2015 (4) TMI 774 - AT - Central Excise

Manufacturing activity or not - Crushing of fabrics - Marketability of product - Imposition of penalty - Held that - Process of crushing results in permanent change in the fabrics and, hence, in view of Chapter Note 4 of the Chapter 55, this process would have to be treated as amounting to manufacture, as according to the Note 4 of the Chapter 55 in relation to the products of heading 5511, 5512, 5513 and 5514 the process of bleaching, dyeing, printing, shrink briefing, stentering, heat setting, crease resistance, processing or any other process or any one or more of these processes shall amount to manufacture and in our view the process of crushing would be covered by the expression any other process. In view of this, we do not find any infirmity in the impugned order holding that the process of crushing would amount to manufacture. Marketability - Held that - Proprietors of the assessee firms themselves have accepted that the crush fabrics are saleable as such and are known in the market as crushed fabrics. Moreover there are number of internet websites of several manufacturers of crush fabrics which offer different verities of crushed fabrics for sale. Extended period of limitation - Held that - Since the dispute in this case pertains to interpretation, no malafide can be attached to non-payment of duty by the assessees on the crush fabrics being cleared by them. In view of this, the penalty on both the assessees is set aside. - Decided partly in favour of assessee.

Summary

Issues:
1. Whether the process of crushing grey fabrics amounts to manufacture.
2. Whether the crushed fabrics are marketable.
3. Validity of duty demands and penalties imposed.

Analysis:

Issue 1: Process of Crushing as Manufacture
The case involved two entities engaged in crushing manmade fabrics without paying duty on the crushed fabrics. The Department argued that crushing with power constitutes manufacture under Chapter Note 4 of Chapter 55. The Tribunal noted that the process involved passing fabrics through machines multiple times, with steam and heat setting making the crushing effect permanent. The Tribunal held that as per Chapter Note 4, processes like crushing are considered manufacture. The Tribunal found no fault in the orders confirming duty demands.

Issue 2: Marketability of Crushed Fabrics
The assessees contended that the crushed fabrics were not marketable. However, the Tribunal found that the fabrics were indeed sold as crushed fabrics by the assessees. Additionally, the existence of various websites offering crushed fabrics for sale supported the marketability of the product. The Tribunal rejected the argument that the crushed fabrics were not marketable.

Issue 3: Duty Demands and Penalties
The duty demands were found to be within the normal limitation period and were upheld. Regarding penalties, the Tribunal considered the non-payment of duty in this case as a matter of interpretation without malafide intent. Consequently, the penalties on both assessees were set aside. The Tribunal partially allowed the appeals of the assessees and dismissed the Revenue's appeal for penalty enhancement.

The judgment highlighted that the process of crushing grey fabrics with power constitutes manufacture under Chapter Note 4. It also emphasized the marketability of the crushed fabrics based on sales by the assessees and the presence of similar products in the market. The decision upheld duty demands within the limitation period while setting aside penalties due to the interpretational nature of the dispute.