2004 (1) TMI 544 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of Central Excise Duty on garments stored in the appellant's warehouse.
2. Determination of the manufacturer liable to pay duty under Central Excise Rules, 2001.
3. Interpretation of the Finance Bill, 2001 and its effect on duty rates.
4. Validity of the penalty imposed under Rule 25 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Applicability of Central Excise Duty on Garments Stored in the Appellant's Warehouse:
The appellants, traders in apparels under the brand name 'Cambridge', were found with finished garments in their warehouse. The Central Excise officers classified these garments under Chapter Heading No. 6201.00, which, prior to 1-3-2001, had a "Nil" tariff rate. However, the Finance Bill, 2001 amended this rate to 16% ad valorem. The officers proposed that duty was applicable to the stock in the warehouse as it was the point of clearance, and Central Excise duty is leviable on goods cleared from a warehouse.

2. Determination of the Manufacturer Liable to Pay Duty Under Central Excise Rules, 2001:
The Commissioner adjudicated that under Rule 4 of the Central Excise Rules, 2001, the appellants, owning the registered brand name and storing the goods in their warehouse, were liable to pay duty, even though the garments were manufactured by job workers. The appellants argued they were only traders, not manufacturers, and thus not liable for the duty. However, the Commissioner held that the appellants were the manufacturers by virtue of the rule as the goods were cleared from their premises.

3. Interpretation of the Finance Bill, 2001 and Its Effect on Duty Rates:
The Finance Bill, 2001 raised the duty on ready-made garments from "Nil" to 16%. The Commissioner referenced the Supreme Court judgments in M/s. Wallace Flour Mills Company Ltd. and M/s. Kohinoor Mills, which held that goods exempt from duty but removed when the exemption was withdrawn were liable to pay duty. Thus, the Commissioner concluded that the garments, even if manufactured before 1-3-2001, were liable for duty at 16%.

4. Validity of the Penalty Imposed Under Rule 25 of the Central Excise Rules, 2002:
The Commissioner confirmed a duty demand of Rs. 23,79,462/- under Section 11A of the Central Excise Act, 1944, and imposed a penalty of Rs. 2,00,000/- under Rule 25 of the Central Excise Rules, 2002. The duty paid as per the High Court's order was appropriated, and the bank guarantees furnished were enforced.

Separate Judgments:

Majority Decision:
The majority decision, supported by Member (Technical), concluded that the job workers were the manufacturers liable to pay duty, not the appellants. The Constitutional Bench of the Supreme Court in Ujagar Prints v. UOI established that job workers are liable for excise duty on goods removed from their premises. Since the garments were removed from the job workers' premises before 1-3-2001, they were appropriately 'Nil' duty paid stocks, and no further duty could be determined. Consequently, the penalty was also set aside. The appeal was allowed, setting aside the demands of duty and penalty.

Dissenting Opinion:
Member (Judicial) disagreed, stating that under Rule 4 of the Central Excise (No. 2) Rules, 2001, the person who stores excisable goods in a warehouse is liable to pay duty. The judgments in M/s. Wallace Flour Mills Company Ltd. and M/s. Kohinoor Mills were cited to support that goods manufactured during an exemption period but removed when the exemption was withdrawn were liable for duty. Thus, the appeal should be dismissed, and the duty at 16% should be upheld.

Final Order:
In view of the majority decision, the appeal was allowed, and the demands of duty and penalty were set aside.

Conclusion:
The Appellate Tribunal CESTAT, Mumbai, concluded that the appellants were not liable to pay the duty on the garments stored in their warehouse as the job workers were the manufacturers responsible for the duty. The penalty imposed was also set aside, and the appeal was allowed.