2001 (5) TMI 268 - AT - Central Excise

Summary

Issues Involved:
1. Dutiability of tere-towels made without the aid of power.
2. Classification of the product under Chapter Heading 6301.
3. Eligibility for exemption under Notification No. 65/87.
4. Whether cutting of running fabric constitutes a process of manufacture.
5. Validity of the demand for the period 1-3-1994 to 31-3-1994.
6. Chargeability of interest.
7. Imposition and quantum of penalty.

Detailed Analysis:

1. Dutiability of Tere-Towels Made Without the Aid of Power:
The primary issue in three appeals was whether tere-towels made by cutting, hemming, and stitching without the aid of power are dutiable. The appellants argued that the tere-towels should not be classified under Chapter Heading 6301 and should be exempt from duty under Notification No. 65/87. The Tribunal held that since no power was used in the cutting, hemming, and stitching of the tere-towels, they are entitled to the benefit of Notification No. 65/87, which exempts 'made up articles' if made without the aid of power.

2. Classification Under Chapter Heading 6301:
The classification of the product under Chapter Heading 6301 was not disputed by the appellants. The Tribunal confirmed that tere-towels are 'made up articles' classifiable under Chapter 63.01.

3. Eligibility for Exemption Under Notification No. 65/87:
The Tribunal examined whether the use of power at earlier stages (knitting and processing) disqualifies the tere-towels from exemption under Notification No. 65/87. It was concluded that since no power was used in the final stages of cutting, hemming, and stitching, the tere-towels are eligible for the exemption. The Tribunal relied on various case laws, including decisions of the Apex Court, which supported the view that the use of power in earlier stages does not affect the exemption eligibility if the final product is made without the aid of power.

4. Whether Cutting of Running Fabric Constitutes a Process of Manufacture:
The Tribunal addressed the issue of whether cutting running knitted processed fabrics amounts to manufacture. It was held that cutting alone does not make the goods marketable; further processes like hemming and stitching are required. Therefore, cutting does not constitute manufacture. This decision led to the allowance of the appeal by M/s. Dhvani Terefabs (Exports) and the rejection of the Revenue's appeal.

5. Validity of the Demand for the Period 1-3-1994 to 31-3-1994:
The demand for the period 1-3-1994 to 31-3-1994 was confirmed as it was not hit by limitation. The appellants conceded the sustainability of the differential duty demand for this period.

6. Chargeability of Interest:
The Tribunal noted that the provision for charging interest was introduced on 28-9-1996. Since the demand pertained to a period prior to this date, no interest was chargeable.

7. Imposition and Quantum of Penalty:
The Tribunal considered the penalty imposed on M/s. Dhvani Terefabs (Exports) Pvt. Ltd. Given the classification dispute and the finding that the tere-towels were eligible for exemption, the penalty was reduced to Rs. 20,000.

Summary of Judgments:
1. Demand of Duty for 1-3-1994 to 31-3-1994: Confirmed.
2. Eligibility for Exemption: Tere-towels are eligible for the benefit of Notification No. 65/87.
3. Cutting of Knitted Processed Fabric: Does not amount to manufacture.
4. Appeal of Revenue: Rejected.
5. Demand Not Hit by Limitation: Confirmed.
6. Interest Chargeability: Not chargeable.
7. Penalty: Reduced to Rs. 20,000.