2016 (12) TMI 142 - AT - Central Excise

Deemed credit - Notification No. 29/96-CE - fabric is processed or not - whether central excise duty is payable on an additional charge received by main appellants when appellant was paying excise duty on the processed goods on the basis of selling price of merchant manufacturer? - Held that - The claim of the Revenue that main appellant has erred in availing the benefit of deemed credit under Notification No. 29/96 is without any merits - mere washing of grey fabrics before being delivered to the main appellant for further processing will not amount to a process carried out on the fabric and the said fabrics cannot be called as processed fabrics. In view of this, we hold that appellant is eligible to avail the benefit of Notification No. 29/96. As regards the issue of valuation, we note that that is no dispute as to the fact that the main appellant had discharged the Central Excise duty on the processed fabrics based upon the value at which the merchant manufacturer sells the goods in the market. We also perused the price list filed by the appellants, countersigned by the merchant manufacturer and also the declarations filed by the merchant manufacturer before the lower authorities wherein it is categorically declared that the prices at which the said processed fabrics are sold in the market, the job worker has to discharge the Central Excise duty. Factually, this position is undisputed by the lower authorities. Since the Central Excise duty payable on the processed fabrics is paid on the value at which the said fabrics are sold by merchant exporter, the question of main appellant getting additional amounts/charges are of no consequence as even if these are included, they may not exceed the value as declared by the merchant manufacturer as it is a common knowledge that sale price will undoubtedly, include all the expenses incurred by merchant manufacturer for manufacturing of the processed fabrics. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility of the main appellant to avail the benefit of deemed credit under Notification No. 29/96-CE on inputs received from the merchant manufacturer.
2. Liability of central excise duty on additional charges received by the main appellant when excise duty was paid on the processed goods based on the selling price of the merchant manufacturer.

Issue-wise Detailed Analysis:

1. Eligibility for Deemed Credit under Notification No. 29/96-CE:

The main appellant (Bidhata Industries Pvt. Ltd.) claimed the benefit of deemed credit under Notification No. 29/96-CE for inputs received from Raymond Ltd., a merchant manufacturer. The Revenue contended that the grey fabrics received had undergone solvent-based scouring, thus making them processed fabrics and ineligible for deemed credit. The Tribunal noted that the definition of scouring, as per the Textile Institute Textile Terms and Definitions Committee, is merely the washing of textile materials to remove impurities and does not transform grey fabrics into processed fabrics. The Tribunal also observed that Chapter Note No. 4 of Chapter 55 does not list scouring as a manufacturing process, reinforcing that scouring does not change the status of grey fabrics to processed fabrics. Consequently, the Tribunal held that the appellant is eligible for the benefit of Notification No. 29/96-CE.

2. Liability of Central Excise Duty on Additional Charges:

The Revenue argued that the appellant undervalued the processed fabrics by not including additional processing charges in the excise duty calculation. The appellant countered that excise duty was paid based on the selling price declared by the merchant manufacturer, which included all expenses. The Tribunal found that the appellant discharged central excise duty on the processed fabrics based on the merchant manufacturer's selling price, as evidenced by price lists and declarations filed with the authorities. Since the declared price already encompassed all costs, including any additional charges, the Tribunal concluded that there was no undervaluation. Therefore, the additional amounts received by the appellant were of no consequence for excise duty purposes.

Conclusion:

The Tribunal ruled in favor of the appellant on both issues. It held that the appellant is eligible for the deemed credit under Notification No. 29/96-CE and that there was no undervaluation of processed fabrics. Consequently, the penalties imposed on the appellant and other individuals were deemed unsustainable. The impugned order was set aside, and the appeals were allowed.