2008 (2) TMI 235 - AT - Central Excise

Textile company liable for duty on processed fabrics under compounded levy scheme

The Tribunal allowed the revenue's appeal, overturning the Commissioner (Appeals) decision in a case concerning duty liability under the compounded levy ... Duty on manufacture - excisability of intermediate goods - processes amounting to manufacture - RG-I Register loose stock as finished goods - compounded levy scheme applicable from 16-12-1998RG-I Register loose stock as finished goods - duty on manufacture - Whether fabrics shown as 'loose stock' in the RG-I Register on the mid-night of 15-12-1998 are to be treated as finished goods liable to duty at ad valorem rates prevailing as on 15-12-1998 - HELD THAT: - The Tribunal held that the prescribed proforma for the RG-I Register requires the assessee to show finished goods both in packed and loose form, and that the loose designation in column 3 refers to fully finished goods. The respondents failed to produce evidence establishing that the quantities shown as loose were grey or otherwise unprocessed fabrics awaiting manufacturing steps. Discrepancies in the RG-I entries and the statement furnished by the respondents undermined their claim that the loose stock was not marketable finished goods. Consequently, merely being in loose (unpacked) condition does not render the goods non-excisable; duty is leviable on goods which, though unpacked, are fully manufactured or are intermediate goods arising in the course of manufacture and not exempted.Fabrics shown as 'loose stock' in RG-I on mid-night of 15-12-1998 are to be treated as finished goods (or excisable intermediate goods) and duty at ad valorem rates prevailing on 15-12-1998 is leviable.Processes amounting to manufacture - excisability of intermediate goods - Whether individual textile processing operations (such as scouring, bleaching, mercerizing, dyeing, printing, stentering) amount to manufacture so as to render fabrics excisable and liable to duty up to that stage - HELD THAT: - Relying on the chapter notes and applying established principle that in the textile industry each process can amount to manufacture, the Tribunal accepted the revenue's contention that once grey fabric has undergone processing that constitutes manufacture, the product becomes excisable and duty is leviable up to that stage at rates prevailing on 15-12-1998. The Bench found that the respondents did not demonstrate that the loose stock had not undergone processes amounting to manufacture. The Tribunal distinguished the decision relied upon by the respondents insofar as that decision did not address the proposition that every individual process amounts to manufacture, and followed the Tribunal's earlier view in Vishnu Dyeing and Printing Works that loose stock in RG-I on the relevant date constitutes finished/excisable goods.Individual textile processing steps can amount to manufacture; fabrics that have undergone such processes are excisable and liable to duty up to the stage achieved as on 15-12-1998.Final Conclusion: The revenue's appeal is allowed; the Commissioner (Appeals) order is set aside and the loose stock shown in RG-I on the mid-night of 15-12-1998 is held to be excisable (finished or intermediate goods) liable to duty at ad valorem rates prevailing on 15-12-1998, since textile processing steps amount to manufacture. Issues:Interpretation of compounded levy scheme and duty liability for fabrics processed before and after the scheme's introduction.Analysis:The case involved an appeal by the revenue against a decision regarding the duty liability of a textile company under the compounded levy scheme. The scheme mandated duty payment based on annual production capacity determined by the Commissioner. Fabrics processed before the scheme's introduction were to pay duty at ad valorem rates prevailing then, while those processed after were subject to the compounded levy scheme. The company declared a stock of fabrics as semi-finished on the night before the scheme's implementation, subsequently clearing it without duty payment. A show cause notice was issued, alleging duty evasion on these fabrics. The Dy. Commissioner upheld the duty liability and imposed a penalty, but the Commissioner (Appeals) overturned this decision, considering the fabrics as covered by the compounded levy scheme.Revenue's Argument:The revenue contended that all textile processes constitute manufacturing, making no fabric semi-finished. The absence of evidence showing the fabrics were yet to undergo stentering was highlighted. Even if stentering was pending, duty was payable for prior processes like scouring, bleaching, etc. Reference was made to a notification specifying that finished goods in the RG-I Register included those in the finishing room. The Tribunal's decision in a similar case supported this argument.Respondent's Defense:The respondent argued that loose fabrics in their register were not fully processed or marketable. They explained their accounting practices but failed to reconcile discrepancies in their statements. While admitting contradictions in their submissions, they maintained that the loose stock was not fully manufactured and thus not liable for duty. They cited a Tribunal decision stating that goods in the finishing room were not necessarily marketable.Judgment:The Tribunal found that the loose fabrics in the register were considered fully finished goods. The respondent's failure to provide evidence of incomplete processing led to the conclusion that all processes rendered the fabrics excisable. The Tribunal emphasized that every textile process amounted to manufacturing, rejecting the argument of fabrics being semi-finished. The decision in a previous case supported this view, emphasizing duty payment for intermediate goods in manufacturing. Consequently, the revenue's appeal was allowed, overturning the Commissioner (Appeals) decision.This detailed analysis highlights the key arguments, interpretations, and the Tribunal's reasoning in the judgment regarding duty liability under the compounded levy scheme for fabrics processed before and after its implementation.