2006 (11) TMI 84 - AT - Central Excise

RMG Appellants would place orders on various inputs and send the inputs to the job workers Job workers manufacture RMG and availed credit on it Duty demanded from appellants Authority allow the appeal with consequential relief.

Issues Involved:
1. Eligibility for exemption under Notification No. 38/2003-C.E.
2. Definition and applicability of 'purchase' and 'sale' under Central Excise Act, 1944.
3. Liability of traders/dealers as manufacturers under Central Excise law.
4. Entitlement to Cenvat credit for duty paid by job workers.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Notification No. 38/2003-C.E.:
The appellants, M/s. Indian Rayon and Industries Ltd., M/s. Levi Strauss (India) Pvt. Ltd., and M/s. Arvind Clothing Limited, claimed exemption under Notification 38/2003-C.E., which exempts garments subjected to processes like labeling, relabeling, repacking from bulk packs to retail packs, and alteration subsequent to purchase. The Revenue denied the exemption on the ground that the garments received from job workers cannot be treated as 'purchased' from them. The Tribunal held that the term 'purchase' is not defined in the Notification and should be interpreted as per Section 2(h) of the Central Excise Act, 1944, which includes any transfer of possession of goods for valuable consideration. The Tribunal concluded that the transactions between the appellants and job workers amounted to 'purchase' and thus, the appellants were entitled to the benefit of the exemption.

2. Definition and applicability of 'purchase' and 'sale' under Central Excise Act, 1944:
The term 'purchase' as defined in Section 2(h) of the Central Excise Act, 1944, includes any transfer of possession of goods for valuable consideration. The Tribunal emphasized that the definition does not require the transfer of property in the goods, merely the transfer of possession for consideration. The Tribunal rejected the Revenue's argument that the absence of sales tax payment indicated no sale, stating that the Central Excise definition differs from the Karnataka Sales Tax Act, which requires transfer of property in goods. The Tribunal found that the appellants' transactions with job workers met the criteria for 'purchase' under the Central Excise Act.

3. Liability of traders/dealers as manufacturers under Central Excise law:
M/s. Levi Strauss (India) Pvt. Ltd. contended that they were not manufacturers but traders, as the actual manufacturing was done by independent job workers. The Tribunal referred to the Supreme Court's decision in CCE v. M.M. Khambatwala, which held that job workers are the manufacturers when they produce goods independently, even if the raw materials are supplied by another party. The Tribunal found that M/s. Levi Strauss (India) Pvt. Ltd. were not manufacturers and thus, not liable to pay duty. Even if considered manufacturers, they would still be entitled to the exemption under Notification 38/2003-C.E.

4. Entitlement to Cenvat credit for duty paid by job workers:
The Tribunal noted that the appellants should be allowed to avail Cenvat credit for the duty paid by their job workers. This adjustment would reduce the appellants' liability. For M/s. Indian Rayon and Industries Ltd., the Tribunal acknowledged that after adjusting the duty paid by job workers, the remaining duty demand was unsustainable. Consequently, the demand for interest under Section 11AB of the Central Excise Act was also found to be unsustainable.

Conclusion:
The Tribunal allowed the appeals of M/s. Indian Rayon and Industries Ltd., M/s. Levi Strauss (India) Pvt. Ltd., and M/s. Arvind Clothing Limited, granting them the benefit of exemption under Notification 38/2003-C.E. and setting aside the Orders-in-Original. The Tribunal emphasized the importance of interpreting 'purchase' as per the Central Excise Act and recognized the independent manufacturing status of job workers, thereby relieving the appellants from the duty demands. The operative portion of the order was pronounced in open court.

← Previous Next →