2001 (4) TMI 316 - AT - Central Excise

Issues Involved:
1. Non-payment of central excise duty.
2. Classification of the manufactured goods.
3. Determination of whether the process amounts to manufacture.
4. Eligibility for SSI exemption.
5. Availability of Modvat credit.
6. Imposition of penalties and interest.

Detailed Analysis:

1. Non-payment of Central Excise Duty:
The Central Excise Officers discovered that the appellants were engaged in the manufacture of car matting and other mattings without obtaining registration from the Central Excise Department and without paying central excise duty on the removal of their final product. The scrutiny of records revealed that from 1995-96 to 1998-99, the appellants cleared finished goods valued at Rs. 78,79,908.75 without paying duty amounting to Rs. 21,95,458.77.

2. Classification of the Manufactured Goods:
The Commissioner observed that the car mattings and other mattings were appropriately classifiable under sub-heading No. 5703.90 of the First Schedule to the Central Excise Tariff Act, 1985. The use of car mattings is to cover the floor of the car, and carpets/floor coverings along with their made-ups are specifically covered under this sub-heading. The Commissioner referred to the HSN Explanatory Notes and the Ministry's Circular No. 117/28/95-CX., confirming that duty is payable when car mats come into existence.

3. Determination of Whether the Process Amounts to Manufacture:
The Commissioner held that the process of converting textile floor coverings into car mattings and other mattings involved cutting to specified size, stitching, sizing, and overlocking, resulting in a new marketable commodity. This change in name, character, or use constitutes manufacture. The appellants contended that the process did not amount to manufacture, relying on the decision in the case of Trans-Asia Carpet Ltd. v. CCE, where it was held that cutting and stitching of duty-paid carpets for use in cars did not amount to manufacture. However, the Tribunal held that the conversion of products under sub-heading 5703.20 into Heading 8708 would amount to manufacture and the resultant products shall be liable to duty.

4. Eligibility for SSI Exemption:
The appellants argued that even if the process amounted to manufacture, the items should be classified under Heading No. 8708 for car mats and under 56.02 for other floor mattings. Since the value of clearances was less than the exemption limit of Rs. 30 lakhs for each year, they should be entitled to the exemption under Notification No. 1/93. This contention was not considered by the original authority and was remanded for further consideration.

5. Availability of Modvat Credit:
The appellants contended that the Commissioner did not extend the benefit of Modvat credit on the duty-paid material procured by them. This issue was not raised before the original authority and was remanded for further consideration.

6. Imposition of Penalties and Interest:
The Commissioner imposed a penalty equivalent to the duty amount on the appellants under Section 11AC of the Central Excise Act, 1944, and another penalty of Rs. 50,000/- on Smt. Jyotsna Sharma under Rule 209A of the Central Excise Rules, 1944. The appellants argued that no separate penalty should be imposed on the proprietress apart from the penalty on the firm. They also contended that the provisions of Sections 11AC and 11AB, which came into effect from 28-9-1996, could not be invoked for the demand of duty pertaining to a period prior to this date. These contentions were remanded for further consideration.

Conclusion:
The Tribunal held that the process of converting textile floor coverings into car mattings and other mattings amounts to manufacture, and the products are classifiable under Heading Nos. 8708 and 5703.90. The allegation of suppression from the Department was established against the appellants. However, the issues regarding SSI exemption, Modvat credit, valuation under Section 4(4)(d)(ii), and the imposition of penalties and interest were remanded to the Commissioner for a de novo order after considering the submissions made by the appellants. The appeal was allowed by way of remand.

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