2010 (10) TMI 19 - SC - Central Excise

Shearing and back-coating knitted fabrics not manufacture under Chapter Note 4, exemption under Notification 6/2000 upheld

SC held that the processes of shearing and back-coating applied to knitted pile fabrics do not amount to 'manufacture' under Chapter Note 4 to Chapter 60 ... Classification of goods - Manufacture - unprocessed knitted or crocheted fabrics - exemption under notification no. 6/2000 - applicability of the principle of ejusdem generis rule - whether the processes of shearing and back-coating which do not figure in Chapter Note 4 to Chapter 60 of the Tariff Act, would fall within the ambit of 'any other process' referred to in the said note - Held that:- It is well settled that general terms following particular expressions take their colour and meaning as that of the preceding expressions, applying the principle of ejusdem generis rule, therefore, in construing the words 'or any other process', the import of the specific expressions will have to be kept in mind - Therefore, the processes, with which we are concerned in the present appeals must take their colour from the process of bleaching, dyeing, printing, shrink- proofing, tentering, heat-setting, crease-resistant processing, specifically mentioned in the note. It is evident that when a grey fabric is subjected to any of these processes, a permanent or lasting change is brought about in the fabric. Both the appellate authorities below have found that neither shearing nor back-coating brings about any permanent or lasting change in the knitted pile fabric manufactured by the assessee by carding and knitting. Thus, we find it difficult to hold that the processes of shearing or back-coating are of the same nature as other processes mentioned in the said chapter Note and therefore, would fall within the scope and ambit of 'any other process.' A bare perusal of the nature of the processes, explained in the said declaration reveals that the processes mentioned therein do not have the effect of changing the 'grey fabric' into another commodity or bring about a permanent or lasting change in the fabric so as to bring out a new product, tantamounting to manufacture in terms of Chapter Note 4 to Chapter 60 of the Tariff Act. In light of the settled legal position, the plea of the learned counsel for the revenue in that behalf cannot be entertained as the revenue cannot be allowed to raise a fresh plea, which has not been raised in the Show Cause notice nor can it be allowed to take contradictory stands in relation to the same assessee. Thus, we are in agreement with the Tribunal that the said processes do not amount to 'manufacture' in terms of Note 4 of Chapter 60 of the Tariff Act, and hence the fabric in question is 'unprocessed knitted fabric' falling under Sr. No.165 of the exemption notification No.06/2000 dated 1st March 2000, attracting Nil rate of duty as also under notification Nos.5/99, 9/96 and 18/96. These appeals are bereft of any merit and are, therefore, dismissed accordingly, leaving the parties to bear their own costs. Issues Involved:1. Classification of goods manufactured by the assessee.2. Whether the processes undertaken by the assessee amounted to 'manufacture' under Chapter Note 4 to Chapter 60 of the Central Excise Tariff Act, 1985.3. Applicability of Excise duty on the goods in question.Detailed Analysis:1. Classification of Goods Manufactured by the Assessee:The core issue was whether the goods manufactured by the assessee, specifically 'knitted pile fabrics,' were classifiable under chapter sub-heading 6001.12 of the Central Excise Tariff Act, 1985, attracting Nil rate of duty. Both CEGAT and CESTAT had rejected the Revenue's claim and held that the goods were 'unprocessed knitted pile fabrics' eligible for exemption from duty.2. Whether the Processes Undertaken by the Assessee Amounted to 'Manufacture':The Revenue contended that the processes of shearing and electrifying polishing amounted to 'manufacture' as per Chapter Note 4 to Chapter 60 of the Tariff Act, which would make the fabric dutiable. However, the Tribunal and the Commissioner (Appeals) held that these processes did not amount to 'manufacture' as they did not bring about any irreversible or lasting change in the character of the fabric.The Tribunal relied on the Supreme Court's decision in Mafatlal Fine Spinning and Manufacturing Co. Ltd. vs. Collector of Central Excise, Bombay, which stated that processes like shearing did not change the grey fabric into a new and commercially different commodity. The processes undertaken by the assessee, including carding, knitting, shearing, and back-coating, were deemed not to induce any permanent change in the fabric.3. Applicability of Excise Duty:The Revenue issued a show cause notice demanding Excise duty on the grounds that the fabric was processed. However, the Commissioner (Appeals) and the Tribunal found that the processes did not amount to 'manufacture' under Chapter Note 4 to Chapter 60. The Commissioner observed that the processes like shearing and back-coating did not result in a permanent change in the fabric, and hence, the goods were not dutiable under the relevant notifications.The Tribunal's decision was based on the principle of ejusdem generis, interpreting 'any other process' in Chapter Note 4 to mean processes similar to bleaching, dyeing, and printing, which bring about a lasting change in the fabric. Since shearing and back-coating did not fall within this category, the fabric remained classified as 'unprocessed.'Conclusion:The Supreme Court upheld the Tribunal's decision, agreeing that the processes undertaken by the assessee did not amount to 'manufacture' under Chapter Note 4 to Chapter 60 of the Tariff Act. Consequently, the fabric was classified as 'unprocessed knitted fabric,' attracting Nil rate of duty under Notification No.06/2000-CE dated 1st March 2000, as well as under Notifications Nos. 5/99, 9/96, and 18/96. The appeals by the Revenue were dismissed, affirming that the goods were not subject to Excise duty.