M/S. MATHANIA FABRICSversusCOMMNR. OF CENTRAL EXCISE, JAIPUR

                         [2008] 1 S.C.R. 58


A                   MIS. MATHANIA FABRICS
                                                                       ,•   .
                                 v.
           COMMNR. OF CENTRAL EXCISE, JAIPUR
                 (C.A. No. 5398 of 2002)
                        JANUARY 4, 2008
B
           [DR. ARIJIT PASAYAT AND D.K. JAIN, JJ.]

         Central Excise Act, 1944/Central Excises and Salt Act,
  1944 - ss. - 11 A - Excise duty - Exemption from - By
c Notifications - To cotton fabrics processed without the aid of
  power - Two assesses admittedly using power for mixing of
  chemicals, lifting of water and pouring in the bleaching tanks
  and kiers - Exemption denied and duty levied invoking
  extended period of limitation - Tribunal upholding the case of
  Revenue - In case of one assessee Tribunal reduced the
D
  penalty amount - Held: Exemption rightly denied - Power was
  used by the assesses for the process undertaken by them -
  Invocation of extended period of limitation is permissible in
  respect of the assessee in whose case Tribunal reduced the
  penalty amount - In the other case invoking of the limitation
E period is permissible only five years backward from the date
  of second show cause notice - Notification Nos. 173177 dated
  18.6.1977, 130182-CE dated 20.4.1982, 28194-CE dated
  1. 3. 1994, 8196-CE dated 23. 7. 1996, 5199 dated 1. 3. 1999 and
  35199 dated 4.8.1999 - Central Excise Tariff Act, 1985 -
F Chapter 52.
                                                                     '-.
       In Civil Appeal No. 1856 of 2005, appellant-assessees
  were en~1aged in processing of cotton fabrics. They were
  undertaking the process of bleaching, mercerizing,
  dyeing, priitting, washing, dying of the fabrics. They
G
  claimed exemption from duty granted to 'cotton fabrics'
  processed without the aid of power, under Notification
  Nos. 28194-CE dated 1.3.1994, 8196-CE dated 23.7.1996 and
  5/99 dated 1.3.1999. However, they admitted to have used
  the power for certain ancillary areas such as mixing of
H                                58
          M/S. MATHANIA FABRICS v. COMMNR. OF CENTRAL            59
                         EXCISE, JAIPUR
    ~.   chemicals etc. In view of use of power, Revenue denied A
         the benefit of exemption. Duty was levied invoking
         extended period of limitation u/s 11-A. Customs, Excise
         and Service Tax Appellate Tribunal upheld the case of
         Revenue.
              In Civil Appeal No. 5398 of 2002, appellants-assessee B
         were engaged in bleaching of cotton fabrics without the
>
         aid of power. They were availing exemption under
         Notification No. 173/77 dated 18.6.1977 as amended by
         notification No. 130/82-CE dated 20.4.1982. During a visit
         to the factory premises, Revenue found that in the process c
         of bleaching, power was being used for lifting water from
         undergr9und tanks and pouring water in the bleaching
                                                                        '
         tanks and kiers. Show cause notice was issued in 1986
         denying the exemption, for the period 14.12.1980 to
         15.12.1985. The proceedings therein were set aside in D
         appeal on the ground that the order was without the
         authority of law in view of amended Section 11 A of Central
         Excises and Salt Act, 1944. In 1989 fresh show cause
         notice was issued without mentioning about the first
         notice. Revenue denied the exemption in view of the use E
         of power and levied duty invoking extended period of
         limitation. Plea of the assessee was that no power was
         used in the process. Customs Excise and Gold Control
         Appellate Tribunal held that the assessee was not entitled
         to benefit of exemption as the process was being carried
_j
                                                                     Fi
         out with the aid of power. Hence the present appeal.
              Dismissing Civil Appeal No. 1856 of 2005 and partly
         allowing Civil Appeal No. 5398 of 2002, the Court
               HELD: 1. The appeal No. 1856 of 2005 is without merit.
         Use of power in the operation of stirrer and electric motor G
         for lifting water and caustic soda would amount to
~
         manufacture with the aid of power. The letter of
         Commissioner of Central Excise dated 10.1.1999 on which
         reliance is placed by the assessee to contend that there
         was doubt about the nature of the process involved, is H
    60         SUPREME COURT REPORTS              [2008] 1 S.C.R.


A significant. It is not known under what circumstances the .,.
  letter was written. The stand of the assessee about the
  applicability of Section 11A was held to be untenable by
  the Tribunal. It is to be noted that the penalty amounts
  were equivalent to the extra demand raised but the
B Tribunal has reduced to it to Rs.25,00,000/-. [Para 7] [63-
    D, E, F]
        JK. Cotton Spg. Wvg. Mills Co. Ltd. v. Sales Tax officer,   "
    Kanpur 1997 (91) ELT 34 SC; CCE, v. Rajasthan State              ·
    Chemical Works 1991 (55) ELT 444 SC - referred to.
c
        2. Factually, in civil appeal No. 5398 of 2002, the stand
  of the assessee that there was no use of power, is
  unsustainable. Coming to the period of limitation, the five
  years period has to be reckoned backward from the date
D when the second show cause notice was issued. In the
  show cause notice reply, there was no reference to the
  Notice issued in 1986. The Commissioner shall work out
  the liability and the penalty amount has to be equivalent
  to the amount of tax demand. [Paras 8 and 9] [63-G, H;
E 64-E]
         CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5398
    of 2002.
       From the final Judgment and Order No.73/2002-D dated
  4.4.2002 of the Customs, Excise & Gold (Control) Appellate
F Tribunal, New Delhi in E/Appeal No. 1982/2001-D.
                               WITH
         C.A. No.1856/2005
         Meenakshi Arora for the Appellant in C.A. No. 5398/2002.
G
       A.R. Madhav Rao, Alok Yadav, Tarun Jain and Rajesh           ~
    Kumar for the Appellant in C.A. No. 1856/2005.
       Mathai M. Paikeday, Ajay Sharma, Shishir Pinaki and B.
H Krishna Prasad for the Respondent.
        M/S. MATHANIA FABRICS v. COMMNR. OF CENTRAL                  61
                 EXCISE, JAIPUR [PASAYAT, J.]

            The Judgment of the Court was delivered by                     A
            Dr. ARIJIT PASAYAT, J. 1. These two appeals involve ·
       identical questions and are, therefore, disposed of by this
       common judgment. Appeals are directed against the orders
       passed by the Customs, Excise and Service Tax Appellate
       Tribunal, New Delhi (in short the' 'CESTAT') and Customs, B
       Excise & Gold Control Appellate Tribunal, New Delhi (in short
       the 'CEGAT'). The appeals filed by the appellants were
       dismissed by CESTAT holding that they were not entitled to
       benefit of concerned notifications. In case of appellant M/s Vimal
       Textile Mills, the concerned Notifications were Notification C
       No.28/94-CE dated 1.3.1994 the Notification No.8/96-CE dated
       23. 7.1996 and its successor Notifications. CESTAT denied the
       benefit relying on a larger Bench's decision in the case of Mis
       Mathania Fabrics v. Commissioner of Central Excise, Jaipur
       [2002 (142) ELT 49 LB]. Same is the subjeCt matter of challenge· D
       in C.A.No.5398 of 2002 .
.,.-        2. Background facts in a nutshell are as follows:
              Appellants are engaged in the processing of cotton fabrics
       falling under Chapter 52. They claimed to be undertaking the        E
       processes of bleaching, mercerising, dyeing, printing, washing,
       drying and finishing before the fabrics were packed and cleared.
            Note 3 to Chapter 52 reads as follows:
            "In relation to the manufacture of products of Heading Nos.    F
            52.07, 52.08 and 52.09, bleaching, mercersing, dyeing,
            printing, water proofing, shrink-proofing, organdie process
            or any other process or any one or more of these
            processes shall amount to manufacture."
             3. In Civil Appeal No.1856 of 2005 the stand taken by the G
       appellants was that they were not using power in the processing
~      of the fabrics and, therefore, the benefit which they were earlier
       availing was available. They had not used any power while
       undertaking the activities of bleaching, mercersing, dyeing,
       printing, washing, drying and finishing before the fabrics were H
    62         SUPREME COURT REPORTS                 [2008) 1 S.C.R.


A packed and cleared. It was further submitted that the Notification    >
  No.5/99 was amended by Notification No.35/99-CE dated
  28.8.99 and the same was applicable retrospectively and the
  Explanation below serial No.102 of Notification No.5/99 was
  substituted as under:
B           "Explanation- For the purposes of this exemption,
         cotton fabrics subjected to any one or more of the following
         processes with the aid of power, shall be deemed to have       J
         bE~en processed without the aid of power or steam,
         namely:-
c        (a)   lifting to overhead tanks or emptying in underground
               tanks handling of chemicals such as acids, chlorine,
               caustic soda."
       4. It was, therefore, submitted that there was doubt about
D the applicable provisions and, therefore, Section 11A of the
  Central Excise Act, 1944 (in short the 'Act') was not applicable.
        5. Stand of the Revenue on the other hand was that the
  amendment to the Notification was not retrospective and in effect
  it substituted the explanation. Reference was also made to the
E Explanation by Notification No.35/99-CE dated 4th August, 1999
  which reads as follows:
         "Explanation - For the purpose of this exemption, cotton
         fabrics subjected to any one or more of the following
         processes with the aid of power, shall be deemed to have
F                                                                       ~    •
         been processed without the aid of power or steam namely:
         chemicals for lifting the water and for drying the fabrics
         does not amount to use of power in the processing of
         cotton fabrics."
G        6. CESTAT held that there was nothing in the Notification
    dated 4.8.99 to suggest that the amendment carried out was to
    be given retrospective effect. It was held that factually the       J.
    adjudicating authority had found that power had been used.
      7. Appellants took the stand that the processes undertaken
H amounted to manufacture but for the deemed definition of
      M/S. MATHANIA FABRICS v. COMMNR. OF CENTRAL                       63
               EXCISE, JAIPUR [PASAYAT, J.]

     manufacture as noted above the processes undertaken by the               A
     appellants would not amount to manufacture. In respect of the
     above processes undertaken by the appellant and no power
     was used. Appellants claimed benefit of exemption granted to
     "cotton fabrics processed without the aid of power''. Appellants
     took the stand that since they had not used the power in respect         s
     of the above processes, the benefit was available. They
     submitted that the use of power was only in certain ancillary and
"I   incidental areas such as mixing of chemicals etc. and therefore
     the benefit could not have been denied. Department denied the
     benefit on the ground that there was use of power and the view           C
     was found by the tribunal. In any event it was submitted that when
     the position in law was not clear and the authorities had to issue
     clarification, Section 11A of Act cannot be invoked. Tribunal after
     referring to the definition of manufacture under Section 2(f) of
     the Act and the decisions of this Court in J. K. Cotton Spg. Wvg.
     Mills Co. Ltd. v. Sales Tax officer, Kanpur [1997(91) ELT 34             D
     SC] and CCE, v. Rajasthan State Chemical Works [1991 (55)
     ELT 444 SC] held that the use of power in the operation of stirrer
     and electric motor for lifting water and caustic soda would amount
     to manufacture with the aid of power. In view of the decision of
     this Court in Rajasthan State Chemicals Works case (supra)               E
     the stand about the applicability of Section 11A was held to be
     untenable. It held that the period involved was subsequent to
     the decision. Strong reliance is placed on a letter of
     Commissioner of Central Excise dated 10.1.1999, to contend
     that there was doubt about the nature of the process involved.           F
     Said letter is significant. In view of this Court's decision it is not
     known under what circumstances the letter was written. It is to
     be noted that the penalty amounts were equivalent to the extra
     demand raised but the Tribunal has reduced it to Rs.25,00,000/
     -. Therefore, the appeal No. 1856 of 2005 is clearly without merit       G
     and we dismiss it.
          8. So far as Civil Appeal No. 5398 of 2002 is concerned,
     the period involved is 14.12.1980 to 15.12.1985 when the first
     notice was issued on 9.12.1986. It appears that in the show
     cause notice reply there was no reference to this aspect. So far         H
    64       SUPREME COURT REPORTS                   [2008] 1 S.C.R.


A   merit is concerned, the plea was that there is no aid of power      7
    used. It is to be noted that in paragraph 9 of the order, CEGAT
    observed as follows:

         "If pumping of brine into salt pans and lifting of coke and
         lime stone to the platform with the aid of power can be
B        treated as part of the continuous process of manufacture,
         there is no reason to hold otherwise when power is used
         for lifting water and pouring the same in the kier and
         bleaching vessel. It is not the case of the assessee that
         water is not an essential ingredient for the process of
c        kiering and bleaching. The pouring of water into kier and
         bleaching vessel are steps integrally connected with the
         whole process. We, therefore, hold that the appellant is
         not entitled to claim the benefit of Notification No. 173/77
         dated 18.6.77 as amended by Notification No. 130/82
D        CE dated 20.4.82 as part of the process was being carried
         out with the use of power."

        9. Therefore, factually the stand that there was no use of          ...
  power is unsustainable. Coming to the period of limitation the
E five years period has to be reckoned backward from 8.2.1989
  when the show cause notice was issued. The Commissioner
  shall work out the liability and the penalty amount has to be
  equivalent to the amount of tax demand.

         10. The appeal is allowed to the aforesaid extent. No
F   costs.
    K.K.T.             Civil Appeal No. 1856 of 2005 dismissed.
                              CA No. 5398 of 2002 partly allowed.