2014 (8) TMI 812 - AT - Central Excise

Exemption under Notification No.40/1995-CE - appellant in their padding process had also used Urea Formaldehyde, Copper Sulphate, Tinopal and Blue Acid Violet - penalty under Rule 173Q (1) - Held that - Notification No.40/1995-CE exempts the cotton fabrics subjected to the process of padding, that is to say applying starch or fatty materials on one or both sides of the fabrics . The appellant in this case subjected the cotton fabrics to the process of padding in which in addition to the starch and Polyvinyl acetate, they also used Soap Stone Powder, Urea Formaldehyde, Copper Sulphate/Blue Acid Violet and Tinopal. The Blue Acid Violet, Copper Sulphate and Tinopal are used for padding of the bleached fabrics. The Department s contention is that since Notification No.40/1995-CE exempts only the padding done by applying starch or fatty materials on one or both the sides of the fabrics, use of other chemicals like Urea Formaldehyde, Tinopal, Copper Sulphate etc. would result in above exemption Notification becoming inapplicable. However, the Tribunal in the case of CCE, Coimbatore vs. Coimbatore Pioneer Mills (2008 (3) TMI 210 - CESTAT, CHENNAI) and Amar Processors vs. CCE, Ahmedabad-I (2010 (4) TMI 519 - CESTAT AHMEDABAD) and also in the case of CCE, Coimbatore vs. SSM Processing Mills reported in 2008 (2) TMI 292 - CESTAT, CHENNAI has held that the process of padding does not amount to manufacture, as it brings only a temporary stiffness to fabric which vanishes after a couple of washes and, as such, it does not bring into existence a new product with distinct name, characteristic and uses. When the process of padding was held to be non-amounting to manufacture, no excise duty would be attracted and, as such, there is no question of denial of any exemption. Decided in favour of assessee.

Summary

Issues:
- Interpretation of Notification No.40/1995-CE regarding duty exemption for cotton fabrics subjected to padding process.
- Applicability of duty exemption when chemicals like Urea Formaldehyde, Tinopal, Copper Sulphate are used in addition to starch and fatty materials in the padding process.
- Whether the padding process amounts to manufacture for the purpose of excise duty.

Analysis:
1. Interpretation of Notification No.40/1995-CE:
The case involved the interpretation of Notification No.40/1995-CE, which exempts cotton fabrics subjected to the process of padding involving the application of starch or fatty materials. The appellant used additional chemicals like Urea Formaldehyde, Tinopal, Copper Sulphate along with starch and Polyvinyl acetate in the padding process. The Department contended that the use of these additional chemicals made the exemption inapplicable. However, the Tribunal referred to previous judgments and held that the process of padding does not amount to manufacture. It only imparts temporary stiffness to the fabric, which disappears after washing, and does not create a new product with distinct characteristics. Consequently, no excise duty would be attracted, and the exemption should apply.

2. Applicability of Duty Exemption with Additional Chemicals:
The appellant argued that the use of chemicals like Blue Acid Violet, Copper Sulphate, Urea Formaldehyde, Tinopal, along with starch and fatty acid in the padding process should not disqualify them from the duty exemption. They cited precedents where the Tribunal ruled that the use of such chemicals does not alter the nature of the fabric significantly to be considered as manufacturing. The Tribunal agreed with this argument, emphasizing that the temporary effect of the padding process does not create a new product, and hence, the duty exemption should stand.

3. Padding Process and Manufacture for Excise Duty:
The key issue revolved around whether the padding process amounts to manufacture for the purpose of excise duty liability. The Tribunal relied on previous decisions that clarified that padding, which imparts temporary stiffness to fabrics, does not transform the fabric into a new product with distinct characteristics. Therefore, since the padding process does not constitute manufacture, no excise duty liability arises, and the duty exemption under Notification No.40/1995-CE should be applicable. The Tribunal set aside the impugned order and allowed the appeals in favor of the appellants.

In conclusion, the judgment clarified the interpretation of the duty exemption notification in the context of the padding process involving additional chemicals. It established that the temporary effects of the padding process do not amount to manufacturing, thus upholding the duty exemption for the appellants.