2008 (7) TMI 417 - HC - Central Excise

Court rules in favor of assessee on duty levy timing under Central Excise Act

SPBL LTD. Versus UNION OF INDIA

The Court ruled in favor of the assessee, holding that the duty under Section 3A of the Central Excise Act, 1944 read with Rule 96ZQ of the Rules was ... Whether in the facts and circumstances of the case the Duty under Section 3A of the Central Excise Act, 1944 read with Rule 96ZQ of the Rules of 1944 was leviable on the duty payable under Stenters Rules at the stage of finishing process? Whether change of law w.e.f. 1st March, 2001 brought change in respect of Duty which became payable and paid until 28th Feb., 2001? Held that:- When the entire processes of stentering was already over, and only thing remaining to be done was, decatising, folding, and packing, that being not the requirement, as a sine qua non, for amounting to 'manufacture', it cannot be said, that duty did not stand levied on the said stock of 84407.50 mtrs., or for that matter 54760.95 mtrs. under the Rules of 2000, simply because, decatising, folding, and pressing was yet to be done at the cut off date and time. Thus, the question no. 1 as framed is answered in favour of the assessee, and against the Revenue, and it is held, that the duty, under Section 3A read with Rule 96ZQ of the Rules, stood levied under the Rules of 2000, at the stage, when one or more processes quoted above were completed, and did not stand deferred to await the finishing processes, like decatising, folding or packing. Thus, we do not find the impugned orders to be sustainable at all. So far question no. 2, as framed, is concerned, that, in our view does not arise, as it is nobody's case, that the change of law w.e.f. 1-3-2001, brought any change in respect of duty becoming payable and paid till 28-2-2001. Appeal allowed. Issues Involved:1. Whether duty under Section 3A of the Central Excise Act, 1944 read with Rule 96ZQ of the Rules of 1944 was leviable at the stage of finishing process.2. Whether the change of law effective from 1st March 2001 affected the duty payable and paid until 28th February 2001.Issue-wise Detailed Analysis:1. Levy of Duty at the Stage of Finishing Process:The primary issue was whether the duty under Section 3A of the Central Excise Act, 1944 read with Rule 96ZQ of the Rules of 1944 was leviable at the stage of finishing process. The facts of the case revealed that the assessees were engaged in manufacturing and processing man-made fabrics under Chapters 54 and 55 of the Central Excise Tariff Act. Prior to 1-3-2001, the assessees paid central excise duty under the 'Compounded Levy Scheme'. Post 1-3-2001, the scheme was withdrawn, and an ad valorem duty was levied. The assessees declared their stock as of 28-2-2001, including 84407.50 meters of fabric in process, which the Department claimed was not fully processed and thus not eligible for the compounded levy scheme.The assessees argued that under the 'Compounded Levy Scheme', a textile fabric was deemed to have been manufactured once it passed through the stenter machine, regardless of further processes like decatising, folding, and packing. The Joint Commissioner and the Commissioner held that the fabrics had not reached the 'finished stage' by 28-2-2001 and thus were liable for duty at ad valorem rates post 1-3-2001. The Tribunal upheld this view but set aside the penalty, considering the issue one of interpretation.The High Court examined Rule 2 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 2000, and Rule 96ZQ of the Central Excise Rules, 1944, concluding that the liability to pay excise duty arises on the manufacture of the commodity. The Court noted that manufacturing is considered complete if the fabric has undergone any one or more processes like bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, or crease-resistant processing, as per Heading 55.13 and Note-4 of Chapter 55.The Court found that since the fabric had undergone stentering by 28-2-2001, it was considered manufactured, and duty under the 'Compounded Levy Scheme' was deemed paid. Therefore, the duty did not defer to await finishing processes like decatising, folding, or packing. The Court held that the duty stood levied under the Rules of 2000 at the stage when one or more processes were completed.2. Effect of Change of Law from 1st March 2001:The second issue was whether the change of law from 1st March 2001 affected the duty payable and paid until 28th February 2001. The Court clarified that this issue did not arise in the present case, as it was not contested that the change in law brought any change in respect of duty payable and paid until 28th February 2001. The crux of the matter was whether the goods were duty paid under the Rules of 2000, which depended on the completion of the manufacturing process by the cut-off date.Conclusion:The Court answered the first question in favor of the assessee, holding that the duty under Section 3A read with Rule 96ZQ of the Rules stood levied at the stage when one or more processes were completed, without awaiting the finishing processes. Consequently, the impugned orders were set aside, and the notices issued by the Joint Commissioner were quashed. Both appeals were allowed.