M/S Dhanjjal Industries vs Cce, Jallandhar

[Arising out of the Order-in-Appeal No. 473/CE/Jal/2004 dated 30/09/2004 passed by The Commissioner of Central Excise (Appeals), Chandigarh and Order-in-Appeal No. 122/CE/Appeal/Jal/2005 dated 31/03/2005 passed by Commissioner (Appeals), Central Excise, Jallandhar.]

For Approval and signature :

Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

1. Whether Press Reporters may be allowed to see :

the Order for publication as per Rule 27 of the

CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of :

the CESTAT (Procedure) Rules, 1982 for

publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair :

copy of the order?

4. Whether order is to be circulated to the :

Department Authorities?

M/s Dhanjjal Industries Appellant

Versus

CCE, Jallandhar Respondent

and

CCE, Jallandhar Appellant

Versus

M/s Guru Nanak Crushing Respondent

and vice-versa

Appearance

Ms. Priyanka Goel, Advocate (M/s Dhanjjal Industries) and Ms. Surabhi Sinha, Advocate (M/s Guru Nanak Crushing)  for the Appellants.

S/Shri M.S. Negi and R.K. Khanna, Authorized Representative (DRs)  for the Respondent.

CORAM : Honble Shri Rakesh Kumar, Member (Technical)

Honble Shri S.K. Mohanty, Member (Judicial)

Final Order No. 50869-50871/2015 Dated : 24/03/2015

Per. Rakesh Kumar :-

The facts leading to filing of these appeals are, in brief, as under.

1.1 M/s Dhanjjal Industries, Amritsar and M/s Guru Nanak Crushing, Amritsar are engaged in the process of crushing of manmade fabrics of sub-heading 551329 with the aid of power. In both the cases, the assessees were not paying any duty on the crushed fabrics being made by them. For the purpose of crushing, the fabrics are, first, put in the crushing machine which is fitted with an electric motor and steam is passed. The shaft of the crushing machine crushes the fabrics in pipes of the machine. After taking out the fabric from the pipe, it is put through the crushing machine at least four times. Thereafter, the fabric is passed through felt machine which is operated with the aid of power and has heating arrangement in it. After passing through the felt machine, the crushing effect becomes permanent. The Department was of the view that this process of the appellant would amount to manufacture in view of Chapter Note 4 of Chapter 55 of the Central Excise Tariff according to which in relation to the products of adding 5511, 5512, 5513 and 5514, the process of bleaching, dyeing, printing, shrink briefing, stentering, heat setting, crease resistance processing or any other process or any one or more there processes shall amount to manufacture. According to the Department, the process of crushing with the aid of power is covered by the term any other process in Chapter note 4 of Chapter 55. Accordingly by the issue of show cause notices, the duty was demanded from the assesses on the clearances of crushed fabrics made by them alongwith interest and also for imposition of penalty. In both the cases, the Jurisdictional Additional Commissioner of Central Excise confirmed the duty demands against the assessees alongwith interest thereon under Section 11AB and imposed penalty of equal amount on them under Section 11AC.

1.2 On appeal being filed by M/s Dhanjjal Industries, Amritsar against the Additional Commissioners order, the Commissioner (Appeals) vide order-in-appeal dated 30th September, 2014 dismissed the appeals except for setting aside of penalty of Rs. 1,000/- imposed on the appellant under Rule 173Q of Central Excise Rules, 1944. He, however, upheld the entire duty demand alongwith interest thereon under Section 11AB and also the imposition of equal amount of penalty under Section 11AC. Against this order of the Commissioner (Appeals) appeal No. E/447/2005 has been filed.

1.3 In respect of appeal filed by M/s Guru Nagak Crushing against the order-in-original passed by the Additional Commissioner, the Commissioner (Appeals) vide order-in-appeal dated 31/3/05 while upholding the duty demand alongwith interest under Section 11AB, reduced the penalty under Section 11AC from Rs. 1,64,335/- (equal to the duty demand confirmed) to Rs. 50,000/-. Against this order of the Additional Commissioner while the assessee M/s Guru Nanak Crushing have filed the appeal No. E/108/2006, the Department has filed appeal No. E/2308/2005 against part of the order reducing the penalty under Section 11AC to Rs. 50,000/-.

2. Heard both the sides.

3. Ms. Priyanka Goel, Advocate, the learned Counsel for M/s Dhanjjal Industries and Ms. Surabhi Sinha, the learned Counsel for M/s Guru Nanak Crushing, pleaded that the crushing of fabric does not result in permanent changes in the fabrics, that the Apex court in the case of Siddeshwari Cotton Mills (P) Ltd. vs. Union of India reported in 1989 (39) E.L.T. 498 (S.C.), while dealing with the issue as to whether the process of calendaring is a process covered under Section 2 (f) of the Central Excise Act, 1944, has held that the scope of the phrase or any other process in Section 2 (f) has to be interpreted in ejusdem generis with the expressions preceding this phrase and accordingly the phrase any other process would cover only those processes which impart a change of lasting character to the fabric either by chemical changes into the fabric or otherwise, that the process of crushing does not bring any change of lasting nature to the fabric as the wrinkles introduced by the process of crushing disappear after washing and ironing and that in any case, the crushed fabrics are subjected to further processing and in the form in which the same are cleared by the assessees in these appeals, the same cannot be said to be marketable and, hence, for this reason also, the same would not be excisable, that the Apex court in the case of CCE, Baroda vs. United Phosphorus Ltd. reported in 2000 (117) E.L.T. 529 (S.C.), has held that intermediate products coming into existence in course of manufacture of pesticides are not marketable and, hence, are not goods and would not attract excise duty, that same view has been taken by the Apex court in the case of CCE, Chandigarh vs. Steel Strips Ltd. reported in 1995 (77) E.L.T. 248 (S.C.), that it is well settled law that burden of proof of marketability is on the Department, while in this case no evidence in this regard has been produced and that in view of this, the impugned order upholding the duty demand on the crushed fabrics being made by the assesses by holding the process as amounting to manufacture is not sustainable and hence there is no question of imposition of penalty on them.

4. Shri Ranjan Khanna and Shri M.S. Negi, the learned DRs, defended the impugned orders by reiterating the findings of the Commissioner (Appeals) and pleaded that in both the cases, the assessees were crushing the grey manmade fabrics received by them from customers on job work basis and for this process, they were using similar machine being operated with the aid of power, that Shri Harjinder Singh, Proprietor of M/s Dhanjjal Industries, Amritsar and Shri Chanpreet Singh, Proprietor of M/s Guru Nanak Crushing in their respective statement have stated that the crushed fabrics after passing through the felt machine gets permanency of the crushed effect obtained in the crushing machine, that crushing of the fabrics gives a particular type of effect to the fabric which is permanent, and therefore, the process of subjecting the grey fabrics to crushing would amount to manufacture, that the crushed fabrics have market and, hence, the fabrics subjected to the process of crushing would be excisable goods attracting Central Excise duty, that since in both the cases, the assessees have neither obtained Central Excise registration and nor were they paying Central Excise duty, the longer limitation period under proviso to Section 11A (1) would be available to the Department for recovery of duty and penalty under Section 11AC would be imposable and that in the case of M/s Guru Nanak Crushing, the Commissioner (Appeals) has wrongly reduced the penalty under Section 11AC to Rs. 50,000/- while in terms of Apex court judgment in the case of Union of India vs. Dharamendra Textile Processors reported in 2008 (231) E.L.T. 3 (S.C.), once the provisions of Section 11AC are held to be applicable, penalty equal to the duty demand confirmed has to be imposed and the Adjudicating Authority has no discretion to impose a lower penalty and, hence, the order passed by the Commissioner (Appeals) in the case of M/s Guru Nanak Crushing reducing the penalty to Rs. 50,000/- is not correct.

5. We have considered the submissions from both the sides and perused the records.

6. The main point of dispute in this case is as to whether the crushing of grey fabrics amounts to manufacture. There is no dispute that the process of crushing is undertaken with the aid of power. The process of crushing of fabrics involves passing of fabrics through crushing machines several times in course of which the steam is passed and the crushing effect is imparted and, thereafter, passing the fabric through the felt machine wherein is on account of heat setting, the effect of crushing becomes permanent and cannot be undone on washing. These facts are not disputed by the assessees and in both the cases, the assessees have accepted that the crush fabrics, as such, are sold. In view of this, it has to be held that the process of crushing results in permanent change in the fabrics and, hence, in view of Chapter Note 4 of the Chapter 55, this process would have to be treated as amounting to manufacture, as according to the Note 4 of the Chapter 55 in relation to the products of heading 5511, 5512, 5513 and 5514 the process of bleaching, dyeing, printing, shrink briefing, stentering, heat setting, crease resistance, processing or any other process or any one or more of these processes shall amount to manufacture and in our view the process of crushing would be covered by the expression any other process. In view of this, we do not find any infirmity in the impugned order holding that the process of crushing would amount to manufacture.

7. As regards marketability, the Proprietors of the assessee firms themselves have accepted that the crush fabrics are saleable as such and are known in the market as crushed fabrics. Moreover there are number of internet websites of several manufacturers of crush fabrics which offer different verities of crushed fabrics for sale. In view of this, we do not accept the appellants contention that this product is not marketable.

8. In both the cases, the duty demands are within normal period of limitation and hence the same are upheld. However, as regards the question of penalty, we are of the view that since the dispute in this case pertains to interpretation, no malafide can be attached to non-payment of duty by the assessees on the crush fabrics being cleared by them. In view of this, the penalty on both the assessees is set aside.

9. In view of the above discussion, while appeals of both the assessees  M/s Dhanjjal Industries, Amritsar and M/s Guru Nanak Crushing are partly allowed, the appeal filed by the Revenue for enhancement of penalty on M/s Guru Nanak Crushing is dismissed.

(Pronounced in open court on 24/03/2015.)

(Rakesh Kumar)

Member (Technical)

(S.K. Mohanty)

Member (Judicial)

PK

??

??

??

??

8