out by the respondents, had concluded that the knitted pile fabric manufactured by the assessee was unprocessed and therefore was exempt under Notifications No. 5/99 and 6/2000. In the ultimate analysis the Commissioner observedfrom the above discussion it is proved that the noticee has supplied knitted pile fabrics as well as knitted hosiery fabrics to the buyers sold by raising commercial invoices and most of the pile fabrics supplied by the noticee as knitted fabrics were not having back coating and even if process of back coating was conducted on some quantity, the noticee have claimed that the drying was done naturally. There is nothing on record to controvert the claim that back coated pile fabrics were not dried naturally or cannot be dried naturally. Thus, I find that the show cause notice itself does not contain any of the ingredients required to substantiate the charge that the processes undertaken by the noticee amounts to manufacture in terms of Chapter Note 4 to Chapter 60 of Central Excise Tariff Act 1985 so as to attract Central Excise Duty.In view of the above discussion, I hold that the processes undertaken by the noticee in the manufacture of pile fabrics sold as knitted fabrics do not amount to manufacture in view of Honble Supreme Court judgment in Maharashtra Fur Fabrics Ltd. reported as 2002 (145) ELT 287 (SC) and the definition of processes as defined above and therefore, the goods supplied by the noticee were not dutiable under notification no.5/99-CE dated 28.02.1999 and 6/2000-CE dated 01.03.2000 during the relevant period and Central Excise duty amounting to `1,20,93,135/- [BED `1,11,97,348 + `8,95,787] is not recoverable under Section 11A of the Act and interest under Section 11AB of theby this order, the Revenue preferred an appeal before the CESTAT, which was rejected vide the impugned order.7. Being dissatisfied by the said orders, the Revenue is before us in these appeals. For the sake of convenience, hereinafter, both the CEGAT and the CESTAT will be referred to as "the Tribunal."

Court's reasoning:
14. There is no dispute that knitted pile fabrics are to be classified under heading No. 60.01 of the Tariff Act. The issue is whether the processes of shearing and back-coating which do not figure in Chapter Note 4 to Chapter 60 of the Tariff Act, would fall within the ambit of "any other process" referred to in the said note. It is well settled that general terms following particular expressions take their colour and meaning as that of the preceding expressions, applying the principle of ejusdem generis rule, therefore, in construing the words "or any other process", the import of the specific expressions will have to be kept inthe processes, with which we are concerned in the present appeals must take their colour from the process of bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, crease-resistant processing, specifically mentioned in the note. It is evident that when a grey fabric is subjected to any of these processes, a permanent or lasting change is brought about in the fabric. Whereas, in the present case, both the appellate authorities below have found that neither shearing nor back-coating brings about any permanent or lasting change in the knitted pile fabric manufactured by the assessee by carding and knitting.Adverting to the second issue, noted supra, the Revenue has not controverted the afore-stated factual position, nor has it adduced any evidence to suggest that the processes mentioned in the afore-extracted declaration induce some permanent change in the "grey fabric". A bare perusal of the nature of the processes, explained in the said declaration reveals that the processes mentioned therein do not have the effect of changing the "grey fabric" into another commodity or bring about a permanent or lasting change in the fabric so as to bring out a new product, tantamounting to manufacture in terms of Chapter Note 4 to Chapter 60 of the Tariff Act. Support is also lent to this view by the decision of this Court in Mafatlals case (supra).17. As regards the process of electrifying polish, now pressed into service by the revenue, it is trite law that unless the foundation of the case is laid in the show cause notice, the revenue cannot be permitted to build up a new case against the assessee.Admittedly, in the instant case, no such objection was raised by the adjudicating authority in the show cause notice dated 22nd June 2001 relating to the assessment year 1988-89 to 2000-01. However, in the show cause notice dated 12th December 2000, the process of electrifying polish finds a brief mention. Therefore, in light of the settled legal position, the plea of the learned counsel for the revenue in that behalf cannot be entertained as the revenue cannot be allowed to raise a fresh plea, which has not been raised in the Show Cause notice nor can it be allowed to take contradictory stands in relation to the same assessee.