1984 (9) TMI 274 - AT - Central Excise

Summary

Issues Involved:
1. Validity of the show cause notice.
2. Applicability of processing duty on the dyeing of grey fabrics.
3. Definition and scope of "manufacture" under Section 2(f) of the Central Excise and Salt Act, 1944.
4. Distinction between kutcha dyeing and fast colour dyeing.
5. Relevance of sale for the imposition of central excise duty.
6. Calculations of the demand.

Issue-wise Detailed Analysis:

1. Validity of the Show Cause Notice:

The appellants argued that the show cause notice was flawed due to non-application of mind, as it was issued under rule 10A but the demand was confirmed under rule 10. The Department's Representative countered this by citing the Supreme Court judgment in the case of M/s J.K. Steel Ltd., stating that the mistake did not vitiate the demand since the Superintendent had the authority to issue the notice under rule 10 as well, and the notice was within the one-year time limit. The tribunal found no non-application of mind, noting that the grounds for the demand and calculation details were provided in the notice.

2. Applicability of Processing Duty on the Dyeing of Grey Fabrics:

The appellants contended that duty should be collected only on the end product to avoid repeated taxation at intermediate stages. They referenced the Punjab & Haryana High Court judgment in Punjab Rubber & Allied Industries v. U.O.I. The tribunal distinguished this case, noting that legislative changes in 1979 and 1980, given retrospective effect from 1-3-55, established that processing of grey fabrics amounted to manufacture. The tribunal held that the appellants' reliance on older judgments was misplaced due to these legislative amendments.

3. Definition and Scope of "Manufacture" under Section 2(f) of the Central Excise and Salt Act, 1944:

The appellants argued that their dyeing process did not amount to the manufacture of a new commodity. However, the tribunal referred to the amended Section 2(f) and the revised description of Tariff Item 19-1, which included dyeing as a manufacturing process. The tribunal concluded that the processing of grey fabrics, including dyeing, constituted manufacture under the amended law.

4. Distinction between Kutcha Dyeing and Fast Colour Dyeing:

The appellants claimed that kutcha dyeing did not qualify as dyeing since the colour was not fast and the dyed fabrics were not saleable. The tribunal examined definitions from the Websters Third New International Dictionary and the Textile Institute, Manchester, and found no requirement for dyeing to produce permanent colour. The tribunal also noted that even kutcha dyeing was a process applied to grey fabrics, thus qualifying as manufacture under Section 2(f) and Tariff Item 19-1.

5. Relevance of Sale for the Imposition of Central Excise Duty:

The appellants argued that since the dyed fabrics were not sold but used for further manufacturing, they should not be liable for duty. The tribunal, referencing Supreme Court judgments in the cases of Delhi Cloth Mills and South Bihar Sugar Mills, and the Allahabad High Court judgment in the case of M/s. Union Carbide, held that central excise duty is on manufacture, not sale. The tribunal also noted that amended rules 9 and 49 made intermediate goods removed for captive use within the same factory liable to duty.

6. Calculations of the Demand:

The appellants pointed out calculation errors, which were re-examined by the Assistant Collector as ordered by the Appellate Collector. The Assistant Collector found the original calculations correct. The appellants did not further contest this finding nor provide the second order for review. The tribunal, therefore, did not address this issue further.

Conclusion:
The tribunal found no merit in any of the appellants' arguments and upheld the demand for processing duty, rejecting the appeal.