2008 (5) TMI 93 - AT - Central Excise

Court rules on garment clearances for SSI exemption and duty liability, tailoring activity not excisable.

The court held that the clearances of Ethnocity and East West Attire are to be clubbed with Diwan Sons for SSI exemption, and the duty demand from the ... Garment stitching - Fabrics, accessories and different brand labels for two units received from one unit and stitched at one place; so clearances of these three units are liable to be clubbed – conversion of fabrics into garments as per individual customer’s measurements and specifications are excisable and, not eligible for exemption under Not. No. 76/86 – to prove marketability of goods it is not necessary that product must be sold in shop; sale to one person is sufficient Issues Involved:1. Eligibility for exemption under Notification 76/86-C.E., dated 10-2-1986.2. Clubbing the clearances of East West Attire and Ethnocity with the clearances of Diwan Sons for the purpose of SSI exemption.3. Time-barred status of the duty demand raised vide Show Cause notice dated 12-8-2003.4. Exciseability of the garments made by Diwan Sons as part of their tailoring activity and the liability to pay the duty.Issue-wise Detailed Analysis:1. Eligibility for exemption under Notification 76/86-C.E., dated 10-2-1986:The Notification provides full duty exemption to 'handicrafts'. The court held that determining whether an item qualifies as a 'handicraft' depends on factors like intricacies of designs, quantum of individual artistic skill, and extent of value addition through ornamentation by hand. Since no claim was made during the sale period (April 2001 to March 2003) and the garments in question were no longer available for inspection, the adjudicating authority correctly rejected the appellants' claim for benefit under Notification 76/86-C.E.2. Clubbing the clearances of East West Attire and Ethnocity with the clearances of Diwan Sons for the purpose of SSI exemption:The court confirmed the Commissioner's finding that East West Attire and Ethnocity were dummy units created by Diwan Sons for duty evasion. Evidence showed that these firms were controlled by members of the same family and managed by Shri Surinder Diwan. The raw materials, accessories, and brand name labels were supplied by Diwan Sons, and the designer was common across all three units. The units were closed down after the duty evasion case was booked, indicating that the production of Diwan Sons had been artificially split into three units.3. Time-barred status of the duty demand raised vide Show Cause notice dated 12-8-2003:The first two Show Cause Notices (dated 7-5-2002 and 27-9-2002) were within the normal limitation period. The third Show Cause Notice (dated 12-8-2003) invoked the extended limitation period under the proviso to Section 11A(1) for the period from April 2001 to March 2003. Since the clubbing issue was a new issue not raised in the earlier notices, the third notice was not time-barred and was not hit by the Supreme Court's judgment in Nizam Sugar Factory v. CCE.4. Exciseability of the garments made by Diwan Sons as part of their tailoring activity and the liability to pay the duty:The court rejected the appellants' contention that tailoring activity does not attract excise duty and that the garments made as per individual customer specifications are not marketable. The court held that a product is marketable even if saleable to a single person. The process of converting fabrics into garments is manufacture, and such garments are covered by heading 62.01 of the tariff, making them excisable. However, the court noted that the adjudicating authority did not address whether Diwan Sons are liable to pay duty under Rule 7AA of the Central Excise Rules, 1944, and its successor Rule 4(3) of the Central Excise Rules, 2001/2002. This issue was remanded to the adjudicating authority for determination.Conclusion:The court held that:(a) The clearances of Ethnocity and East West Attire are to be clubbed with the clearances of Diwan Sons for SSI exemption purposes, and the duty demand raised in the Show Cause Notice dated 12-8-2003 is not time-barred.(b) The garments made as part of the tailoring activity are excisable and not eligible for exemption under Notification 76/86-C.E.The matter was remanded to the adjudicating authority to determine the liability to pay duty under the specified rules and to re-determine the duty liability and penalties accordingly. The appellants are to be given an opportunity for a personal hearing before a decision is made. The appeals were disposed of in these terms.