1991 (1) TMI 283 - AT - Central Excise

Summary

Issues:
- Whether the cutting and stitching of fabrics to make bed-sheets amounts to manufacture?
- Whether the applicants are liable to pay duty and penalty for manufacturing bed-sheets without a valid license?
- Whether the demands issued by the Collector without evidence and on an arbitrary basis are justified?
- Whether the applicants are entitled to proforma credit for fabrics received?
- Whether penalty proceedings are warranted due to the applicants' failure to subject themselves to licensing control?

Analysis:
The judgment by the Appellate Tribunal CEGAT, BOMBAY involved three cases concerning the cutting and stitching of fabrics to make bed-sheets. The applicants argued that they were merely tailoring establishments working on a job work basis, receiving printed cotton fabrics to stitch into bed-sheets. They contended that their activity did not amount to manufacturing and that they were entitled to proforma credit for the fabrics received. The Collector had issued demands for past periods based on the premise that the activity constituted manufacturing a new product. The applicants had not obtained a valid license, leading to adjudication proceedings and the imposition of penalties. The Tribunal considered the nature of the activity and the applicability of excise duty, noting that the cutting and stitching of fabrics into bed-sheets constituted manufacturing. However, they found that the demands were issued without proper evidence and on an arbitrary basis. The Tribunal acknowledged the applicants' argument regarding proforma credit and directed them to furnish a personal bond to the Collector to stay the recovery of duty and penalty amounts pending the appeal's disposal.

The main issue addressed in the judgment was whether the cutting and stitching of fabrics to make bed-sheets amounted to manufacturing. The Tribunal found that the activity did constitute manufacturing, as it involved the transformation of fabrics into a distinct product, namely bed-sheets. The Tribunal also considered the demands issued by the Collector without proper evidence and on an arbitrary basis. They noted that the demands were made based on the premise that the activity amounted to manufacturing a new product, but without sufficient proof of the figures of clearance. The Tribunal highlighted that the demands were confirmed without concrete evidence and were taken on an arbitrary basis, raising questions about their validity.

Another significant issue was whether the applicants were entitled to proforma credit for the fabrics received. The Tribunal acknowledged the applicants' argument that they were entitled to proforma credit and that the differential duty to be collected from them would be marginal. They noted that the benefit of proforma credit was substantive and directed the applicants to furnish a personal bond to the Collector to stay the recovery of duty and penalty amounts pending the appeal's disposal. The Tribunal considered the applicants' failure to obtain a valid license and the Collector's justification for the extended period and penalties due to the non-disclosure of manufacturing activities to the department. Despite finding the cutting and stitching of fabrics into bed-sheets as manufacturing, the Tribunal granted a stay on the recovery of duty and penalty amounts pending the appeal's resolution.