2015 (8) TMI 245 - SC - Central Excise

Exemption claim - Manufacturing activity - Job work - No final product emerged - Held that - It become manifest from the reading thereof that neither the provision of Section Note 5(f) nor that of Section Note 5(b) would be applicable in the instant case inasmuch as no new item came into existence. It is only when after taking the delivery of these job work done by the respondent that M/s. Dhvani Terefab Export Pvt. Ltd. sent the goods to another processor who undertook the remaining process of knitted pile fabric at his end by cutting, sewing and hamming, that the product of towel came into existence. - though the reasoning given by the Tribunal appears to be faulty, in any case demand by the Assistant Commissioner was also erroneous and the only conclusion would be to set aside the same. - Decided against Revenue.

Summary

Issues:
1. Classification of goods under Central Excise Tariff Act.
2. Interpretation of Section Note 5(f) and Section Note 5(b) of Section XI of the Act.
3. Validity of the demand raised by the Assistant Commissioner.

Analysis:
1. The case involved a dispute regarding the classification of goods under the Central Excise Tariff Act. The appellant treated the processed fabric as towels falling under Heading 63, while the assessee claimed exemption under Heading 60 as no final product existed at the relevant time. The process included washing, dyeing, bleaching, and drying of knitted pile fabrics received in grey form.

2. The Assistant Commissioner invoked Section Note 5(f) of Section XI, referring to fabric knitted or crouched to shape, but the assessee argued that the process did not involve knitting or crouching to shape. Additionally, Section Note 5(b) was considered, which pertains to items produced in the finished state without sewing or other working, like towels. The Commissioner (Appeals) upheld the demand based on Section Note 5(f), while the Tribunal set it aside, noting a discrepancy in the application of the provisions.

3. The Tribunal found fault in the Commissioner's decision to rely on Section Note 5(b) instead of 5(f), as mentioned in the show cause notice, leading to a new case being made beyond the initial allegations. The Supreme Court concurred that neither provision applied to the case since no new item emerged until further processing by another party. Consequently, the demand by the Assistant Commissioner was deemed erroneous, and the Court upheld the Tribunal's decision to dismiss the appeals, albeit on different grounds.