2000 (11) TMI 214 - AT - Central Excise

Summary

Issues:
1. Liability of duty on processed embroidered fabric under Heading 5805.19 of the tariff.
2. Determination of manufacturer for duty payment on processed fabric.

Analysis:
1. The appellants, M/s. Vadilal Embroidery Unit and M/s. Doshi Industrial Corporation, were involved in embroidery of grey fabrics and paid duty on the embroidered fabrics. The issue arose when they handed over the fabrics to M/s. Dura Processors for processing, leading to a notice to pay duty on processing activities. The Assistant Commissioner initially held that Vadilal and Doshi were not liable for duty on the processed fabric, based on an order of the Commissioner (Appeals).

2. The Department challenged this decision before the Commissioner (Appeals), arguing that the processed embroidered fabric was dutiable under Heading 5805.19 of the tariff. The Commissioner (Appeals) directed the duty to be paid by the "respondent industries" and remanded the case for quantifying the duty payable and adjudging penalties. The appeal by Dura Processors against this order was separately considered.

3. The Commissioner (Appeals) had to address two distinct questions: whether Vadilal and Doshi, as embroiderers, were liable for duty on processing the fabric they embroidered, and whether duty was payable on the manufactured fabrics. The focus of the present analysis was on the first question regarding the duty liability of Vadilal and Doshi.

4. The judgment emphasized that a manufacturer is responsible for transforming a commodity into a new product. Vadilal and Doshi, as embroiderers, were not considered manufacturers of the goods they embroidered. They paid duty on the embroidery but were not involved in the subsequent processing of the fabric. Therefore, the duty on processing, if applicable, should be paid by the entity carrying out the processing and not by Vadilal and Doshi.

5. The Departmental representative argued that the appellants were liable to pay duty based on Notification 27/92, exempting manufacturers from registration under Rule 174 if they get goods manufactured on their account by another person. However, the judgment found this argument untenable, as it would lead to conflicting interpretations regarding the manufacturer of the goods. The decision favored the appellants, setting aside the impugned order related to them.

6. Ultimately, the appeals were allowed, and the order concerning the appellants was overturned, clarifying the duty liability on processed fabrics and determining the manufacturer for duty payment.