2001 (1) TMI 157 - AT - Central Excise

Tribunal overturns duty rate decision, manufacturers get relief under Notification No. 8/97

The Tribunal allowed the appeals challenging orders-in-original that permitted two manufacturers to benefit from Notification No. 8/97 for concessional ... Raw material - consumables - benefit of Notification No. 8/97 - manufactured wholly from raw materials produced or manufactured in India - test for raw material based on dependence of end-product (Collector of Central Excise v. Ballarpur Industries Ltd.) - extended period of limitation under proviso to Section 11A(1)Raw material - consumables - benefit of Notification No. 8/97 - manufactured wholly from raw materials produced or manufactured in India - test for raw material based on dependence of end-product (Collector of Central Excise v. Ballarpur Industries Ltd.) - Whether imported indigo pure dye, wax, lycra, fixing agents, woven interlining, thread, twill tape, buttons and stickers used in manufacture are raw materials (and not consumables) for the purpose of Notification No. 8/97, thereby affecting entitlement to the notification. - HELD THAT: - Notification No. 8/97 confers concessional duty only where finished goods are produced wholly from raw materials produced or manufactured in India. The Court applied the test laid down by the Apex Court in Collector of Central Excise v. Ballarpur Industries Ltd., which classifies inputs by whether the end-product depends on their presence for its essential existence or quality. Materials that, although they may be consumed or altered in the process, are nevertheless essential to produce the finished article fall within the concept of raw materials. The imported items in question were admitted to have been used in the production and to impart required quality and utility to the finished products; without them the products would not have come into existence in their present form. Therefore those imported items satisfy the test of raw materials rather than mere consumables. The C.B.E. & C. Circular treating certain imported consumables as permissible does not displace the judicial test established by the Apex Court and cannot be applied to classify the present imported items as consumables. [Paras 9, 10, 11]Imported indigo pure dye, wax, lycra, fixing agents, woven interlining, thread, twill tape, buttons and stickers constitute raw materials for the purposes of Notification No. 8/97; consequently the finished products were not manufactured wholly from raw materials produced or manufactured in India and are not entitled to the benefit of the notification.Extended period of limitation under proviso to Section 11A(1) - Whether the Department was justified in invoking the extended period of limitation under the proviso to Section 11A(1) and the question of actual quantum of duty payable by the manufacturers. - HELD THAT: - The Commissioner had not adjudicated issues of limitation and quantum because proceedings were dropped on the basis that the imported materials were consumables. Having held that those materials are raw materials and set aside the Commissioner's orders, the Court directed that the Commissioner must now decide whether the extended period of limitation under the proviso to Section 11A(1) is invokable and determine the actual duty liability. The Commissioner is to afford the manufacturers a reasonable opportunity of being heard and to complete the decision expeditiously. [Paras 12, 14]These issues are remitted to the Commissioner for fresh consideration and decision (including opportunity of hearing) as to invocation of the extended period of limitation and the actual quantum of duty payable.Final Conclusion: The appeals are allowed: the Tribunal holds that the imported items used in manufacture are raw materials, which excludes the finished goods from Notification No. 8/97; the Commissioner's orders are set aside and the matters of limitation under the proviso to Section 11A(1) and the quantum of duty are remitted to the Commissioner for fresh decision within four months after giving the manufacturers a reasonable opportunity of being heard. Issues involved: Correctness of orders-in-original allowing benefit of Notification No. 8/97 to manufacturers; whether imported materials used in manufacturing finished products qualify as raw materials under Notification No. 8/97.Summary:The appeals challenged the orders-in-original allowing two manufacturers, engaged in the manufacture of cotton fabrics, to avail the benefit of Notification No. 8/97, which prescribed a concessional rate of duty for finished goods manufactured by Export-Oriented Undertakings (EOUs) using raw materials produced or manufactured in India. The Revenue contended that certain imported materials used by the manufacturers did not qualify as raw materials under the notification.In the case of Century Denim, the use of imported indigo pure dye in manufacturing denim fabrics was disputed by the Revenue, arguing that the imported dye was a raw material and thus the finished product could not claim the benefit of the notification.For Maral Overseas Ltd., the Revenue challenged the use of imported materials such as wax, lycra, and other findings in the production of cotton yarn, fabric, and garments, claiming that these materials were consumables and not raw materials under the notification.The central question was whether the imported materials used by the manufacturers in producing the finished products qualified as raw materials under Notification No. 8/97, which required the finished products to be manufactured wholly from raw materials produced or manufactured in India.The Tribunal, applying the test laid down by the Apex Court, determined that the imported materials were indeed raw materials as they were essential for the quality and utility of the finished products. The Tribunal rejected the argument that the imported materials were consumables, as clarified in a circular, and remitted the matter back to the Commissioner to decide on issues of limitation and duty payable by the manufacturers.Ultimately, the Tribunal allowed the appeals, setting aside the orders-in-original and directing the Commissioner to decide on the remaining issues expeditiously, affording the manufacturers a reasonable opportunity to be heard.