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TMI Blog2009 (6) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 from duty paid inputs falling under Heading 55.01 of the Central Excise Tariff Act, 1985 ("CET" for short) is entitled to the exemption under Notification No.30/2004 dated 9/7/2004 is the basic question raised in this petition. 2. According to the revenue, serial No.10 of the Notification No.30/2004 specifically provides that the inputs used in the manufacture of goods falling under Heading 55.06 must be "staple fibres" and therefore the exemption is available only if the inputs used are 'staple fibres' falling under Heading 55.03 and the exemption would not be available if the inputs used are goods falling under Heading 55.01. 3. According to the petitioners, the Notification No.30/2004 read with the new tax regime for the Textile sector announced by the Hon'ble Finance Minister on 8/7/2004 clearly shows that the exemption is not restricted to the duty paid inputs falling under Heading 55.03 but it is also applicable to the duty paid inputs falling under Heading 55.01. 4. The petitioners contend that, if the argument of the revenue that the term 'staple fibres' in serial No.10 of the Notification No.30/04 applies only to the "staple fibres" falling under Heading 55.03 is acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Tow' of a length exceeding 2 metre (covered under Heading 55.01) by a process known as 'tow to top process'. By notification No.30/04, excise duty on tops was exempted provided the inputs used in the manufacture of tops were staple fibres procured from outside and the manufacturer of tops does not have the facility to manufacture goods falling under Heading 55.01 to 55.04 of the CET. Dispute in the present case is, whether the petitioners who have manufactured tops from duty paid inputs falling under Heading 55.01 are entitled to the exemption contained in Notification No. 30/04? 8. Under the CET, excise duty on man-made synthetic staple fibres is payable at three stages specified in Chapter 55 of the CET as follows :- Heading No. Subheading No. Description Rate of duty Rate of duty Basic Additional 55.01 Synthetic Filament tow 16% 55.03 Synthetic staple fibres, not carded, combed or otherwise processed for spinning 16% 55.06 Synthetic staple fibres, carded, combed or otherwise processed for spinning 16% 9. With the introduction of the Modvat Scheme in the year 1986, the manufacturers became entitled to avail credit of duty paid on inputs. For example, where du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tton, wool and silk, whether it is fibre, yarn, fabric or garment. Thirdly, blended textiles and pure non-cotton (polyester, viscose, acrylic and nylon) will have a different tax regime. Fourthly,there will be a mandatory excise duty on man-made staple fibre at 16 per cent; on polyester filament yarn (including textured yarn) at 24 per cent; and on other man-made filament yarn (including textured yarn) at 16 per cent. 145. Every manufacture - be it handloom or powerloom or composite mill - will have the option to choose between two routes. One will be the exemption route and the other will be the Cenvat route. Under the exemption route, no excise duty will be payable at any stage (except on man-made fibre and filament yarn). Under the Cenvat route, credit can be taken for all excise duties paid at earlier stages. For the purposes of the optional Cenvat route, it is necessary to specify in the Tariff schedule the applicable excise duty rates. For the pure cotton sector, the uniform rate will be 4 per cent on yarn, fabrics, garments and made-ups. For the blended textiles sector and pure noncotton sector, the uniform rate will be 8 per cent. 146. It is my firm belief that the mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt if no credit of duties is taken under the Cenvat Credit Rules." In the concluding para of the aforesaid letter dated 8-7-2004, the Joint Secretary (TRU) stated as follows : "10. All rate changes in customs and excise duties are explained in detail in the Explanatory Notes. You would appreciate that number of changes have been carried out through amendments in notifications, rules and Acts. Though every care has been taken to reflect the intention of the Government clearly in all these documents, the chances of human error cannot be ruled out. I would, therefore, request you to kindly go through the explanatory notes, notifications and Finance Bill carefully and bring to my notice at the earliest any omission / error that might have crept in. ................" 12. In the Explanatory Notes to the budget proposals, the new tax regime for the textile sector was explained as follows:- "14.0 Chapters 50 to 63 (Textiles) 14.1 Polyester filament yarns, including polyester textured yarns (of sub-headings 5402.20, 5402.32, 5402.42 and 5402.43) would continue to attract Cenvat duty of 24%. Cenvat duty on other synthetic and artificial filament yarns and mono filaments including tex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty under the new tax regime. 15. The petitioners had opted to follow the exemption method. Accordingly, from 9/7/2004 the petitioners had cleared 'Tops' falling under Heading 55.06 manufactured from duty paid 'Tow' falling under Heading 55.01 without payment of duty, on the ground that under the new tax regime read with Notification No. 30/04 no excise duty was payable on tops manufactured from 16% excise duty paid tow. The petitioners contend that these facts are reflected in the monthly ER-1 returns regularly filed by them from 9/7/2004. 16. However, almost after four years, i.e. in March 2008, the excise officers on the basis of audit objection raised a dispute to the effect that the exemption Notification No.30/04 is available only if the polyester tops are manufactured by procuring from outside duty paid staple fibres falling under Heading 55.03. Since the petitioners had manufactured tops by procuring duty paid 'Tow' and not duty paid 'staple fibres' covered under Heading 55.03, it was contended by the excise officers that the petitioners had illegally availed the exemption. In April 2008, pending investigation and adjudication, the excise officers had also seized the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el on both sides submitted that irrespective of the fact that the appeal filed against the adjudication order is pending, it would be just and proper to decide the Writ Petition on merits since the dispute relates to the interpretation of the term 'staple fibres' used in serial No.10 of Notification No. 30/04. Accordingly, we have heard Counsel on both sides. 23. Before dealing with the rival contentions, we may reproduce the Notification No.30/04 in full which reads thus:- "Notification New Delhi, dated the 9th July, 2004 No.30/2004-Central Excise 18 Asadha,1926 (Saka) G.S.R.(E) - In exercise of the powers conferred by sub-section (1)of section 5A of the Central Excise Act, 1944 (1 of 1944) read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue)No.07/2003-Central Excise dated the 1st March 2003, published in the Gazette of India vide number G.S.R.137(E), dated 1st March 2003, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, filament tows or staple fibres' means manufacture of filaments or staple fibres of organic polymers produced by processes, either; (a) by polymerization of organic monomers, such as polyamides, polyesters, polyurethanes, or polyvinyl derivatives; or (b) by chemical transformation of natural organic polymers (for example cellulose,casein, proteins or algae), such as viscose rayon, cellulose acetate, cupro or alginates. 9 55.08, 55.09, 55.10, 55.11, 55.12, 55.13, 55.14 All goods 10 55.06, 55.07 Staple fibres procured from outside and subjected to carding, combing or any other process required for spinning, by a manufacturer who does not have the facilities in his factory (including plant and equipment) for producing goods of heading Nos.55.01, 55.02, 55.03 and 55.04. 11 56 (except 5601.10, 5607.10, 5608.11) All goods. 12 5702.19, 5703.90 All goods. 13 58 (except 5804.90, 5805.90, 58.07, 5808.10) All goods. 14 59(except 5907.30) All goods. 15 60 All goods. 16 61, 62, 63 (except 307.10) All goods. [F.No.334/3/2004-TRU] (G.S. Karki) Under Secretary to the Government of India" 24. Mr. Sridharan, learned counsel appearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable term and therefore the term 'staple fibre' n the Notification No. 30/04 would apply to fibre falling under Heading 5.01 as well as staple fibre falling under Heading 55.03. (b) Even in the Explanatory Notes to the budget proposals [see para 14 (2)], tow and staple fibres have been considered as fibres. Therefore, the term 'staple fibre' at serial No.10 of Notification No. 30/04 are liable to be construed to apply to fibres falling under Heading 55.03 and 55.01. (c) As per the new tax regime the mandatory excise duty at 16% is payable on the man-made staple fibres. Since excise duty on the synthetic staple fibre under the CET is payable at three stages viz. 55.01, 55.03 and 55.06, it is evident that the mandatory duty has to be paid either at the stage of 55.01 or 55.03 & 55.06. Therefore, if 16% duty paid fibres falling under Heading 55.01 are used as inputs in the manufacture of fibres falling under Heading 55.06, then as per the new tax regime no excise duty is payable on fibres falling under Heading 55.06. Similarly if 16% duty paid inputs falling under Heading 55.03 are used in the manufacture of fibres falling under Heading 55.06, then no excise duty would be payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t emerging from the tow to top process is admittedly 'synthetic staple fibres carded, combed or otherwise processed for spinning' specified under Heading 55.06, then, obviously the 'tow' used as inputs, would be synthetic staple fibres which are uncarded, uncombed or otherwise not processed for spinning. In other words, 'tow' (55.01) which is nothing but uncarded, uncombed or otherwise unprocessed synthetic staple fibre would be squarely covered by the term 'staple fibres' used at serial No.10 of Notification No. 30/04. (f) Relying on the judgment of the Apex Court in the case of R.B.I. V/s. Peerless General Finance & Investment Co. Ltd. reported in (1987) 1 S.C.C. 42, it is contended that Notification should be looked at by wearing the glasses of statute makers and so looked at, it would be clear that the exemption on manufacture of goods covered under 55.06 is not restricted to the duty paid inputs falling under Heading 55.03 and the exemption is available where duty paid inputs falling under heading 55.01 are used in the manufacture of goods falling under Heading 55.01. Reliance is also placed on the decision of the Apex Court in the case of State of Bihar V/s. Suprabhat Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature has deliberately used the word 'staple fibre' and not merely 'fibre' at Sr. No.10 of the Notification with a view to restrict the grant of exemption. He submitted that no doubt, the word 'fibre' would include 'Tow' as well as 'staple fibre'. However, as the legislature has deliberately chosen the word 'staple fibre', it is clear that unless the starting raw material is 'staple fibre', the exemption is not available. In the present case, admittedly the process had not commenced with staple fibre as raw material, and therefore, the benefit of the exemption would not be available to the petitioners. 30. Mr.Sethna submitted that in the tow to top process adopted by the petitioners, the initial raw material viz. 'tow' does result in the emergence of unprocessed staple fibre falling under Heading 55.03 which is thereafter converted into processed staple fibre falling under Heading 55.06. Even then the exemption would not be available to the petitioners because, the 'unprocessed staple fibre' is not procured from outside which is a condition to be fulfilled for availing the exemption. 31. Relying on the decisions of the Apex Court in the case of Hemraj Gordhandas V/s. H.H. Dave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g under Heading 55.06. Therefore, it is clear that in the present case, staple fibre emerges as an intermediate product within the factory and it being not procured from outside as provided in the Notification, the benefit of the exemption is not available to the petitioners. 33. Mr.Sethna submitted that admittedly the processed staple fibre (55.06) is manufactured by the petitioners from tow of higher quality because the processed staple fibre is thereafter blended with polywool which is a much costlier blended commodity. He submitted that the Notification is intended to benefit the conventional producers in the hand loom and power loom sector who procure from outside 98% of the tow converted into unprocessed staple fibres and not intended to benefit the manufacturers like petitioners and six others who procure from outside 'tow' of a length exceeding 2 metres. 34. Dealing with the argument of the petitioners that Chapter 55 deals with 'man-made staple fibre', Mr.Sethna submitted that in the General rules for interpretation of the first schedule to the Excise Tariff it is clearly stated that the titles of sections, chapters and sub-chapters are provided for easy reference only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No.30/04 was issued in implementation of the new tax regime. 39. The next question to be considered is, what was the new tax regime for the textile sector announced by the Hon'ble Finance Minister on 8-7-2004 ? 40. Prior to the introduction of the new tax regime, excise duty payable on the textile goods were enumerated in Chapters 50 to 63 of the CET. The dispute in the present case relates to the excise duty on manmade staple fibres covered under Chapter 55 of the CET. 41. Man-made staple fibres in Chapter 55 of the CET were classified into two categories viz. Synthetic staple fibres and artificial staple fibres. Excise duty payable on these two types of staple fibres from the stage of manufacture of filament tow upto the stage of woven fabrics were enumerated in chapter Headings 55.01 to 55.14 of Chapter 55. 42. Excise duty on synthetic staple fibres were leviable at three stages under Heading 55.01 (synthetic filament tow), 55.03 (unprocessed synthetic staple fibre) and 55.06 (processed synthetic staple fibre). Similarly, the excise duty on artificial staple fibres were leviable at three stages viz 55.02 (artificial filament tow), 55.04 (unprocessed artificial staple fibre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metre, then, it is classified under Heading 55.03 / 55.04. In such a case, mandatory excise duty at 16% is payable on clearance of tow of a length less than 2 metre (55.03 /55.04). Where mandatory duty paid tow of a length exceeding 2 metre (55.01 / 55.02) or tow of a length less than 2 metre (55.03 / 55.04) is converted in to processed staple fibres (Tops) falling under Heading 55.06 /55.07, under the new tax regime, no excise duty would be payable on clearance of Tops (55.06 / 55.07). Therefore, serial No.10 of the Notification No.30/04 provides that excise duty on manufacture and clearance of goods falling under Heading 55.06 / 55.07 would be exempt provided the inputs used are firstly procured from outside and secondly, the manufacturer of goods falling under Heading 55.06 / 55.07 does not have the facility to manufacture inputs falling under Heading 55.01 to 55.04. 47. In the present case, it is not in dispute that the processed synthetic staple fibres / Tops (55.06) were manufactured by the petitioners by utilizing 16% duty paid 'tow' (55.01) procured from outside. It is also not in dispute that the petitioners do not have the facility to manufacture goods falling under Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T classifies Tow under Headings 55.01 / 55.02 or 55.03 / 55.04 based on the length of the tow. In view of Chapter Note 1 to Chapter 55, tow of a length exceeding 2 metre are classified under Heading 55.01 / 55.02 and tow of a length not exceeding 2 metre are classified under Heading 55.03 / 55.04 as 'staple fibres not carded, combed or otherwise processed for spinning'. However, both these products are covered under Chapter 55 titled as 'man-made staple fibres'. In the General Rules for the interpretation of the First Schedule to the CET, it is stated that the titles to the Chapters are provided for easy reference only. If for easy reference, the 'chapter 55' man-made staple fibres' applies to Tow (55.01 / 55.02) as well as unprocessed staple fibre (55.03 / 55.04), then, for the same reason the term 'staple fibre' in the Notification No.30/04 would apply to 'tow and unprocessed staple fibre' covered under Headings 55.01 to 55.04. In other words, for broad classification purposes if the Legislature has considered the term 'staple fibre' to include tow and 40 W.P.2931/08Judgment unprocessed staple fibre, then, in the absence of any intention to the contrary, the same broad meaning ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to construe that the term 'staple fibre' in the Notification No.30/04 applies only to the uncarded / uncombed staple fibre (55.03 / 55.04) would be contrary to the express words used in the Notification. 54. Apart from the above, the Notification No.30/04 specifically provides that the exemption would not be available to a manufacture of goods falling under Heading 55.06 / 55.07 having facility to manufacture inputs falling under Heading 55.01, 55.02, 55.03 & 55.04, which clearly shows that the term 'staple fibre' is intended to refer to inputs falling under Heading 55.01, 55.02, 55.03 & 55.04. If the term 'staple fibre' was intended to apply only to the staple fibre falling under Heading 55.03 / 55.04, then there was not need to refer to the goods falling under Headings 55.01, 55.02, 55.03 & 55.04 in the Notification. Therefore, it is clear that since the goods falling under Heading 55.01 to 55.04 are the inputs in the manufacture of goods falling under Heading 55.06 / 55.07, the legislature has provided that the manufacturer of goods falling under Heading 55.06 / 55.07 must not have the facility to manufacture inputs falling under Heading 55.01 to 55.04. The reason being that un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly means that the Legislature intended to give larger meaning to the term 'staple fibre' instead of giving a restricted meaning. Therefore, in the absence of any indication to the contrary, it would not be proper to restrict the meaning of the term 'staple fibre' to 'staple fibre falling under Heading 55.03 / 55.04'. 57. The contention of the revenue that the Notification No.30/04 is intended to benefit the hand loom and power loom sector who procure 98% of the raw materials falling under Heading 55.03 / 55.04 and is not intended to benefit the composite mills who procure 2% of the raw materials falling under Heading 55.01 / 55.02, is also without any merit, because, firstly nowhere in the Notification No.30/04 it is stated that the exemption is meant for the benefit of the hand loom and power loom sector who procure from outside duty paid staple fibres falling under Heading 55.03 / 55.04. Secondly, even the Hon'ble Finance Minister, while explaining the new tax regime has specifically stated that the new tax regime would benefit not only the hand loom and power loom sector but also benefit the composite mills. 58. It is contended on behalf of the revenue that the Finance Ministe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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