1999 (12) TMI 312 - AT - Central Excise

Fabric duty payable at clearance, not each processing stage. Tribunal rules in favor, grants Modvat credit.

The Tribunal held that duty on fabrics emerging after bleaching is payable at clearance, not at each processing stage. Modvat credit was wrongly denied by ... Cotton fabrics, bleached - Manufacture - Duty liability Issues involved: Duty liability on bleaching and dyeing of fabrics, denial of Modvat credit, interpretation of Chapter Note 2 of Chapter 52, exemption provisions pre and post 20-5-1994.Duty liability on bleaching and dyeing of fabrics: The appellants were charged duty and penalty for not paying duty on fabrics emerging after bleaching and used in the dyeing process. The Revenue contended that bleaching before dyeing amounts to manufacture and is leviable to duty. The appellants argued that bleaching is not done before dyeing and invited verification which the Department failed to conduct. The Tribunal held that duty is payable at clearance, not at each processing stage, citing the Supreme Court judgment in Umpire Industries Ltd. v. UOI- 1985 (20) E.L.T. 179 (S.C.).Denial of Modvat credit: The appellants claimed entitlement to Modvat credit for duty paid on bleaching fabric to offset duty on dyed fabric. The Revenue argued that Modvat credit was rightly denied as per Notification Nos. 23/94 and 24/94, which complement Chapter Note 2 of Chapter 52. However, the Tribunal found the denial of Modvat credit by the adjudicating authority to be on flimsy grounds and ruled in favor of the appellants, stating the exercise would be revenue neutral.Interpretation of Chapter Note 2 of Chapter 52: The Revenue relied on Chapter Note 2 of Chapter 52, stating that each process is considered manufacture. The appellants argued that duty should not be charged at each stage, and all processes collectively amount to manufacture. The Tribunal found that duty is to be paid at clearance, not at each stage, and upheld the appellants' position that bleaching is not undertaken before dyeing.Exemption provisions pre and post 20-5-1994: The appellants highlighted the exemption of captive consumption of bleached fabric pre-20-5-1994, which was rescinded by Notification No. 23/94. They argued that even if duty is payable on bleached fabric, they should be entitled to Modvat credit for payment on dyed fabric. The Tribunal agreed with the appellants, setting aside the impugned order and allowing the appeal with consequential relief as per law.