2017 (2) TMI 1058 - AT - Central Excise

Benefit of N/N. 76/1986-CE dated 10.2.1986 - manufacture of readymade garments falling under Chapter 6201 of Central Excise Tariff Act, 1985 - denial on the ground that for the manufacture of readymade garments machines were used - whether the goods can be classified as handicrafts or not so as to avail benefit of Notification - Held that - The Hon ble Supreme Court in the case of Louis Shoppe 1995 (3) TMI 108 - SUPREME COURT OF INDIA has held that even if some machine is used in the process, the goods would still be treated as handicrafts and that handmade readymade garments would be treated as handicraft and accordingly eligible for exemption under N/N. 76/86. Board s Circular No. 773/6/04-CX dated 28.1.2004, clarified that classifying the goods as handicraft one or more of the process such as hand painting or hand printing or handicrafts Tie and Dye or handicrafts Batik, embroidered or crocheted ornamentation, appliqui work of sequins, glass or wooden beads, shells, mirrors or Ornamental motifs of textiles and other materials, extra warp/wept ornamentation of cotton, silk, zari (metal thread in Gold/Silver) wool or any other fibre yarn can be carried out. In the facts of the present case, except the part of the embroidery process, which was carried through pedal operated machine, most of the processes such as painting/ornamentation was done manually. Hence the goods is correctly classifiable as handicrafts - benefit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Exemption under Notification No. 76/1986 denied due to machine use in garment manufacturing; Appeal against demand of duty, confiscation of goods, and penalty imposition; Interpretation of goods as handicrafts based on manual processes and machine use; Applicability of Textile Ministry Circular and Supreme Court judgment; Consideration of expert opinion in differentiating handicraft items; Setting aside impugned order and allowing appeals.

Analysis:
The case involves the appellants engaged in manufacturing readymade garments under Chapter 6201 of Central Excise Tariff Act, 1985, who surrendered their Central Excise Registration certificate on the belief that their products were handicrafts exempted under Notification No. 76/1986-CE. Central Excise officers later seized a stock of garments, claiming they did not qualify as handicrafts. Investigation revealed that only a portion of the garments did not meet the handicraft criteria. The appellants were found to have cleared garments for export and domestic sale without duty payment, leading to a show-cause notice, duty demand, goods confiscation, and penalties imposed.

The main issue raised by the appellants was the denial of exemption under Notification No. 76/1986 due to machine use in garment embroidery. The appellants argued that despite occasional machine use, most processes like embroidery, painting, and ornamentation were done manually, qualifying the garments as handicrafts. They cited a Textile Ministry Circular and a Supreme Court judgment supporting their position. They contended that surrendering the registration certificate in good faith precluded penalty imposition.

The Revenue, represented by AC (AR), upheld the findings of the impugned order, focusing on machine use in garment manufacturing. However, the Tribunal, after considering submissions and records, referred to the Supreme Court judgment stating that even with some machine involvement, goods could still be treated as handicrafts. They highlighted the importance of manual processes in determining handicraft classification, supported by the Textile Ministry Circular. The Tribunal also referenced a previous case where expert opinion was deemed necessary to differentiate handicraft items.

Ultimately, the Tribunal set aside the impugned order, allowing the appeals based on the Supreme Court judgment, Textile Ministry Circular, and the predominance of manual processes in garment manufacturing. The decision emphasized that even with minimal machine involvement, garments could be classified as handicrafts, entitling them to exemption under Notification No. 76/1986-CE.