2005 (7) TMI 650 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process in the Monforts Machine amounts to manufacture.
2. Whether the order of the Commissioner dropping proceedings initiated in the show cause notices (SCNs) dated 6-3-96 and 22-6-98 is legally correct and proper.
3. Whether the Commissioner should have decided the SCNs separately on merits.
4. Eligibility of the deemed credit under Notification No. 29/96 C.E. (N.T.).

Issue-wise Detailed Analysis:

1. Whether the process in the Monforts Machine amounts to manufacture:
The core issue revolves around whether the process conducted on Monforts Machines, which involves controlled compressive shrinkage (CCS), amounts to "manufacture" under the Central Excise Act. The Commissioner concluded that the process does not result in a lasting change, as it does not achieve the ultimate result of shrink-proofing. This conclusion was based on expert opinions and technical literature which stated that the process imparts temporary changes to the fabric, not a lasting character. The Tribunal upheld this finding, noting that the operations on Monforts Machines are incidental and ancillary to the completion of the fabric and do not transform it into a new commercial commodity. The Tribunal also emphasized that the process does not meet the criteria of "manufacture" as defined by the Supreme Court in previous rulings.

2. Whether the order of the Commissioner dropping proceedings initiated in the SCNs dated 6-3-96 and 22-6-98 is legally correct and proper:
The Tribunal found that the Commissioner's decision to drop the proceedings was legally correct. The Commissioner had considered all relevant materials, including expert opinions and technical literature, and concluded that the process did not amount to manufacture. The Tribunal noted that the Board's order under Section 35E(1) did not challenge the Commissioner's conduct in deciding the de novo proceedings, and therefore, there was no force in the plea against a common order being passed.

3. Whether the Commissioner should have decided the SCNs separately on merits:
The Tribunal rejected the argument that the Commissioner should have decided the SCNs separately on merits. It was noted that the Board's order under Section 35E(1) did not question the Commissioner's conduct in deciding the de novo proceedings. The Tribunal found that if the Commissioner's finding on manufacture is upheld, then nothing survives in the SCNs. Therefore, the Commissioner's decision to drop the proceedings was upheld.

4. Eligibility of the deemed credit under Notification No. 29/96 C.E. (N.T.):
The Tribunal noted that the eligibility of deemed credit was not a point referred for determination by the Board under Section 35E(1). However, it was observed that the Commissioner had dropped the notices on factual aspects and technical literature, finding that the denim fabric containing monofilament yarn and polyester yarn in addition to cotton yarn was eligible for deemed credit under clause (b) of the Notification. The Tribunal found no reason to disturb the Commissioner's findings on this issue.

Separate Judgments:
- Member (Technical): The appeal by the Revenue was dismissed, upholding the Commissioner's findings that the process does not amount to manufacture.
- Member (Judicial): Disagreed with the Member (Technical) and proposed to remand the matter to the Commissioner for de novo consideration, arguing that the Commissioner lacked jurisdiction to decide the matter initially remanded to the Assistant Commissioner.
- Third Member (Vice-President): Agreed with the Member (Technical) and dismissed the appeal, concluding that the process undertaken by the respondents does not amount to manufacture.

Majority Order:
In terms of the majority order, the appeal was dismissed. The Tribunal concluded that the process undertaken by the respondents does not amount to manufacture, and the Commissioner's decision to drop the proceedings was upheld.