1999 (7) TMI 165 - AT - Central Excise

Summary

Issues:
1. Stay of duty and penalty sought by the appellant.
2. Whether bleaching before dyeing amounts to manufacture and is leviable to duty.
3. Interpretation of Chapter Note 2 of Chapter 52 regarding the manufacturing process.
4. Admissibility of Modvat credit on bleached fabric.
5. Revenue neutrality of the exercise.
6. Denial of Modvat credit by the adjudicating authority.

Analysis:
1. The appellant sought a stay of duty and penalty amounting to Rs. 22,29,498/- and Rs. 2 lakhs, respectively, contending that they are engaged in bleaching and dyeing grey fabrics procured from external parties. They argued that bleaching is not undertaken before dyeing, refuting the Revenue's claim that bleaching amounts to manufacturing and is subject to duty. The appellant invited on-the-spot verification by the Department to clarify the factual position, which was not conducted. The appellant relied on Chapter Note 2 of Chapter 52, stating that multiple processes collectively constitute manufacturing, making the final fabric dutiable at that stage.

2. The appellant's representative argued that if more than one process is undertaken, duty should not be charged at each stage, and all processes together constitute manufacturing. They also claimed entitlement to Modvat credit on duty paid for bleached fabric, which could be utilized for duty on dyed fabric, ensuring revenue neutrality. The adjudicating authority was criticized for denying Modvat credit on weak grounds. The appellant requested an unconditional stay of the duty and penalty.

3. The Revenue, represented by the JDR, highlighted the show cause notice and the adjudicating authority's reasoning, emphasizing that each process under Chapter Note 2 of Chapter 52 is considered manufacturing. The JDR argued that Modvat credit was correctly denied to the appellant, as Notification Nos. 23/94 and 24/94 should be read in conjunction with Chapter Note 2 of Chapter 52.

4. The Tribunal, after considering both parties' submissions, agreed with the appellant's arguments. They found merit in the appellant's claim for Modvat credit on duty paid for bleached fabric under Notification No. 24/94-C.E., stating that the exercise was revenue neutral. Consequently, the Tribunal allowed the stay petition unconditionally, supporting the appellant's position regarding the admissibility of Modvat credit and the manufacturing process under Chapter Note 2 of Chapter 52.