1986 (1) TMI 295 - AT - Income Tax

Summary

Issues:
1. Whether the appellants processed 'man-made fabrics' with a curing machine, attracting Central Excise duty, and removed such fabrics without payment of duty.
2. Whether the process undertaken by the appellants constituted a new product.
3. Whether the processing undertaken by the appellants amounted to manufacture under the Central Excises and Salt Act, 1944.
4. Whether the appellants were entitled to exemption under Notification No. 79/82-C.E.
5. Whether the penalty and confiscation of goods imposed on the appellants were justified.

Analysis:

1. The Collector held that the appellants processed 'man-made fabrics' with a curing machine, removed them without paying Central Excise duty, and did not possess the required license. The appellants contested, claiming the process was only to remove odors, not a new product creation. The department argued the process was a finishing process attracting duty, citing the Supreme Court judgment in M/s. Empire Industries Ltd. The Tribunal found the process turned unfinished fabrics into marketable products, constituting manufacture, and upheld the duty demand.

2. The appellants argued that the process did not create a new product, as the fabrics remained printed sarees before and after the treatment. However, the Tribunal disagreed, stating the process made the fabrics marketable as printed sarees, following the Supreme Court's definition of manufacture. The Tribunal confirmed that the process undertaken was a finishing process covered under the Central Excises and Salt Act, 1944.

3. Regarding the exemption under Notification No. 79/82-C.E., the Tribunal ruled that since the appellants used a machine for the heat treatment process, they were not eligible for the exemption. The Tribunal upheld the duty demand based on the processing undertaken by the appellants and the inapplicability of the exemption notification.

4. The Tribunal reviewed the penalty and confiscation of goods imposed on the appellants. It noted that the appellants had sought guidance/exemption from the authorities, indicating their awareness and cooperation. Consequently, the Tribunal found the penalty and confiscation unjustified and set them aside, ordering a refund of the appropriated fine from the security deposit.

5. In conclusion, the Tribunal decided in favor of the department on the duty demand issue, rejecting the appellants' arguments regarding the nature of the process. However, the Tribunal found the penalty and confiscation unwarranted due to the appellants' proactive approach in seeking guidance, leading to the setting aside of these sanctions.