[2008] 1 S.C.R. 58

MIS. MATHANIA FABRICS

v. ,• .

COMMNR. OF CENTRAL EXCISE, JAIPUR

(C.A. No. 5398 of 2002)

JANUARY 4, 2008

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

Central Excise Act, 1944/Central Excises and Salt Act, 1944 - ss. - 11 A - Excise duty - Exemption from - By c Notifications - To cotton fabrics processed without the aid of power - Two assesses admittedly using power for mixing of chemicals, lifting of water and pouring in the bleaching tanks and kiers - Exemption denied and duty levied invoking extended period of limitation - Tribunal upholding the case of

D Revenue - In case of one assessee Tribunal reduced the penalty amount - Held: Exemption rightly denied - Power was used by the assesses for the process undertaken by them - Invocation of extended period of limitation is permissible in respect of the assessee in whose case Tribunal reduced the

E penalty amount - In the other case invoking of the limitation period is permissible only five years backward from the date of second show cause notice - Notification Nos. 173177 dated 18.6.1977, 130182-CE dated 20.4.1982, 28194-CE dated

1. 3. 1994, 8196-CE dated 23. 7. 1996, 5199 dated 1. 3. 1999 and 35199 dated 4.8.1999 - Central Excise Tariff Act, 1985 - F Chapter 52.

'-.

In Civil Appeal No. 1856 of 2005, appellant-assessees were en~1aged in processing of cotton fabrics. They were undertaking the process of bleaching, mercerizing,

G dyeing, priitting, washing, dying of the fabrics. They claimed exemption from duty granted to 'cotton fabrics' processed without the aid of power, under Notification Nos. 28194-CE dated 1.3.1994, 8196-CE dated 23.7.1996 and 5/99 dated 1.3.1999. However, they admitted to have used

H the power for certain ancillary areas such as mixing of 58

M/S. MATHANIA FABRICS v. COMMNR. OF CENTRAL 59

EXCISE, JAIPUR

~. chemicals etc. In view of use of power, Revenue denied A the benefit of exemption. Duty was levied invoking extended period of limitation u/s 11-A. Customs, Excise and Service Tax Appellate Tribunal upheld the case of Revenue.

In Civil Appeal No. 5398 of 2002, appellants-assessee B

were engaged in bleaching of cotton fabrics without the

> aid of power. They were availing exemption under Notification No. 173/77 dated 18.6.1977 as amended by notification No. 130/82-CE dated 20.4.1982. During a visit to the factory premises, Revenue found that in the process c of bleaching, power was being used for lifting water from undergr9und tanks and pouring water in the bleaching tanks and kiers. Show cause notice was issued in 1986

denying the exemption, for the period 14.12.1980 to 15.12.1985. The proceedings therein were set aside in D appeal on the ground that the order was without the authority of law in view of amended Section 11 A of Central Excises and Salt Act, 1944. In 1989 fresh show cause notice was issued without mentioning about the first notice. Revenue denied the exemption in view of the use E of power and levied duty invoking extended period of limitation. Plea of the assessee was that no power was used in the process. Customs Excise and Gold Control Appellate Tribunal held that the assessee was not entitled to benefit of exemption as the process was being carried Fi _j out with the aid of power. Hence the present appeal.

Dismissing Civil Appeal No. 1856 of 2005 and partly allowing Civil Appeal No. 5398 of 2002, the Court

HELD: 1. The appeal No. 1856 of 2005 is without merit. G 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. The letter of Commissioner of Central Excise dated 10.1.1999 on which reliance is placed by the assessee to contend that there was doubt about the nature of the process involved, is H

A significant. It is not known under what circumstances the .,.

letter was written. The stand of the assessee about the applicability of Section 11A was held to be untenable by the Tribunal. It is to be noted that the penalty amounts were equivalent to the extra demand raised but the B Tribunal has reduced to it to Rs.25,00,000/-. [Para 7] [63-

D, E, F]

JK. Cotton Spg. Wvg. Mills Co. Ltd. v. Sales Tax officer, " Kanpur 1997 (91) ELT 34 SC; CCE, v. Rajasthan State Chemical Works 1991 (55) ELT 444 SC - referred to.

2. Factually, in civil appeal No. 5398 of 2002, the stand of the assessee that there was no use of power, is unsustainable. Coming to the period of limitation, the five years period has to be reckoned backward from the date D when the second show cause notice was issued. In the show cause notice reply, there was no reference to the Notice issued in 1986. The Commissioner shall work out the liability and the penalty amount has to be equivalent to the amount of tax demand. [Paras 8 and 9] [63-G, H;

E 64-E]

CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5398 of 2002.

From the final Judgment and Order No.73/2002-D dated 4.4.2002 of the Customs, Excise & Gold (Control) Appellate F Tribunal, New Delhi in E/Appeal No. 1982/2001-D.

WITH

C.A. No.1856/2005

Meenakshi Arora for the Appellant in C .A. No. 5398/2002.

A.R. Madhav Rao, Alok Yadav, Tarun Jain and Rajesh Kumar for the Appellant in C .A. No. 1856/2005.

Mathai M. Paikeday, Ajay Sharma, Shishir Pinaki and B.

H Krishna Prasad for the Respondent.

The Judgment of the Court was delivered by A

Dr. ARIJIT PASAYAT, J. 1. These two appeals involve identical questions and are, therefore, disposed of by this common judgment. Appeals are directed against the orders passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (in short the' 'CESTAT') and Customs, B Excise & Gold Control Appellate Tribunal, New Delhi (in short the 'CEGAT'). The appeals filed by the appellants were dismissed by CESTAT holding that they were not entitled to benefit of concerned notifications. In case of appellant M/s Vimal Textile Mills, the concerned Notifications were Notification C No.28/94-CE dated 1.3.1994 the Notification No.8/96-CE dated

23. 7.1996 and its successor Notifications. CESTAT denied the benefit relying on a larger Bench's decision in the case of Mis Mathania Fabrics v. Commissioner of Central Excise, Jaipur [2002 (142) ELT 49 LB]. Same is the subjeCt matter of challenge D in C.A.No.5398 of 2002 .

.,.-

2. Background facts in a nutshell are as follows:

Appellants are engaged in the processing of cotton fabrics falling under Chapter 52. They claimed to be undertaking the E processes of bleaching, mercerising, dyeing, printing, washing, drying and finishing before the fabrics were packed and cleared.

Note 3 to Chapter 52 reads as follows:

"In relation to the manufacture of products of Heading Nos.

F 52.07, 52.08 and 52.09, bleaching, mercersing, dyeing, printing, water proofing, shrink-proofing, organdie process or any other process or any one or more of these processes shall amount to manufacture."

3. In Civil Appeal No.1856 of 2005 the stand taken by the G appellants was that they were not using power in the processing of the fabrics and, therefore, the benefit which they were earlier

availing was available. They had not used any power while undertaking the activities of bleaching, mercersing, dyeing, printing, washing, drying and finishing before the fabrics were H

A packed and cleared. It was further submitted that the Notification > No.5/99 was amended by Notification No.35/99-CE dated 28.8.99 and the same was applicable retrospectively and the Explanation below serial No.102 of Notification No.5/99 was substituted as under: B "Explanation- For the purposes of this exemption, cotton fabrics subjected to any one or more of the following processes with the aid of power, shall be deemed to have J

bEen processed without the aid of power or steam, namely:- c (a) lifting to overhead tanks or emptying in underground tanks handling of chemicals such as acids, chlorine, caustic soda."

4. It was, therefore, submitted that there was doubt about D the applicable provisions and, therefore, Section 11A of the

Central Excise Act, 1944 (in short the 'Act') was not applicable.

5. Stand of the Revenue on the other hand was that the amendment to the Notification was not retrospective and in effect

E it substituted the explanation. Reference was also made to the Explanation by Notification No.35/99-CE dated 4th August, 1999 which reads as follows:

"Explanation - For the purpose of this exemption, cotton fabrics subjected to any one or more of the following

F processes with the aid of power, shall be deemed to have been processed without the aid of power or steam namely: •

chemicals for lifting the water and for drying the fabrics does not amount to use of power in the processing of cotton fabrics."

6. CESTAT held that there was nothing in the Notification dated 4.8.99 to suggest that the amendment carried out was to

J. be given retrospective effect. It was held that factually the adjudicating authority had found that power had been used.

7. Appellants took the stand that the processes undertaken H amounted to manufacture but for the deemed definition of

" I

manufacture as noted above the processes undertaken by the A appellants would not amount to manufacture. In respect of the above processes undertaken by the appellant and no power was used. Appellants claimed benefit of exemption granted to "cotton fabrics processed without the aid of power''. Appellants took the stand that since they had not used the power in respect s

of the above processes, the benefit was available. They submitted 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. Department denied the benefit on the ground that there was use of power and the view C was found by the tribunal. In any event it was submitted that when the position in law was not clear and the authorities had to issue clarification, Section 11A of Act cannot be invoked. Tribunal after referring to the definition of manufacture under Section 2(f) of the Act and the decisions of this Court in J. K. Cotton Spg. Wvg.

Mills Co. Ltd. v. Sales Tax officer, Kanpur [1997(91) ELT 34 D SC] and CCE, v. Rajasthan State Chemical Works [1991 (55) ELT 444 SC] held 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 view of the decision of this Court in Rajasthan State Chemicals Works case (supra) E the stand about the applicability of Section 11A was held to be untenable. It held that the period involved was subsequent to the decision. Strong reliance is placed on a letter of Commissioner of Central Excise dated 10.1.1999, to contend that there was doubt about the nature of the process involved.

F Said letter is significant. In view of this Court's decision it is not known under what circumstances the letter was written. It is to be noted that the penalty amounts were equivalent to the extra demand raised but the Tribunal has reduced it to Rs.25,00,000/ -. Therefore, the appeal No. 1856 of 2005 is clearly without merit G and we dismiss it.

8. So far as Civil Appeal No. 5398 of 2002 is concerned, the period involved is 14.12.1980 to 15.12.1985 when the first notice was issued on 9.12.1986. It appears that in the show cause notice reply there was no reference to this aspect. So far H

A merit is concerned, the plea was that there is no aid of power 7

used. It is to be noted that in paragraph 9 of the order, CEGAT observed as follows:

"If pumping of brine into salt pans and lifting of coke and

lime stone to the platform with the aid of power can be treated as part of the continuous process of manufacture, there is no reason to hold otherwise when power is used for lifting water and pouring the same in the kier and bleaching vessel. It is not the case of the assessee that water is not an essential ingredient for the process of kiering and bleaching. The pouring of water into kier and bleaching vessel are steps integrally connected with the whole process. We, therefore, hold that the appellant is not entitled to claim the benefit of Notification No. 173/77 dated 18.6.77 as amended by Notification No. 130/82

CE dated 20.4.82 as part of the process was being carried out with the use of power."

9. Therefore, factually the stand that there was no use of ... power is unsustainable. Coming to the period of limitation the E five years period has to be reckoned backward from 8.2.1989 when the show cause notice was issued. The Commissioner shall work out the liability and the penalty amount has to be equivalent to the amount of tax demand.

10. The appeal is allowed to the aforesaid extent. No F costs.

K.K.T.

Civil Appeal No. 1856 of 2005 dismissed.

CA No. 5398 of 2002 partly allowed.