2005 (8) TMI 114 - SC - Central Excise

Whether the Appellants are entitled to the benefit of Notification No. 65/87-C.E., dated 1st March, 1987 in respect of bed sheets, bed covers and pillow cases? Held that - It must be noted that initially it had been contended that stitching had been done on job work basis. This was found to be factually incorrect and before us this plea has not even been urged. From the above set out process it is clear that the activity of manufacturing printed bed sheets, bed covers and pillow cases starts with the screen printing and colouring. Without this activity it would not be possible to make printed bed sheets, bed covers and pillow cases. The activity of printing and colouring is much more integrally connected to the manufacture of printed bedsheets, bed covers and pillow cases than say the activity of pumping brine into salt pans for manufacture of salt or the activity of lifting raw material to the platform at the head of the kiln for manufacture of lime. Without the printing and colouring it is impossible to manufacture printed bed sheets, bed covers and pillow cases. In such cases it is irrelevant that at an intermediate stage some other excisable commodity comes into existence. The cotton fabrics are manufactured in the process of manufacture of printed bed sheets, bed covers and pillow cases. We thus see no infirmity in the impugned Judgment when it holds that the benefit of the Notification is not available. Against assessee.

Issues Involved:
1. Entitlement to the benefit of Notification No. 65/87-C.E., dated 1st March, 1987.
2. Interpretation of "made without the aid of power."
3. Applicability of penalty under Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Entitlement to the Benefit of Notification No. 65/87-C.E., dated 1st March, 1987:
The core issue revolves around whether the appellants, manufacturers of bed sheets, bed covers, and pillow cases, are entitled to the benefit of Notification No. 65/87-C.E., which provides a "Nil" rate of duty for "made-up textile articles" if made without the aid of power. The appellants argued that their products should be exempt from duty as the final manufacturing stages did not use power. They contended that the use of power in mixing colors for preparing cotton/printed fabrics, which are intermediate products, should not disqualify them from the exemption.

2. Interpretation of "Made Without the Aid of Power":
The appellants relied on the statutory definition of "made up" in Note 5 of Section XI and Chapter Note 2 of Chapter 52, arguing that the manufacturing process of "made-up textile articles" did not involve power. They cited various CEGAT decisions to support their claim that the use of power in intermediate stages should not affect the exemption for the final product.

The opposing argument, presented by Mr. Parasaran, emphasized that the manufacturing process was continuous and integrated. He asserted that the use of power at any stage of the process, including color mixing, meant that the final product was made with the aid of power. This interpretation was supported by several Supreme Court decisions, including Union of India v. Delhi Cloth & General Mills, J.K. Cotton Spinning & Weaving Mills v. Sales Tax Officer, and Ujagar Prints & Ors. v. Union of India & Ors., which held that the term "manufacture" encompasses all stages and processes necessary for making the final product.

The judgment concluded that the term "manufacture" includes any process incidental or ancillary to the completion of a manufactured product. Therefore, if power is used at any stage, the entire process is considered to be with the aid of power. The Tribunal's finding that the manufacturing process of printed bed sheets, bed covers, and pillow cases involved power was upheld, and the benefit of the Notification was denied.

3. Applicability of Penalty under Section 11AC of the Central Excise Act:
The appellants challenged the imposition of a penalty under Section 11AC, arguing that this section, introduced on 28th September 1996, should not apply retrospectively. They cited Commissioner of Central Excise, Coimbatore v. Elgi Equipments Ltd., which held that Section 11AC operates prospectively. However, the judgment noted that this point was not raised before the Tribunal or in the Memorandum of Appeal. Moreover, the adjudication occurred in 1998, after the introduction of Section 11AC. Consequently, the penalty imposition was upheld.

Conclusion:
The appeal was dismissed, affirming that the benefit of Notification No. 65/87-C.E. was not available to the appellants as their manufacturing process involved the use of power. The penalty under Section 11AC was also upheld, as it was applicable at the time of adjudication. The judgment emphasized the comprehensive interpretation of "manufacture" and the necessity of strict compliance with exemption notifications.

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