2017 (12) TMI 1268 - AT - Central Excise

Manufacture - whether the process of cropping carried out by the appellant on the grey fabrics will attract mischief of Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 as any other process that shall amount to manufacture ? Held that - A closer examination at the indicative list of processes in the chapter notes would lead to the inescapable conclusion that, all those processes when subjected to woven fabrics of cotton/synthetic staple fibres bring about irreversible change in the characteristics of such fabrics and further, all these processes may also require treatment or intervention of chemicals to achieve the desired result - the term any other process will necessarily be of the same genre of processes which bring about permanent change in the characteristics of the fabrics. This is the doctrine of Noscitur A Socis, namely, that the meaning of doubtful word can be ascertained by reference to the meaning of words associated with that word - Applying the doctrine of Noscitur a sociis, it is held that any other process will necessarily have to be one like bleaching, mercerizing, shrink-proofing etc. resulting in permanent change in the characteristics of the fabrics and mostly involving use of a chemical agent. Per contra, cropping involves removal of fibres from surface of the fabrics, by cutting projecting fibres and yarn, the terms cropping and shearing are very often used interchangeably. The only apparent difference being that in shearing the fibres are cut in an angular manner on the surface of the fabric itself. Both these processes are intended to give a clean and smooth appearance to the fabric and to control pill formation. The cropping or for that matter, shearing processes cannot be considered as being of the same genre as bleaching, mercerizing, dyeing, printing etc. The process of cropping , which merely involves cutting away mechanically loose ends from the fabric to give a clean and smooth appearance will not fall within the ambit of or any other process for the purposes of Chapter Note 3 of Chapter 52 or Chapter Note 4 of Chapter 55 of the Schedule to the Central Excise Tariff Act, 1985 - any conclusion that the impugned cotton / synthetic grey fabrics subjected to cropping are processed fabrics requiring classification under CETA 5207.39 & 5208.39 (under 5207.29 and 5208.29 till 28-02-2001) and 5511.29, 5512.29 and 5513.29 respectively, is surely a misinterpretation and hence consequential demand of duty made by the adjudicating authority is not supported by law. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Whether the process of "cropping" carried out by the appellant on grey fabrics amounts to "manufacture" under Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 of CETA 1985.
2. Whether the appellant is liable for the differential duty and penalties imposed by the adjudicating authority.

Issue-wise Detailed Analysis:

1. Whether the process of "cropping" amounts to "manufacture" under Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 of CETA 1985:

The core issue in this appeal is whether the process of "cropping" carried out by the appellant on grey fabrics will attract the provisions of Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55, which define certain processes as "manufacture." The chapter notes list specific processes like bleaching, mercerizing, dyeing, etc., and include a catch-all phrase "any other process" that brings about a permanent change in the fabric's characteristics.

The tribunal examined whether "cropping" falls within the ambit of "any other process." It concluded that the indicative processes in the chapter notes involve irreversible changes and often require chemical treatment. The tribunal applied the doctrine of Noscitur a sociis, which means that the meaning of a word can be ascertained by reference to the words associated with it. Therefore, "any other process" must be of the same genre as the listed processes, implying a permanent change in the fabric's characteristics.

The tribunal noted that "cropping" involves removing fibers from the fabric's surface, similar to "shearing." Both processes aim to give a clean and smooth appearance and do not result in a permanent change in the fabric's characteristics. The tribunal cited several judgments, including Mafatlal Fine Spinning & Mfg. Co. Ltd. vs. Collector of Central Excise and Siddeshwari Cotton Mills Pvt. Ltd. vs. UOI, to support its conclusion. In these cases, the Supreme Court held that processes like calendering and shearing do not amount to manufacture as they do not bring about a lasting change in the fabric.

2. Whether the appellant is liable for the differential duty and penalties imposed by the adjudicating authority:

The department argued that the appellant's possession of cropping machines and the process of cropping on grey fabrics made them ineligible for duty exemption. The adjudicating authority had imposed a differential duty of ?8,22,61,848/- with interest and penalties under various provisions of law. The appellant contended that the process of cropping did not change the fabric's original characteristics and cited several precedents where similar processes were not considered manufacturing.

The tribunal found that the process of cropping did not amount to manufacture and, therefore, the fabrics did not lose their original characteristics. Consequently, the classification of the fabrics as "processed" under the relevant CETA headings was incorrect. The tribunal concluded that the demand for differential duty and the penalties imposed by the adjudicating authority were not supported by law.

Conclusion:

The tribunal held that the process of "cropping" does not fall within the ambit of "any other process" that amounts to manufacture under Chapter Note 3 of Chapter 52 and Chapter Note 4 of Chapter 55 of CETA 1985. The tribunal set aside the impugned order and allowed the appeal with consequential relief as per law. The tribunal's decision was based on the interpretation of the relevant chapter notes, the doctrine of Noscitur a sociis, and precedents from higher courts. The tribunal emphasized that "cropping" does not result in a permanent change in the fabric's characteristics and, therefore, does not amount to manufacture.