2006 (9) TMI 5 - SC - Central Excise

Central Excise During the manufacturing process of yarn cotton waste produced at intermediate stage Such cotton waste is manufactured product or not, both to be considered in light of decided cases Matter remanded to Tribunal for fresh consideration

Summary

Issues:
Challenge to Customs Tribunal decision on duty imposition and penalty reduction for soft cotton waste clearance and sale in Domestic Tariff Area.

Analysis:
The appellant, a 100% export-oriented unit, challenged the duty imposition on soft cotton waste generated during yarn manufacturing for export. The dispute arose when the Finance Act, 1995 introduced cotton waste under heading 52.02 in the Central Excise Tariff Act, leading to duty demands and penalties on the appellant. The Commissioner upheld the duty demands and penalties, leading to appeals before the Appellate Tribunal. The Tribunal reduced the penalties but upheld duty imposition, citing the marketability of the cotton waste. The appellant argued that no duty should apply as no manufacturing process was involved in producing the waste, emphasizing that the waste was merely impure cotton separated during yarn production. The Department contended that the waste was a marketable commodity, hence dutiable, and that the extended period of limitation applied due to alleged suppression of facts by the appellant.

The Supreme Court analyzed the nature of the cotton waste, noting that it was generated during the yarn manufacturing process and was regularly marketed, meeting the criteria for duty imposition. Referring to precedents, the Court highlighted that the intention to manufacture subsidiary products alongside the main item could attribute a manufacturing intention. The Court emphasized that a product becomes dutiable when it undergoes changes making it commercially distinct from the original commodity. Considering the conflicting arguments and legal precedents, the Court set aside the Tribunal's decision and remanded the case for fresh consideration. The Court directed the Tribunal to reevaluate whether the soft cotton waste constituted a manufactured product subject to duty, leaving all contentions, including the extended period of limitation, open for further examination.

In conclusion, the Supreme Court partially allowed the appeals, overturning the Tribunal's decision and instructing a fresh review of the case. The parties were directed to bear their respective costs, and the Tribunal was tasked with determining whether the soft cotton waste was indeed a manufactured product liable for duty, based on a comprehensive analysis of legal principles and precedents.