2011 (9) TMI 656 - AT - Central Excise

Marketability - Processing of Wet cotton fabric - mercerizing and bleaching - Held That - Processed goods being in wet condition was not marketable. To make the said fabric marketable further process of squeezing and stentering has to be done invariably. Thus no manufacture. Process with, or without, the aid of power - Held That - When it was observed that 10H motor was lying loose could not be regarded as having been connected to the mercerizing machine, further the certificate by Gujarat electricity board revealed that load sanctioned was never exceeded by them. Thus goods were produced without usage of power.

Issues Involved:
1. Marketability of fabric cleared from Bhagyalakshmi to Famous.
2. Allegation of Famous being a dummy unit.
3. Clubbing of processes at Bhagyalakshmi and Famous.
4. Use of power in the processes of mercerizing, stentering, and hydro extraction.
5. Duty liability on final clearances from Bhagyalakshmi.
6. Credibility of retracted statements and affidavits.
7. Duty liability due to baling and packing processes.

Detailed Analysis:

1. Marketability of Fabric Cleared from Bhagyalakshmi to Famous:
The judgment highlighted that the fabric cleared by Bhagyalakshmi to Famous was not marketable as it was in a wet condition. The Show Cause Notice explicitly stated that the wet fabric was not marketable and required further processing at Famous. Consequently, no duty liability could arise on these clearances as both manufacture and marketability are essential for duty liability under the Act, as established by the Supreme Court in _Triveni Engineering Industries Ltd v CCE_.

2. Allegation of Famous Being a Dummy Unit:
The Commissioner initially alleged that Famous was a dummy unit created by Bhagyalakshmi to split activities and avail exemptions fraudulently. However, the impugned Order-in-Original did not uphold this allegation. Instead, it recognized both Bhagyalakshmi and Famous as independent partnership firms engaged in job work for grey fabric suppliers. This finding negated the dummy unit allegation, emphasizing the separate legal and operational identities of the two firms.

3. Clubbing of Processes at Bhagyalakshmi and Famous:
The judgment critically examined the Commissioner's reasoning for clubbing the processes at Bhagyalakshmi and Famous. It was noted that the processes were distinct and manually transferred between the two units. There was no common managerial control, financial interplay, or shared partners between the firms. The Commissioner's findings on maintaining a common account and the transfer of wet fabric without documentation were insufficient to justify clubbing the processes. The Tribunal concluded that the processes at Bhagyalakshmi and Famous could not be clubbed for excisability and duty liability purposes.

4. Use of Power in the Processes of Mercerizing, Stentering, and Hydro Extraction:
The Tribunal scrutinized the evidence regarding the use of power in mercerizing at Bhagyalakshmi and stentering at Famous. The statements of personnel, which were retracted by affidavits, were deemed unreliable. The Tribunal emphasized that the Commissioner erred in not admitting the affidavits in evidence, contrary to the Supreme Court's decision in _Parle Beverages Pvt Ltd v CCE_. The Tribunal found the evidence of high electricity consumption unconvincing and accepted the appellant's submissions, including the Gujarat Vidyut Board's certificate, that the 10 HP motor found loose was not used for mercerizing.

5. Duty Liability on Final Clearances from Bhagyalakshmi:
The Tribunal concluded that no duty liability could arise on the final clearances from Bhagyalakshmi. The processes at Bhagyalakshmi and Famous were independent and not clubbed. The fabric transferred from Bhagyalakshmi to Famous was non-marketable and non-excisable. No duty was confirmed against Famous, and the processes of baling and packing did not amount to manufacture.

6. Credibility of Retracted Statements and Affidavits:
The Tribunal found that the Commissioner wrongly rejected the affidavits retracting the inculpatory statements. The affidavits should have been admitted and evaluated for their probative value, as mandated by the Supreme Court in _Parle Beverages_. The Tribunal observed that the retractions at the first opportunity significantly undermined the credibility of the initial statements.

7. Duty Liability Due to Baling and Packing Processes:
The Tribunal addressed the SDR's argument that duty liability arose from the use of power in baling and packing. It was held that these processes did not amount to manufacture and, therefore, could not attract duty liability. The Tribunal emphasized that duty liability requires both manufacture and marketability, and the processes of baling and packing did not fulfill these criteria.

Conclusion:
The Tribunal allowed the appeals, setting aside the Commissioner's order, and concluded that no duty liability existed against Bhagyalakshmi. The penalties imposed on Famous and Shri N K Gajera were also deemed unsustainable. The Tribunal's decision was pronounced in court.

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