1990 (4) TMI 130 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process of cropping (shearing) constitutes a manufacturing activity.
2. Applicability of exemption Notification No. 109/86 and 297/79.
3. Place of seizure of the goods.
4. Imposition of penalty.

Issue-wise Detailed Analysis:

1. Whether the process of cropping (shearing) constitutes a manufacturing activity:
The primary issue was whether the process of cropping (shearing) constitutes a manufacturing activity that brings into existence a new product different from the starting material. The Supreme Court's judgment in the Mafatlal Fine Spinning & Mfg. Co. Ltd. case held that cropping does not convert grey cotton fabric into processed cotton fabrics for the purpose of levy of 3% interest on the amount of yarn duty. This decision was not available to the Collector when he adjudicated the case but was considered relevant by the Tribunal. The Tribunal concluded that cropping or shearing does not constitute a manufacturing process, thereby not attracting duty.

2. Applicability of exemption Notification No. 109/86 and 297/79:
The Tribunal examined whether the process of cropping or shearing falls under the exemption provided by Notification No. 109/86 and 297/79. The Collector had interpreted the term "cropping" narrowly, suggesting it only referred to cutting loose ends at the edges of fabrics. However, the Tribunal found that the definition of "cropping" in the exemption notification does not limit the cutting to the edges but includes the surface of the fabric as well. Therefore, the process of shearing or cropping carried out on the knitted acrylic fabrics is covered by the exemption notifications, and thus, the goods are not dutiable.

3. Place of seizure of the goods:
The appellants argued that the seizure took place at the premises of M/s. Sambhav Processors and not their factory. The Collector had relied on the statement of the Manager of the appellant firm and the witness signatures on the seizure memo to conclude that the seizure was from the appellant's premises. However, the Tribunal found inconsistencies in the Collector's observations and noted that the seized goods were left in the custody of M/s. Sambhav Processors, situated nearly 2 kilometers away from the appellant's factory. This supported the appellant's contention that the seizure occurred at M/s. Sambhav Processors' premises.

4. Imposition of penalty:
The appellant contended that there was no case for the imposition of penalty as there was a bona fide difference of interpretation regarding the dutiability of the process. The Tribunal, agreeing with the appellant, held that since the process of shearing or cropping does not attract duty and is covered by the exemption notification, the imposition of penalty was unjustified.

Conclusion:
The Tribunal concluded that the process of shearing or cropping does not constitute a manufacturing activity and is covered by the exemption Notification No. 109/86 and 297/79. Consequently, the goods in question are not dutiable. The Tribunal also found that the seizure likely took place at the premises of M/s. Sambhav Processors and not the appellant's factory. Therefore, the imposition of penalty was not warranted. The order of the Collector was set aside, and the appeal was allowed, entitling the appellants to consequential benefits.