1992 (1) TMI 219 - AT - Central Excise

Issues Involved:
1. Whether embroidered grey cotton fabrics subjected to bleaching or dyeing attract further levy of Central Excise duty.
2. Whether the Assistant Collector's order traversed beyond the allegations made in the show cause notice.
3. Whether the classification of goods was correctly determined under the Central Excise Tariff.

Detailed Analysis:

Issue 1: Levy of Central Excise Duty on Processed Embroidered Fabrics
The core question in this appeal is whether embroidered grey cotton fabrics, after being subjected to bleaching or dyeing, attract further Central Excise duty. The appellants argued for exemption based on a clarification by the Central Board of Excise & Customs (CBEC) in their letter dated 18-1-1974, which stated that once the base fabric has been converted into embroidery, it falls under a different tariff sub-item and should not attract further processing duty even if subjected to further processes like bleaching or dyeing. The Assistant Collector, however, did not accept this claim and issued a show cause notice demanding duty under sub-heading 5805.13 read with Notification 255/82 dated 8-11-1982. The appellants contested this, arguing that the tariff description under Heading 58.05 pertains to the manufacture of embroidery, not the processing of already manufactured fabrics.

Issue 2: Traversal Beyond Allegations in Show Cause Notice
The appellants argued that the Assistant Collector's final order classified the goods under Chapter 52, which was not mentioned in the show cause notice, thereby violating the principles of natural justice. The Collector (Appeals) upheld the Assistant Collector's order, stating that the processes of bleaching and dyeing were not specified as processes of manufacture in the 1974 clarification but were included in the definition of manufacture under the Central Excises and Salt Act in 1944 and the Central Excise Tariff Act in 1985. The Tribunal noted that an adjudication order cannot traverse beyond the allegations made in the show cause notice, as supported by precedents like Shri Kanta Haldar v. Collector of Central Excise and IGE (India) Ltd. v. Collector of Central Excise.

Issue 3: Correct Classification of Goods
The Assistant Collector's order classified the processed embroidered cotton fabrics under Chapter 52, contrary to the show cause notice which proposed classification under sub-heading 5805.13. The Tribunal acknowledged that while the classification proposed in the show cause notice was under sub-heading 5805.13, the Assistant Collector decided the classification under a different Chapter, viz., Chapter 52. The Tribunal has held in previous cases that it is not necessary to confine the classification question to the tariff entries in dispute if the correct classification lies beyond those entries. However, the Tribunal emphasized that any deviation from the proposed classification in the show cause notice must be communicated to the appellants to allow them to contest it.

The Tribunal also considered the argument that the processes of bleaching and dyeing amount to 'manufacture' under Sec. 2(f) of the Act, as established in Supreme Court decisions like Empire Industries v. Union of India and Ujagar Paints v. Union of India. Despite this, the Tribunal found that the Assistant Collector's failure to adhere to the show cause notice's allegations warranted a remand for fresh adjudication.

Conclusion
The Tribunal concluded that the Assistant Collector's order was passed without adhering to the principles of natural justice, as it traversed beyond the allegations in the show cause notice. The Tribunal decided to set aside the orders of the lower authorities and remand the case to the Assistant Collector for fresh adjudication in accordance with law, ensuring that the appellants are given a fair opportunity to contest any new grounds for classification. The appeal was thus allowed by remand.

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