TaxTMI 
TaxTMI 
2008 (6) TMI 203
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....passed by Commissioner of Central Excise, Indore by which a duty demand of Rs. 1,97,11,939/- (Rupees One Crore Ninety Seven Lakhs Eleven Thousand Nine Hundred and Thirty Nine) for the period from 1-4-97 to 30-1-98 was dropped. This appeal of Revenue, along with another appeal of the Revenue wherein M/s. Maral Overseas Ltd. was the respondent, were decided by the Tribunal vide order-in-appeal No. 47-48/2001-D dated 31-1-2001 [2001 (129) E.L.T. 657 (Tri.-Del.)] by which both the appeals were allowed and the Commissioner's orders were set aside. The Tribunal, however, remanded both the cases to the Commissioner for deciding the applicability of longer limitation period of five years for demand of duty and quantification of the duty demand. M/s. Maral Overseas filed an appeal under Section 35L(b) of the Central Excise Act to the Hon'ble Supreme Court, which was dismissed on 20-7-01 [2001 (133) E.L.T. A86 (S.C.)]. M/s. Century Denim, however, filed a writ petition No. 699/01 against the Tribunal's order before Hon'ble M.P. High Court which was dismissed by the Hon'ble High Court on 27-11-02, and against the Hon'ble High Court's order, an SLP to Hon'ble Supreme Court was filed. Since pri....
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....acture of Blue Denim, an imported dye called "Indigo Pure" is used by the assessee. The assessee, as a 100% EOU, are allowed, as per the EXIM policy, to sell a part of their production, as determined by the Development Commissioner, to DTA, The DTA clearances of a 100% EOU or a unit in Free Trade Zone, attract Central Excise Duty, which, as per the proviso to Section 3(1) of the Central Excise Act, is an amount equal to the aggregate of duties of Customs leviable under the Customs Act, 1962 or any other law, for the time being in force, on import of like goods into India. Notification No. 8/97-CE dated 1-3-97 exempts "the finished products, rejects and waste or scrap, specified in the Schedule to the Central Excise Tariff Act, 1985 and produced or manufactured in a 100% EOU or a unit in Free Trade Zone, wholly from raw materials, produced or manufactured in India, and allowed to be sold in India in accordance with the provisions of paras 2 and 114 of 1992-97 EXIM policy", from so much of the duty of excise, as is in excess of the amount equal to the Central Excise Duty chargeable on like goods produced or manufactured in a DTA unit in India, subject to condition that the like goods....
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....of warp yarn, can be treated as manufactured wholly out of indigenous raw materials. 3. Shri N.K. Bajpai, Advocate, the learned Senior Counsel on behalf of the Revenue and Shri Deepak Garg, the learned Departmental Representative made oral as well as written submissions, which, in brief, are as under:- (1) The use of the imported dye - 'Indigo Pure' is essential for the production of blue denim fabrics. The blue denim cannot acquire its character without dyeing of the warp yarn with Indigo Pure. In the standard input-output norms for Denim cloth, notified under EXIM policy, vat Indigo blue dye is mentioned as the second input after raw cotton, indicating the importance of Indigo dye in manufacture of denim fabrics. Indigo dye is, therefore, a raw material for manufacture of blue denim. Since the imported Indigo dye is an essential raw material used in the manufacture of Denim fabrics, the duty exemption under Notification 8/97-C.E. would not be available to the DTA clearance of Blue denim fabrics. (2) The Hon'ble Supreme Court in its judgment in case of Hemraj Gordhandas v. H.H. Dave, Assistant Collector of Central Excise & Customs, Surat and Others, reported in 1978 (2) E.L.T. ....
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....gment of the Hon'ble Court is read in its entirety, it would be seen that the Court itself has not held value addition as relevant for the purposes of determining the eligibility of denim fabrics for exemption under the notification. It is well settled that a judgment has to be read in its entirety [para 24 to 26 of Hon'ble Supreme Court's judgment in case of State of Karnataka v. C. Lalitha - (2006) 2 SCC 747]. (6) Although the Commissioner in his order dated 26-3-99 had referred to the definition of raw material from the EXIM policy, he did not interpret it correctly; nor did he go into the question of use of Indigo Pure in the manufacturing process of blue denim fabrics. (7) The most important and time tested judgment on definition of 'raw material' is the Hon'ble Supreme Court's judgment in case of Ballarpur Industries [1989 (43) E.L.T. 804 (S.C.)] wherein it was held that 'one of the valid tests for determining whether a particular ingredient is a raw material in the manufacture of a particular finished product is that the ingredient should be so essential for the chemical processes culminating in the emergence of the desired end-product, that having regard to its importance....
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....its order dated 26-10-07 has held that the denim is manufactured from cotton, not from Indigo. This finding is conclusive of the fact that Indigo pure cannot be considered to be a raw material. (2) The assessee have specifically produced evidence in form of deposition of the experts that in commercial parlance and in textile world, Indigo dye is heated as a consumable. As per the "chemical technology of Fibrous materials" by F Sodov, M Corchagius and A Matelsky, in textile world, dyes are normally referred to as consumables and only the items like cotton, viscos, wool, silk etc. are referred to as raw materials. The extract from this book has been referred to with approval by the Hon'ble Supreme Court in its judgment dated 26-10-07. As per letter dated 16-1-08 from 'Cotton Textile Export Promotion Council' and letter dated 29-1-08 from 'Bombay Textile Research Association', Indigo dye is a consumable. Therefore, in view of Department's circular dated 5-5-98, the DTA clearances of blue denim by the assessee are eligible for the exemption under Notification No. 8/97-CE. Even as per the definition of 'consumable' in para 7(11) of the EXIM policy, Indigo dye is a consumable as Indigo ....
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....s insignificant part of denim fabric produced by the assessee is clear from the facts that - (a) in terms of cost of product, the cost of Indigo dye is just 2 to 2.5% of the cost of production of denim fabrics and (b) in terms of quantity, the quantity of Indigo dye in one metre of denim fabric is just 1.10% of the total weight of 1 metre of denim fabric. (7) The blue colour imported by the Indigo dye is only an adornment. It cannot be treated as a raw material. (8) The word 'wholly' in the Notification 8/97-CE, in view of the facts of this case, has to be interpreted as "predominantly", not as "entirely". 5. We have carefully considered the case records and the rival submissions. The assessee, a 100% EOU, as per the provisions of the EXIIM policy can sell a part of their production, as determined by the Development Commissioner, to DTA. The tariff rate of Central Excise Duty on the DTA clearance of an EOU, as per the provisions of Section 3(1) of the Central Excise Act, is aggregate of the duties of Customs. However for the DTA clearances within the DTA quota, as determined by the Development Commissioner, there are concessional rates of duly prescribed by various exemption not....
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....to whether a particular substance is a 'raw material' for a finished product, was the importance and indispensability of that substance in the manufacture of the finished product, irrespective of whether that substance is present in the finished product or not. The ratio of the Hon'ble Supreme Court's judgment in Ballarpur Industries Ltd. case has been followed by the Tribunal in a number of cases [Alps Industries Ltd. v. CCE, Ghaziabad - 2005 (185) E.L.T. 405; CCE, Coimbatore v. Maridian industries Ltd. - 2007 (217) E.L.T. 576 and CCE, Guntur v. Asia Peroxides Ltd. - 2004 (168) E.L.T. 201]. However in this case, the Hon'ble Apex Court vide its order dated 26-10-07, while remanding this matter to this Tribunal, has directed for de novo consideration of the question whether Indigo pure dye can be considered as a consumable used in the manufacture of Denim fabrics, observing that as observed in para 19 of its judgment in Ballarpur Industries Ltd. case, due to infinite variety of ways in which these problems (i.e. the question whether an input is raw material or not) present themselves, it is neither necessary nor wise to enunciate any principles of general validity to cover all cases....
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....facturing process, the term 'consumables' covers only those items which participate and are required for a manufacturing process, but do not form part of the finished/end-product, and (b) the definition of 'raw material' in the EXIM policy broadly conforms to the criteria for 'raw material' prescribed in the Hon'ble Supreme Court's judgment in Ballarpur Industries Ltd. case (supra). On the basis of the above criteria, Indigo dye, which is very much present in the Blue denim fabrics, though is small quantity (about 1.1%), has to be treated as a raw material, not a consumable. The "Chemical Technology of Fibrous Material" by F Sadov, M Kerchagi and A Matelsky, which mentions the dyes and pigments as consumables in processing of textile products, cannot be accepted as an authority for ascertaining as to how the terms 'raw material' or a 'consumable' are understood the textile industry, as, firstly it is a Russian book and Russia hardly has any textile industry and secondly for ascertaining as to how the term 'consumables' and 'raw materials' are understood in trade parlance, we have to look at the meaning of these terms in Indian trade circle, not in the trade circles of some remote....
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....g characteristics and blue denim cloth cannot come into existence without the process of dyeing of warp yarn prior to weaving, Indigo dye has to be treated as raw material for denim fabrics. 6.3 In view of the above discussion, we hold that 'Indigo Pure' dye is not a consumable, but is a raw material used in the manufacture of denim fabric. 7. Whether in view of the facts that the cost of imported dye is 2 to 2.5% of the total production cost and value addition due to dyeing, the denim fabrics, in question, can be treated as manufactured wholly out of indigenous raw materials? 7.1 With regard to this question, Hon'ble Supreme Court's observations and directions, in para 15, 16, 17 and 19 are reproduced below:- "15. It is to be noted that the cost of dye varied between 2 and 2.5% of the total production cost. The denim is manufactured from cotton and not from Indigo. The condition for getting the benefit of the Notification is that the end-product, should be wholly manufactured from raw materials produced or manufactured in India. 16. It is to be noted that the dominant ingredient test has not been applied in the instant case, so also the effect of value addition. 17. It is tr....
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....ts terms or not and in case of ambiguity, the benefit must go to the State - but once the exemption is found applicable, the full effect must be given to it. In this case when the exemption under Notification No. 8/97-C.E. is applicable to the permissible DTA clearance of finished goods manufactured wholly from raw materials, produced or manufactured in India, and when the meaning of the word "wholly" is - "entirely, completely, to the exclusion of other things" this word cannot be interpreted as predominantly, just because on account of use of a little quantity of imported dye, the assessee is getting deprived of this exemption. Since because of use of imported Indigo dye, the assessee is not covered by the plain meaning of the words of the exemption notification and since there is no ambiguity in the words employed in the notification, neither the meaning of the word 'wholly' can be stretched to include pre-dominantly or mainly, nor the concept of predominance can be imported into this notification to extend its benefit to the assessee. It has been held by the Hon'ble Supreme Court in case of Sales Tax Commissioner v. Modi Sugar Mills reported in AIR 1961 SC 1047, that- "In inte....
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....14 of the Export & Import Policy, 1st April, 1992 - 31st March, 1997. -" Here there is no ambiguity or obscenity in the words which describe the goods attracting concessional rate of duty. The word "wholly" admits of only one meaning which is entirely, one hundred percent, to the exclusion of everything else. Therefore, it would not be correct to interpret it in the sense of mainly or predominantly. (5) The assessee's plea that in view of the Hon'ble Supreme Court's finding, in para 15, 16, 17, 19 in the remand order dated 26-10-07, the Revenue cannot take the stand that the dominant ingredient test is not relevant, is erroneous. The observations in paras 15, 16 and 17 are not in nature of final findings. Otherwise this matter would not have been remanded to this Tribunal for de novo decision on the questions as to whether Indigo pure dye is a consumable and whether the dominant ingredient test is applicable and the word 'wholly' can be interpreted as 'predominantly'. 8. In view of our findings in para 6 and 7 above, we hold that benefit of exemption under Notification No. 8/97-CE is not applicable to the DTA clearances of Blue denim cloth in the manufacture of which imported Ind....