2007 (10) TMI 51 - AT - Central Excise

Appellants' SSI exemption denied for using brand names, interest penalties unjustified. Orders set aside, appeal dismissed.

The Tribunal held that the appellants were not manufacturers of towels and bed sheets as the actual manufacturing process was conducted by independent ... Suppliers of Cotton Yarn to job workers, who converted the yarn in to bed sheets and towels on payment of charges, are not manufacturers of bed sheets & towels – Towels/bed sheets are marketable as such and came into existence at the premises of weavers – No manufacturing by appellant Issues Involved:1. Whether the appellants were manufacturers of towels and bed sheets.2. Whether the appellants using brand names of others were eligible for SSI exemption.3. Whether the value of clearances of the two units could be clubbed for SSI exemption eligibility.4. Whether the recovery of interest and imposition of penalties under section 11AC were justified.Detailed Analysis:1. Manufacturer Status of Appellants:The Tribunal examined whether the appellants, who got their dyed yarn converted into towels and bed sheets by weavers, were manufacturers under central excise law. It was determined that the processes undertaken by the appellants, such as dyeing, weaving, knotting, labeling, and packing, did not constitute manufacturing. The Commissioner found that a manufacturer must carry out the actual manufacturing process, and in this case, the power loom weavers, who were independent operators, were the ones who transformed the yarn into towels and bed sheets. The weavers were not under the control of the appellants and worked for multiple clients, indicating their independence.2. Eligibility for SSI Exemption:The Tribunal analyzed whether the appellants, who used the brand names of other entities, were eligible for SSI exemption. It was noted that the new units used the brand names of the parent units, and as per Clause IV of Notification No. 8/03 CE-NT dated 1.3.2003, goods bearing the brand name of another person were not eligible for SSI exemption. The Commissioner concluded that the clearances made by the new units attracted duty liability without the SSI benefit due to the use of the parent unit's brand name.3. Clubbing of Clearances for SSI Exemption:The Tribunal addressed the issue of whether the value of clearances of the two units could be clubbed together for determining SSI exemption eligibility. The Commissioner held that the value of clearances made by the new units should be clubbed with those of the parent units to determine the eligibility for SSI exemption. This was based on the fact that the new units used the brand names of the parent units and were closely related entities.4. Recovery of Interest and Imposition of Penalties:The Tribunal considered whether the recovery of interest and imposition of penalties under section 11AC were justified. The Commissioner had demanded duty along with interest and imposed equal penalties on the appellants. However, the Tribunal found that the appellants were not manufacturers and hence were not liable for the duty, interest, or penalties imposed by the original authorities. The Tribunal upheld the order of the Commissioner (Appeals) which had vacated the penalties and interest imposed by the original authorities.Conclusion:The Tribunal agreed with the findings of the Commissioner (Appeals) that the appellants were not manufacturers of towels and bed sheets, as the actual manufacturing process was carried out by independent weavers. The Tribunal also upheld that the appellants were not eligible for SSI exemption due to the use of brand names of other entities. Consequently, the Tribunal set aside the Orders in Original and allowed the appeals filed by the traders, while dismissing the appeal filed by the Revenue.