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TMI Blog2013 (1) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... nces. It is on this basis that two show cause notices dated 4/12/95 and 22/7/96 were issued to the appellant for demand of duty in respect of clearances of soft cotton waste during period from 1/5/95 to 30/7/95 and 16/3/95 to 30/1/95 and also for imposition of penalty. Both the show cause notices were adjudicated by the Commissioner vide order-in-original No. 128-129/Commr/CEX/1997 dated 5/5/97 by which the duty demands of Rs.15,02,211/- and Rs.7,21,739/- were confirmed against the appellant and penalty of Rs. 5,00,000/- and Rs. 2,50,000/- respectively was imposed on the appellant company under Rule 173Q and 226 of the Central Excise Rules, 1944. The order, besides duty, also sought recovery of interest on duty under Section 11AB. 1.2 On appeals to Tribunal against the above order, the Tribunal vide Final order No. 227-228/2000-D dated 19/7/2000 upheld the Commissioner's order except for reduction of penalty. 1.3 The appellant filed appeal to Hon'ble Supreme Court against the Tribunal's order dated 19/7/2000 and the Apex Court vide judgment dated 22/9/06 reported in 2006 (202) E.L.T. 385 (S.C.) set aside the Tribunal's order and remanded to the Tribunal for denovo decision after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processes and various changes in the raw material at different stages. Manufacture would occur at the point where the changes take the product to a point that commercially, it cannot be regarded as the original commodity, but, instead, recognised as a new distinct article. The decision of this Court in J.G. Glass Industries [1998 (97) E.L.T. 5 (S.C.)] is relied on in support. 10. The scope of the expanded definition of manufacture has been considered in the decision in Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur [2004 (174) E.L.T. 145 (S.C.)] -The appellate authority has essentially proceeded on the amendment to the schedule and inclusion of cotton waste therein and the admission of the representative of the appellant that subsequent to the inclusion in the schedule, cotton waste is taxable. It appears to us that the question whether cotton waste is dutiable as a manufactured product requires to be reconsidered by the Tribunal in the light of the various decisions of this Court brought to our notice and which may hereafter be brought to the notice of the Tribunal. The argument that it was only after the process of manufacture has started that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the Tribunal held the issue arising for consideration in favour of the assessee and against the appellant herein. However, while doing so, the issue with regard to limitation which was raised by the respondent herein was not decided as the Tribunal went into the merits and decided in favour of the respondents. But the counsel for the appellant has drawn our attention to the decision of this Court in Commissioner of Safes Tax, Bombay v. Bharat Petroleum Corpn. Ltd., reported in 1995 (77) E.L.T. 790 (S.C.) wherein it was held by this Court as follows: "....... other point is whether the assessee can be said to manufacture "acid sludge" and "cotton waste" respectively. It is suggested for the State that the assessees are purchasing acid and cotton for the manufacture of kerosene and yarn/cloth respectively and it is ludicrous to suggest that the assessees are purchasing sulphuric acid and cotton for manufacturing acid sludge and cotton waste. Put like that the assessee's contention seems a little artificial. But the contention is not really absurd. For, the assessees do purchase sulphuric acid and cotton for use in a manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the impugned judgment and order passed by the Tribunal is required to be set aside and sent back to the Tribunal, for the purposes of giving its decision on all the issues like limitation raised and mentioned in paragraph 11 of the impugned judgment and order and also to give decision on merits after noticing and appreciating the aforesaid decisions which have been relied upon before us. The Tribunal may hear the parties and render its decision by giving reasons for it as expeditiously as possible. 7. In terms of the aforesaid observation, the appeals stand disposed of, by setting aside the impugned judgment and remitting it to the Tribunal for fresh consideration in accordance with law." 1.6 In pursuance of the above directions of the Apex Court this matter was taken up for fresh consideration. 2. Heard both the sides. 3. Shri Ajay Agarwal, Advocate, the learned Counsel for the appellant, pleaded that soft cotton waste, in question, emerges in course of subjecting the ginned cotton to the processes of cording and combining before being spun into yarn, that the soft cotton waste emerging at the stage of cording and combing of cotton is nothing bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the second show cause notice dated 22/7/96 for demand of duty for period from 1/5/95 to 30/7/95 is time barred, thus even on limitation, the Department has no case, and that in view of this, the impugned order is not correct. 4. Shri Bharat Bhushan, the learned SDR, defended the impugned order reiterating the findings of the Commissioner in the impugned order pleaded that during the period of dispute, 'soft cotton waste' was specifically covered by heading 52.02 of the Central Excise Tariff, that Apex Court in case of CCE, Ludhiana vs. Aarti International Ltd. reported in 2004 (167) E.L.T. 348 (Tri - Del.) has held that cotton waste is covered under heading 5202 of Central Excise Tariff and hence the same is excisable goods, that in terms of Apex Court's judgment in case of CST vs. BPCL (supra) when a subsidiary product is turned out regularly and continuously in course of manufacturing business and is also sold regularly, there may be attributed an intention to the manufacturer to manufacture and sell not merely the main items but also the subsidiary item and, hence, in this case, soft cotton waste has to be treated as a manufactured product and since it is covered by heading 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted in 2006 (203) E.LT. 3 (S.C.) and CCE, Patna vs. Tata Iron and Steel Co. Ltd. reported in 2004 (165) E.L.T. 386 (S.C), has held that the "goods" must be a marketable commodity. 5.2 Thus for deciding the question as to whether the DTA clearances of 'soft cotton waste' would attract duty under proviso to Section 3 (1) of Central Excise Act, 1944, three points have to be decided - (1) whether soft cotton waste has emerged as a result of a manufacturing process? (2) whether it is covered by some entry in Central excise tariff as being subject to duty? (3) whether soft cotton waste is a marketable commodity - know or traded commerce as a commodity which is brought and sold. 5.2.2 During the period of dispute i.e. w.e.f. 16/3/95 heading 5202 covered - "cotton waste (including yarn waste and garneted stock)". Heading 5202 of Central Excise Tariff is identical to HSN heading 5202 and hence HSN explanatory notes would be a good guide in understanding the scope of heading 5202 of Central Excise tariff. As per HSN explanatory notes to this heading, the same includes - combing waste, usually referred to as comber noils, stoppin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other waste product while ginning cotton. We are of the view that it is this judgment of the Apex Court which is applicable to the facts of this case as it directly answers the question as to whether 'cotton waste' is essentially an inferior quality of cotton or is something totally different from the unprocessed cotton with different character and usages. 6.2 As regards the judgment of Hon'ble Supreme Court in case of Commissioner of Sales Tax, Bombay vs. BPLC and others reported in 1995 (77) E.L.T. 790 (S.C.), Bombay Sales Tax Act 1959 provided for set off of the sales tax paid in respect of certain specified goods purchased by a manufacturing dealer and used within the state in the manufacture of taxable goods sold by him The term "manufacture" was defined in Section 2 (17) of the Bombay Sales Tax Act as - "manufacture with all its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing or otherwise treating or adopting any goods, but does not include such manufactures or manufacturing processes as may be prescribed. 6.2.1 The dispute in case of BPCL was as to whether they would be eligible for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... austive definition of manufacture, while the definition of this term in Section 2 (f) of Central Excise Act, 1944 is an inclusive definition which without precisely defining the term 'manufacture', simply enumerates the processes which also would be treated as manufacture. The term - "manufacture" in Section 2 (f), as interpreted by Apex Court in a series of judgment means a process which results in emergence of a commercially new product with distinct identity, usages and character from the raw material. In the present case the question as to whether 'soft cotton waste' obtained in course of carding and combing of ginned cotton is the end product of a process of manufacture has to be answered by applying the above criteria. The judgment of the Apex Court in case of BPCL and others (supra) is therefore not applicable to this case. The question as to whether 'soft cotton waste' obtained in course of carding and combing of ginned cotton is a commercially new product with character and usages different from ginned cotton, is in our view stands answered by the Apex Court's judgment in case of Modi Spinning and Weaving Mills Co. Ltd, vs. State of U.P. (supra) wherein it was held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It appears that subsequently the department again had doubt as to whether the DTA clearance of soft cotton waste would attract duty or not. In this factual background, it is absolutely clear that the Department was aware of the fact about emergence of soft cotton waste in course of manufacture of cotton yarn from ginned cotton and clearance of soft cotton waste into DTA. Therefore if according to the department with changes in tariff structure of Chapter 52 by introducing a new heading 5202 for cotton waste w.e.f. 16/3/95, the position with regard to duty on DTA clearance of soft cotton waste changed, the department should have advised the appellant accordingly and even if it is held that w.e.f. 16/3/95 the DTA clearance of soft cotton waste attracted duty, the non-payment of duty cannot be attributed to fraud, wilful misstatement, suppression of facts on contravention of provision of Rules with intent to evade the payment of duty. We, therefore, hold that in respect of both the show cause notices only normal limitation period would be available. Thus the entire duty demand raised vide show cause notice dated 22/7/96 and bulk of the duty demand raised vide show cause notice dated 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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