2017 (1) TMI 296 - AT - Central Excise

Manufacture - process of dyeing, twisting, doubling, multiple folding, cabling or anyone or more of these processes, or conversion of any form of the said products into any form - job-work - the respondents were engaged in the activity of purchasing of grey yarn in the cone form after getting it dyed from the job work and selling the yarn in cone form - whether the process amounts to manufacture? Held that - though the process of conversion of yarn was undertaken by the appellants in the instant case, but there is no resultant conversion of yarn by the appellants. It is noticeable that the said chapter notes do not stipulate that any process of conversion of the said goods would amount to manufacture, instead it is specified therein that conversion of the goods from one form to another amounts to manufacture, and evidently, there is no conversion of goods from one form to another in the instant case. Further, it is also not disputed that the appellants have received duty paid grey yarn in cone form and also sold dyed yarn in cone form, which indicates that overall duty payable is only in respect of process of dyeing which has not been undertaken by the appellants. Extended period of limitation - Held that - There is strength in the contention of the appellants that they had bonafide that they were not doing any manufacturing and hence, not liable to take registration or pay duty on the clearances of the yarn and that it is not a case of duty demand arising from wilful misstatement, suppression of facts with an intent to evade duty - failure to take registration or mis-utilization of exemption or non-payment of duty due to bona-fide reasons cannot be made ground for invoking extended period - demand time barred, not sustainable. The respondent is not engaged in the activity of dyeing of yarn which has done by the job workers - appeal dismissed - decided against Revenue.

Summary

Issues involved:
- Whether the activity of purchasing grey yarn, getting it dyed from job work, and selling it amounts to manufacture and attracts duty payment.
- Whether the extended period of limitation can be invoked for duty payment.

Analysis:

Issue 1: Activity amounting to manufacture and duty payment
The case involved the respondents purchasing grey yarn in cone form, getting it dyed from job work, and selling it. The Revenue contended that this process amounted to manufacture, necessitating duty payment. The investigation revealed that the respondents were converting the yarn into hank form for dyeing, which was done externally. The Ld. Commissioner (A) upheld the demand based on chapter notes specifying that certain processes, including conversion of products into another form, constitute manufacture. However, it was noted that the appellants did not undertake the dyeing process themselves and were not registered for it. The Tribunal found strength in the appellants' argument that they were not engaged in manufacturing and thus not liable for duty payment. The Tribunal agreed with the Ld. Commissioner (A) that the respondents were not involved in the dyeing activity, which was done by job workers. Consequently, the impugned order was upheld, and the Revenue's appeal was dismissed.

Issue 2: Invocation of extended period of limitation
The Revenue had invoked the extended period of limitation for duty payment, arguing that the respondents should have paid duty on the converted yarn. However, the Tribunal ruled that the demand was time-barred as the respondents had a bona fide belief that their activity did not amount to manufacture. Citing Supreme Court judgments, the Tribunal held that failure to register or pay duty due to bona fide reasons cannot be the basis for invoking the extended period of limitation. Therefore, the demand was deemed time-barred and not sustainable.

In conclusion, the Tribunal upheld the impugned order, dismissing the Revenue's appeal based on the findings that the respondents were not engaged in the dyeing activity and that the demand was time-barred due to bona fide belief and lack of wilful misstatement or intent to evade duty.