TaxTMI 
TaxTMI 
2015 (11) TMI 94
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....d notification is that the products that are manufactured by such EOU should have been manufactured using indigenous raw material only. 2. The appellant while manufacturing cotton yarn had used indigenous cotton and also imported wax. The Department sought to deny the benefit of Notification No.8/97-C.E. on the ground that imported wax was also used, which was treated as the "raw material". Show cause notice dated 04.09.2001 was, accordingly, issued by the Superintendent of Central Excise, Pollachi-II Range, in O.C. No.777/2001 to state that the appellant was wrong in claiming the benefit of Notification No.8/97-C.E. dated 01.03.1997 since cotton yarn was manufactured out of indigenous cotton and imported wax, as wax was contained in the final product (yarn). It was stated that the appellant is maintaining separate production account for manufacture of cotton yarn both for indigenously procured and imported cotton as detailed in Annexures-I and II to the show cause notice. The appellant filed objections/reply dated 29.01.2001 wherein it stated that: (i) wax disc was used in the High Speed Autoconer for supply to hosiery industries. Wax acts as a lubricant for reducing t....
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.....2007. Perusal of the decision indicates following thought process: (i) The imported wax was used through discs fitted in the cone winder (Auto Coner) running at a speed of 1200-1500 meters per minute. (ii) The wax coating was necessary to smoothen the surface and to lubricate yarn in winding and further process of knitting. (iii) The coating disappears in the further process to which the knitted fabric is subjected to, but at the time of clearance of the yarn from the EOU, wax was part of the yarn. (iv) The use of the wax satisfied the definition of "raw material" and wax provided lubricity to the yarn. 6. Present appeal is preferred by the appellant challenging the correctness and validity of the aforesaid decision of the Tribunal. 7. Mr. Bagaria, learned senior counsel, appearing for the appellant, drew our attention to the language used in the exemption notification which provides for 100% exemption to EOU or a free trade zone from excise duty on the finished products, rejects and waste or scrap specified in the Schedule to the Central Excise Tariff Act, 1985 when produced or manufactured 'only from the raw materials produced or man....
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....ion particularly contained in para (b) thereof which clarifies that the use of imported consumables would not debar such a manufacture from availing the benefit from the notification. He also referred to two circulars of the Ministry of Finance in support of his aforesaid plea, the particulars and the material contained thereof are as under: (i) Circular No.614/5/2002-CX dated 31.01.2002, the Ministry of Finance stated as under: "I am directed to refer Board's Circular No.389/22/98-CX dated 05.05.1998 [1998 (100) ELT T19] relating to extension of benefit under Notification No.8/97-C.E. dated 01.03.1997 to EOUs even if they use imported consumables and to say that the matter has been re-examined by the Board and it has been decided to withdraw the circular. Accordingly, it is clarified that the benefit of Notification No.8/97-C.E. dated 01.03.1997 shall not be available to those EOUs which use imported consumables." (ii) By Circular No.631/22/2002-CX dated 28.03.2002, the Ministry of Finance vide paragraph 2 further clarified as follows: "I am directed to invite reference to Board's Circular No.614/5/2002-CX dated 31.01.2002 [2202 (140) ELT T3] regard....
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....n a vacuum auto-clave at low temperature. Wax is present in the final product. Waxing is done to maintain co-efficient of friction between yarn and metal in order to avoid excessive yarn breaks as well as needle breaks. The purpose of waxing is the same as that of M/s. Forbes Gokak Ltd. who also cleared cotton yarn to DTA claiming the benefit of the same notification and the benefit stands extended by the Hon'ble Karnataka High Court as seen from 2010 (250) E.L.T. 186 (Kar.) holding that wax cannot be considered as raw material but as consumable and upholding the Tribunal's order reported in 2005 (192) E.L.T. 1000 to this effect. The Karnataka High Court's decision cited supra is applicable on all fours to the facts of the present case. Although, ld. JCDR seeks to rely upon the remand and order of the Apex Court in Vanasthali Textiles Industries Ltd. v. CCE, Jaipur [2007 (218) E.L.T. 3 (S.C.)] to examine whether sizing material was a raw material for the manufacture of terry towels and draws the attention of the Bench to the remand orders of the Tribunal in CCE, Coimbatore v. Meridian Industries Ltd.[2007 (217) E.L.T. 576] and in direct decision of the Hon'ble Karna....
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....The gravamen of the charge against the appellant is that wax disc which is admittedly imported and used for the production of cotton yarn constitutes 'raw material' and since imported material is used for the production of the aforesaid commodity, benefit of Notification No.8/97-C.E. cannot be extended to the appellant. It is not in dispute that wax is used in the process which is an imported material. However, the refutation of the appellant is that wax is not 'raw material' and it is only used as 'consumable' in the process of manufacturing cotton yarn. The Export and Import Policy 1997-2002, which is applicable in the instant case, defines both the expressions, namely, 'consumables' and 'raw material' and, therefore, it would be apposite to take note of these definitions: "Consumables" means any item which participates in or is required for a manufacturing process, but does not form part of the end product. Items which are substantially or totally consumed during a manufacturing process will be deemed to be consumables. "Raw material" means: (i) basic materials which are needed for the manufacture of goods, but w....
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...., as a result of interaction with other chemicals or ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which, like catalytic agents, while influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end products and those, as here, which might be burnt up or consumed in the chemical reactions. The question in the present case is whether the ingredients of the last-mentioned class qualify themselves as and are eligible to be called `raw material' for the end product. One of the valid tests, in our opinion, could be that the ingredient should be so essential from the chemical processes culminating in the emergence of the desired end product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning up is its quality and value as raw material. In such a case, the relevant test is not its absence in the end product, but the dependence of the end product for its essential presence at the delivery end of the process. The ingredient go....
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....ther conditions of the said notification are satisfied." 18. In Chemical Technology of Fibrous Materials by F. Sadov, M. Korchagin and A. Matelsky it has been stated as follows: "In industry, textile fonning (fibrous) items used for manufacturing (main activity) a textile product are referred to as raw material e.g. cotton, viscose, wool, silk, nylon, polyester, etc. or their blends in different compositions. Whereas, (non-fibrous) items used for chemical processing of textile product (ancillary activity) are referred to as consumables e.g. starches, variety of chemicals, several colouring matters such as dyes and pigments, etc. Power and water are other consumable items in addition to fuel oil, lubricating agents and packing materials. It is a common practice in textile industry and trade to identify and categorise raw material and consumables on such basis." 19. Since the reliance on dominant ingredient test in regard to cost variation has not been considered by CEGAT though the same has relevance, the matter is remitted to CEGAT to consider those aspects. It shall also consider whether the items can be considered as "consumable" on the facts of the case. 20. De....
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....on the decision of this Court in CCE v. Ballarpur Industries Ltd. (1989) 4 SCC 566 wherein this Court has held that the valid tests to determine whether the ingredient qualifies to be called raw material could be that ingredient should be so essential for the chemical processes culminating in the emergence of the desired end product. 18. As already pointed out above, Export and Import Policy 1997-2002 provided the definition of 'consumables' and 'raw material'. The definition of 'consumables' suggest that if a particular item participates in or is required for a manufacturing process, but does not form part of the end product and instead it is specifically or totally consumed during a manufacturing process, the same would be treated as 'consumables'. On the other hand, 'raw material', inter alia, includes any materials or goods that is required for the manufacturing process for a manufacturer. Though, these terms were not specifically defined at the relevant time when Vanasthali Textiles Industries Limited and Ballarpur Industries Limited cases were decided, going by the dictionary meaning, almost similar test was applied to determin....
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....facture of knitted fabrics by the buyers. It follows from the above that insofar as assessee is concerned, it manufactured cotton yarn by applying wax coating thereon. This wax coating, or significant portion thereof, remains on the cotton yarn. The buyer wants wax coating to remain as that is needed for lubrication of the yarn to facilitate its winding on cones when the buyer uses the said cotton yarn for manufacture of hosiery. No doubt that cotton yarn can be produced without wax as well. However, such cotton yarn without wax would be of inferior quality for the purposes of buyer in comparison with cotton yarn coated with wax as the use of cotton yarn with wax thereupon acting as lubricant is much more useful and becomes a value addition making it better quality cotton yarn, insofar as requirement of the buyer in using such cotton yarn for manufacture of knitted fabircs is concerned. When matter is examined from this angle, an irresistible conclusion is arrived at, namely, wax was used as raw material and not as consumable, insofar as end product of the assessee is concerned. For the assessee, end product is cotton yarn and not knitted hosiery. Knitted hosiery is the end product....