TaxTMI 
TaxTMI 
2009 (6) TMI 5
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....ble if the inputs used are goods falling under Heading 55.01. 3. According to the petitioners, the Notification No.30/2004 read with the new tax regime for the Textile sector announced by the Hon'ble Finance Minister on 8/7/2004 clearly shows that the exemption is not restricted to the duty paid inputs falling under Heading 55.03 but it is also applicable to the duty paid inputs falling under Heading 55.01. 4. The petitioners contend that, if the argument of the revenue that the term 'staple fibres' in serial No.10 of the Notification No.30/04 applies only to the "staple fibres" falling under Heading 55.03 is accepted, then the Notification would be violative of the new tax regime. Therefore, to save the Notification being ultra vires the new tax regime, the petitioners seek deletion of the word 'staple' so as to bring the Notification No. 30/04 in conformity with the new tax regime. Alternatively, it is contended that the term 'staple fibres' in serial No.10 of the Notification No.30/04 be construed to apply to duty paid inputs whether falling under Heading 55.01 or under Heading 55.03. 5. The relevant facts are that the petitioners inter alia manufacture polyester tops, ....
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....tification No. 30/04? 8. Under the CET, excise duty on man-made synthetic staple fibres is payable at three stages specified in Chapter 55 of the CET as follows :- Heading No. Subheading No. Description Rate of duty Rate of duty Basic Additional 55.01 Synthetic Filament tow 16% 55.03 Synthetic staple fibres, not carded, combed or otherwise processed for spinning 16% 55.06 Synthetic staple fibres, carded, combed or otherwise processed for spinning 16% 9. With the introduction of the Modvat Scheme in the year 1986, the manufacturers became entitled to avail credit of duty paid on inputs. For example, where duty paid goods falling under Heading 55.01 or 55.03 were used as inputs in the manufacture of tops falling under Heading 55.06, then the manufacturer of tops was entitled to take credit of duty paid on inputs and utilise the said credit for discharging the duty payable on tops falling under Heading 55.06. The Modvat Scheme was renamed as Cenvat Scheme in the year 2000. However, the basic concept in the Modvat Scheme and the Cenvat Scheme r....
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....6 per cent. 145. Every manufacture - be it handloom or powerloom or composite mill - will have the option to choose between two routes. One will be the exemption route and the other will be the Cenvat route. Under the exemption route, no excise duty will be payable at any stage (except on man-made fibre and filament yarn). Under the Cenvat route, credit can be taken for all excise duties paid at earlier stages. For the purposes of the optional Cenvat route, it is necessary to specify in the Tariff schedule the applicable excise duty rates. For the pure cotton sector, the uniform rate will be 4 per cent on yarn, fabrics, garments and made-ups. For the blended textiles sector and pure noncotton sector, the uniform rate will be 8 per cent. 146. It is my firm belief that the millions of handlooms weavers and powerloom weavers will welcome the new regime. As far as the composite mills are concerned, there is no cause for worry. They are also free to take the exemption route, but if they choose to opt for the Cenvat route, they may do so and claim Cenvat credit for all duties paid at earlier stages. Garment exporters should give the new regime a fair chance. I expect that pri....
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....fications, rules and Acts. Though every care has been taken to reflect the intention of the Government clearly in all these documents, the chances of human error cannot be ruled out. I would, therefore, request you to kindly go through the explanatory notes, notifications and Finance Bill carefully and bring to my notice at the earliest any omission / error that might have crept in. ................" 12. In the Explanatory Notes to the budget proposals, the new tax regime for the textile sector was explained as follows:- "14.0 Chapters 50 to 63 (Textiles) 14.1 Polyester filament yarns, including polyester textured yarns (of sub-headings 5402.20, 5402.32, 5402.42 and 5402.43) would continue to attract Cenvat duty of 24%. Cenvat duty on other synthetic and artificial filament yarns and mono filaments including textured yarns (of sub-heading nos.5402.10, 5402.31, 5402.39, 5402.41, 5402.49, 5403.10, 5403.20, 5403.31, 5403.33 and 5403.39) has been increased to 16% (notification No. 30/2004-CE superseding notification No. 7/2003-CE refers). Non-textured polyester filament yarn of denierage 750, and of tenacity exceeding 6.5 gm/denier falling under heading No.54....
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....th Notification No. 30/04 no excise duty was payable on tops manufactured from 16% excise duty paid tow. The petitioners contend that these facts are reflected in the monthly ER-1 returns regularly filed by them from 9/7/2004. 16. However, almost after four years, i.e. in March 2008, the excise officers on the basis of audit objection raised a dispute to the effect that the exemption Notification No.30/04 is available only if the polyester tops are manufactured by procuring from outside duty paid staple fibres falling under Heading 55.03. Since the petitioners had manufactured tops by procuring duty paid 'Tow' and not duty paid 'staple fibres' covered under Heading 55.03, it was contended by the excise officers that the petitioners had illegally availed the exemption. In April 2008, pending investigation and adjudication, the excise officers had also seized the goods lying in the petitioners' factory. 17. The petitioners thereupon filed a Writ Petition bearing No.2471 of 2008 on 9/4/2008 inter alia seeking a writ to quash the action of the excise officers in seizing the goods belonging to the petitioners and also to restrain the excise officers from arresting the office....
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....on No. 30/04. Accordingly, we have heard Counsel on both sides. 23. Before dealing with the rival contentions, we may reproduce the Notification No.30/04 in full which reads thus:- "Notification New Delhi, dated the 9th July, 2004 No.30/2004-Central Excise 18 Asadha,1926 (Saka) G.S.R.(E) - In exercise of the powers conferred by sub-section (1)of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue)No.07/2003-Central Excise dated the 1^st March 2003, published in the Gazette of India vide number G.S.R.137(E), dated 1^st March 2003, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the exciseable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the ....
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.... filaments or staple fibres of organic polymers produced by processes, either; (a) by polymerization of organic monomers, such as polyamides, polyesters, polyurethanes, or polyvinyl derivatives; or (b) by chemical transformation of natural organic polymers (for example cellulose,casein, proteins or algae), such as viscose rayon, cellulose acetate, cupro or alginates. 9 55.08, 55.09, 55.10, 55.11, 55.12, 55.13, 55.14 All goods 10 55.06, 55.07 Staple fibres procured from outside and subjected to carding, combing or any other process required for spinning, by a manufacturer who does not have the facilities in his factory (including plant and equipment) for producing goods of heading Nos.55.01, 55.02, 55.03 and 55.04. 11 56 (except 5601.10, 5607.10, 5608.11) All goods. 12 5702.19, 5703.90 All goods. 13 58 (except 5804.90, 5805.90, 58.07, 5808.10) All goods. 14 59(except 5907.30) All goods. 15 60 All goods. 16 61, 62, 63 (except 307.10) All goods. [F.No.334/3/2004-TRU] (G.S. Karki) U....
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.... fibres. Thus, in the new tax regime the term 'staple fibre' and 'fibre' have been used as interchangeable term and therefore the term 'staple fibre' n the Notification No. 30/04 would apply to fibre falling under Heading 5.01 as well as staple fibre falling under Heading 55.03. (b) Even in the Explanatory Notes to the budget proposals [see para 14 (2)], tow and staple fibres have been considered as fibres. Therefore, the term 'staple fibre' at serial No.10 of Notification No. 30/04 are liable to be construed to apply to fibres falling under Heading 55.03 and 55.01. (c) As per the new tax regime the mandatory excise duty at 16% is payable on the man-made staple fibres. Since excise duty on the synthetic staple fibre under the CET is payable at three stages viz. 55.01, 55.03 and 55.06, it is evident that the mandatory duty has to be paid either at the stage of 55.01 or 55.03 & 55.06. Therefore, if 16% duty paid fibres falling under Heading 55.01 are used as inputs in the manufacture of fibres falling under Heading 55.06, then as per the new tax regime no excise duty is payable on fibres falling under Heading 55.06. Similarly if 16% duty paid inputs f....
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....term 'staple fibres in the Notification must be held to apply to duty paid inputs falling under Heading 55.01 to 55.04. (e) If the product emerging from the tow to top process is admittedly 'synthetic staple fibres carded, combed or otherwise processed for spinning' specified under Heading 55.06, then, obviously the 'tow' used as inputs, would be synthetic staple fibres which are uncarded, uncombed or otherwise not processed for spinning. In other words, 'tow' (55.01) which is nothing but uncarded, uncombed or otherwise unprocessed synthetic staple fibre would be squarely covered by the term 'staple fibres' used at serial No.10 of Notification No. 30/04. (f) Relying on the judgment of the Apex Court in the case of R.B.I. V/s. Peerless General Finance & Investment Co. Ltd. reported in (1987) 1 S.C.C. 42, it is contended that Notification should be looked at by wearing the glasses of statute makers and so looked at, it would be clear that the exemption on manufacture of goods covered under 55.06 is not restricted to the duty paid inputs falling under Heading 55.03 and the exemption is available where duty paid inputs falling under heading 55.01 are used in the manuf....
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....e argument of the petitioners that the term 'staple fibre' has been used as an interchangeable term for 'tow' cannot be accepted. 29. Mr.Sethna submitted that the legislature has deliberately used the word 'staple fibre' and not merely 'fibre' at Sr. No.10 of the Notification with a view to restrict the grant of exemption. He submitted that no doubt, the word 'fibre' would include 'Tow' as well as 'staple fibre'. However, as the legislature has deliberately chosen the word 'staple fibre', it is clear that unless the starting raw material is 'staple fibre', the exemption is not available. In the present case, admittedly the process had not commenced with staple fibre as raw material, and therefore, the benefit of the exemption would not be available to the petitioners. 30. Mr.Sethna submitted that in the tow to top process adopted by the petitioners, the initial raw material viz. 'tow' does result in the emergence of unprocessed staple fibre falling under Heading 55.03 which is thereafter converted into processed staple fibre falling under Heading 55.06. Even then the exemption would not be available to the petitioners because, the 'unprocessed staple fibre' is not procured fr....
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....emains that even in the 'tow to top process', the tow on being cut to a desired length, unprocessed staple fibre emerges which is thereafter processed in to 'processed staple fibre' falling under Heading 55.06. Therefore, it is clear that in the present case, staple fibre emerges as an intermediate product within the factory and it being not procured from outside as provided in the Notification, the benefit of the exemption is not available to the petitioners. 33. Mr.Sethna submitted that admittedly the processed staple fibre (55.06) is manufactured by the petitioners from tow of higher quality because the processed staple fibre is thereafter blended with polywool which is a much costlier blended commodity. He submitted that the Notification is intended to benefit the conventional producers in the hand loom and power loom sector who procure from outside 98% of the tow converted into unprocessed staple fibres and not intended to benefit the manufacturers like petitioners and six others who procure from outside 'tow' of a length exceeding 2 metres. 34. Dealing with the argument of the petitioners that Chapter 55 deals with 'man-made staple fibre', Mr.Sethna submitted that in th....
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....intention of the Government in the Notifications and in spite of the above, if any error is found in the Notifications, the same should be brought to his notice immediately. Thus, it is clear that the Notification No.30/04 was issued in implementation of the new tax regime. 39. The next question to be considered is, what was the new tax regime for the textile sector announced by the Hon'ble Finance Minister on 8-7-2004 ? 40. Prior to the introduction of the new tax regime, excise duty payable on the textile goods were enumerated in Chapters 50 to 63 of the CET. The dispute in the present case relates to the excise duty on manmade staple fibres covered under Chapter 55 of the CET. 41. Man-made staple fibres in Chapter 55 of the CET were classified into two categories viz. Synthetic staple fibres and artificial staple fibres. Excise duty payable on these two types of staple fibres from the stage of manufacture of filament tow upto the stage of woven fabrics were enumerated in chapter Headings 55.01 to 55.14 of Chapter 55. 42. Excise duty on synthetic staple fibres were leviable at three stages under Heading 55.01 (synthetic filament tow), 55.03 (unprocessed synthetic stap....
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....ent tow (55.01 / 55.02). Therefore, on manufacture and clearance of tow (55.01 / 55.02) mandatory excise duty at 16% has to be paid under the new tax regime. Where tow (55.01 / 55.02) is manufactured but cleared after cutting it into pieces of a length less than 2 metre, then, it is classified under Heading 55.03 / 55.04. In such a case, mandatory excise duty at 16% is payable on clearance of tow of a length less than 2 metre (55.03 /55.04). Where mandatory duty paid tow of a length exceeding 2 metre (55.01 / 55.02) or tow of a length less than 2 metre (55.03 / 55.04) is converted in to processed staple fibres (Tops) falling under Heading 55.06 /55.07, under the new tax regime, no excise duty would be payable on clearance of Tops (55.06 / 55.07). Therefore, serial No.10 of the Notification No.30/04 provides that excise duty on manufacture and clearance of goods falling under Heading 55.06 / 55.07 would be exempt provided the inputs used are firstly procured from outside and secondly, the manufacturer of goods falling under Heading 55.06 / 55.07 does not have the facility to manufacture inputs falling under Heading 55.01 to 55.04. 47. In the present case, it is not in dispute tha....
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....ted. Therefore, reading the term 'staple fibre' harmoniously with the new tax regime, it must be held that the term 'staple fibres' applies to inputs falling under Headings 55.01 to 55.04 which are used in the manufacture of Tops (55.06 / 55.07). 50. It is true that Chapter 55 of the CET classifies Tow under Headings 55.01 / 55.02 or 55.03 / 55.04 based on the length of the tow. In view of Chapter Note 1 to Chapter 55, tow of a length exceeding 2 metre are classified under Heading 55.01 / 55.02 and tow of a length not exceeding 2 metre are classified under Heading 55.03 / 55.04 as 'staple fibres not carded, combed or otherwise processed for spinning'. However, both these products are covered under Chapter 55 titled as 'man-made staple fibres'. In the General Rules for the interpretation of the First Schedule to the CET, it is stated that the titles to the Chapters are provided for easy reference only. If for easy reference, the 'chapter 55' man-made staple fibres' applies to Tow (55.01 / 55.02) as well as unprocessed staple fibre (55.03 / 55.04), then, for the same reason the term 'staple fibre' in the Notification No.30/04 would apply to 'tow and unprocessed staple fibre' cover....
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.....01 / 55.02, because Tops (55.06 / 55.07) are obtained by carding and combing the unprocessed staple fibre (55.03 / 55.04) and Tops (55.06 / 55.07) are also obtained from Tow (55.01 / 55.02) by a process other than carding and combing, viz by the process known as 'Tow to Top process. Therefore, to construe that the term 'staple fibre' in the Notification No.30/04 applies only to the uncarded / uncombed staple fibre (55.03 / 55.04) would be contrary to the express words used in the Notification. 54. Apart from the above, the Notification No.30/04 specifically provides that the exemption would not be available to a manufacture of goods falling under Heading 55.06 / 55.07 having facility to manufacture inputs falling under Heading 55.01, 55.02, 55.03 & 55.04, which clearly shows that the term 'staple fibre' is intended to refer to inputs falling under Heading 55.01, 55.02, 55.03 & 55.04. If the term 'staple fibre' was intended to apply only to the staple fibre falling under Heading 55.03 / 55.04, then there was not need to refer to the goods falling under Headings 55.01, 55.02, 55.03 & 55.04 in the Notification. Therefore, it is clear that since the goods falling under Heading 55.0....
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....eading 55.03 / 55.04' is also without any merit, because, if the legislature intended to restrict the exemption to the inputs such as 'staple fibres falling under Heading 55.03 / 55.04' then it would have specifically stated so. However, the legislature has described the inputs as 'staple fibre' which clearly means that the Legislature intended to give larger meaning to the term 'staple fibre' instead of giving a restricted meaning. Therefore, in the absence of any indication to the contrary, it would not be proper to restrict the meaning of the term 'staple fibre' to 'staple fibre falling under Heading 55.03 / 55.04'. 57. The contention of the revenue that the Notification No.30/04 is intended to benefit the hand loom and power loom sector who procure 98% of the raw materials falling under Heading 55.03 / 55.04 and is not intended to benefit the composite mills who procure 2% of the raw materials falling under Heading 55.01 / 55.02, is also without any merit, because, firstly nowhere in the Notification No.30/04 it is stated that the exemption is meant for the benefit of the hand loom and power loom sector who procure from outside duty paid staple fibres falling under Heading 5....