SUPER ASSOCIATES AND SUPERFIL Vs. CCE

JUDGEMENT

(1.) Both these appeals arise from a common Order -in -Original No. 14/2002 dated 27.5.2002 passed by CCE, Chennai confirming the demands on M/s. Super Associates and imposing mandatory penalty on them and penalty under Rule 173Q (1) of Central Excise Rules, 1944. There is also separate penalty imposed on M/s. Superfil Products Ltd. This order of the Commissioner has been passed in de novo proceedings in terms of Tribunal's remand order passed in the appellant's own case by final order No. 572 and 573/2001 dated 27.4.2001. The Tribunal in the remand order had held that the order passed by the Commissioner was erroneous in nature and had violated the principles of natural justice. The Tribunal also noted that the Commissioner had not referred to the section notes and tariff notes and the terms of the notification involved in the matter and had also not categorically examined the evidence on record pertaining to time -bar. The appellants had contended that raising of duty demand on them does not arise as "doubling of yarn" did not amount to manufacture till the date of passing of Finance Bill, 1995. The Tribunal also going by this submission, had held that this was the position of law in terms of the Finance Bill and, therefore, the Commissioner had committed an error in confirming the duty till the date on which tariff note (3) to chapter 54 was introduced. The assessee had also submitted that they had received the single yarn for the process of doubling from M/s. Superfils Products under Rule 57F (2) on job work basis and returned the same under cover of documents, therefore, the question of raising demand on them did not arise. The Tribunal noted that the Commissioner had not entered into any finding on this aspect and, therefore, the matter was required to be examined from the original records and findings recorded on this aspect, Appellants had also contended that M/s. Superfil Products Ltd., who were supplying the single yarn for the purpose of doubling, had paid duty on the yarn and cleared the same to M/s. Porritts and Spencers and M/s. Dinesh Mills Ltd., who had given them two certificates to that effect. The Tribunal noted, after extracting both the certificates that, it indicated that "Nylon Monofilament yarn is not "Twine" as argued by the DR and that the Commissioner himself in his finding portion had clearly laid down that appellants were converting 330D Nylon monofilament yarn to 330D multifilament yarn. It noted that when the Commissioner had arrived at this finding, then it was difficult to accept DR's argument that appellants had cleared the product as "twine" as held by the Commissioner in para -4. The Tribunal had held that it is difficult to accept the Commissioner's finding as it is contradictory to his own findings and the allegations made in the show cause notice that appellants were doing the conversion work of monofilament yarn into mulfifolded yarn. It was noted that such a contradictoroy findings are not acceptable and requires to be set aside for the purpose of reconsideration of this issue, so that actual facts are brought on record. The Commissioner was directed to examine as to whether multifolded yarn received by the co -noticee i.e. Superfils Products were duty paid. If this be the position and that the same was going into the manufacture of first intermediary product, namely, 'fabrics', then the notification is clearly attracted and the proceedings are required to be dropped. The question was referred back for de novo consideration. However, the plea of the assessee that even if the department does not consider occurrence of intermediary product as 'fabric', which, according to the Tribunal, is not sustainable as, prima facie, a clear product had arisen and it is captively consumed. The Tribunal observed that the sample of fabrics manufactured out of multifilament yarn was shown to the Bench and it was found to have all the characteristics of a fabric. However, the Tribunal noted that the Commissioner should re -examine the issue and observed that merely because department wishes to confirm duty, then they cannot suddenly take a stand in this very case that intermediate product is not a fabric. It was recorded that such a finding had also not been recorded in the Commissioner's order. It was noted that fabric which comes into existence had undergone further process of 'needling' to bring into existence the goods, namely, 'felts'. The Tribunal noted the argument of DR that both "fabric" and "felt" are different products. It observed that even going by this argument, the Revenue's case appears to fall to the ground because "fabric" had already come into existence. It was observed that Multifilament yarn, had been cleared which, according to appellant, is duty paid and cleared for manufacture of this intermediate product, namely, "fabric" before it underwent the process of manufacture of 'felt'. Therefore, the Tribunal noted that even going by the definition of "Fabric" and "Felt" appearing in S.B. Sarcar Book of "Words and Phrases" and the judgments referred to by DR, both the items are recognised as different items. The Tribunal also noted that the issue was settled by the judgment of Porritts and Spencer (Asia) Ltd v. State of Haryana, 1983 ELT 1607 (SO wherein it had been held that "fabric and felts" fall within the same category of Textiles'. The bench also noted that even in the case of Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan and Ors., 1980 ELT 383 (SC), the Apex Court had answered the question, as to "what is fabric"? in terms of the definition appearing in various dictionaries and held that the product fell within that definition. The Tribunal noted the judgment of Porrits and Spencer (Asia) Ltd. v. State of Haryana (supra) wherein it was held that "dryer felts" fall within the category of 'textiles' and are to be treated as "Fabrics". The same view was expressed in the case of Mysore Paper Mills Ltd. v. CC Madras, 1992 (38) ECC 45 (T) : 1992 (39) ECR 110. The Tribunal drew attention of the learned Commissioner and directed him to re -examine the issue on merits in the light of these judgments and the Board's Circular No. 198/32/96 -CX dated 19.4.96 which explained the expression "manufacture of fabrics" appearing in Sl. No. 1 of Notfn. 35/95 dated 16.3.95 which is with regard to "Emproidery Yarn", which the Tribunal noted that it applied to the facts of the case. The Tribunal noted that even in terms of tariff notes referred to and the explanatory notes, there is clear clarification about "fabric and felt" which was not appreciated in the matter and the Ld. Commissioner was directed to re -examine the point de novo. The Tribunal also directed the Commissioner to re -examine the plea of time -bar in the light of correspondence of the appellants from 1991 onwards and re -determine the case.

(2.) The Commissioner, after due hearing, passed the impugned order. On due consideration, he has accepted the plea that Note (3) to Chapter 54 was introduced on 26.5.95 and, therefore, the demand from 23.2.94 to 25.5.95 is not sustainable.

(3.) As regards the question of eligibility of exemption under Notification No. 35/95, the Commissioner has noted that the Apex Court in the Case of Filterco and Anr., 1986 (24) ELT 180, comprising of five Judges re -examined the issue and in terms of this, held that the non -woven compressed woollen felts are not 'fabrics'. Therefore, he held that the item in question is non -woven material and fails the test o f pliability to be regarded as a fabric as the felt in question is not as pliable as a normal fabric. He also held that regardless of the fact that at the intermediary stage a base fabric emerges on the way to become felt, he found that the ultimate product, namely, the "felt" has no characteristics of a fabric. From the visual observation of the sample, no warp or weft can be seen. Therefore, no evidence of process of weaving is available to hold that the multi -folded yarn supplied by M/s. Super Associates had been used in the manufacture of 'woven fabrics'. He also noted that in terms of the judgment of the Apex Court rendered in "the case of CCE v. Dhiren Chemical Industries, 2002 (79) ECC 1 (SC) : 2002 (139) ELT 3 (SC), the intermediary product had been cleared at NIL rate of duty and not of appropriate rate of duty and, therefore, the benefit of Notification was not available.