Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-003405-003407 – 2012 |
| Diary Number | 5839/2012 |
| Judge Name | HON’BLE MR. JUSTICE ATUL S. CHANDURKAR |
| Bench |
HON’BLE MR. JUSTICE PAMIDIGHANTAM SRI NARASIMHA HON’BLE MR. JUSTICE ATUL S. CHANDURKAR |
| Precedent Value | Binding authority |
| Affirms | Established tests in Standard Fireworks Industries and Collector of Central Excise, Jaipur |
| Type of Law | Central excise / tax law |
| Questions of Law |
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| Ratio Decidendi | The Court held that “manufacture” under Section 2(f) of the Act includes all processes—incidental or ancillary—that are integrally connected and essential to convert raw material to the final product. An exemption under Entry 106 (cotton fabrics processed without the aid of power) is unavailable if any step in that chain uses power, even if different units perform discrete operations. CESTAT erred in bifurcating the continuous process between Unit 1 and Unit 2. The Order-in-Original was correctly restored. |
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
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| Facts as Summarised by the Court | Two adjoining partnership units, within the same compound, received grey cotton fabrics. Unit 1 bleached and mercerized with power, wet goods went to Unit 2 for squeezing and power-driven stentering, then returned to Unit 1 for power-aided bailing/packing. Final clearance by Unit 1 triggered duty demand under Section 11A and penalty under Section 11AC of the Central Excise Act, 1944. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate excise and customs authorities and tribunals |
| Persuasive For | State High Courts in similar excise exemption disputes |
| Overrules | CESTAT order dated 05.10.2011 setting aside the Commissioner’s order |
| Follows | Standard Fireworks Industries v. Collector of Central Excise; Collector of Central Excise, Jaipur |
What’s New / What Lawyers Should Note
- Clarifies that even if separate units perform distinct steps, an uninterrupted chain of processes can constitute a single manufacture.
- Confirms that use of power in any integral step, irrespective of which unit performs it, disqualifies exemption under Entry 106 of Notification No.5/98-CE.
- Emphasizes that separate billing or distinct partnerships do not break the integrality of the manufacturing chain.
- Affirms that tribunals cannot bifurcate interlinked processes to grant piecemeal exemption.
Summary of Legal Reasoning
- Section 2(f) defines “manufacture” to include any process incidental or ancillary to the completion of a product.
- Exemption Notification No.5/98-CE Entry 106 applies only if no process in the manufacture is carried out with power.
- Precedent (Standard Fireworks; CCE Jaipur) holds that any integrally connected power-aided process removes exemption.
- On facts, Unit 1 and Unit 2 performed a continuous sequence—bleaching, mercerizing, squeezing, stentering, bailing—using power.
- CESTAT wrongly treated the units as independent; the Supreme Court restores the Commissioner’s order confirming duty and penalty.
Arguments by the Parties
Petitioner
- The conversion of grey fabrics to finished cotton fabrics involved power-aided processes at both units; exemption under Entry 106 is thus unavailable.
- Processes across Unit 1 and Unit 2 were integrally connected and must be treated as one manufacture.
- CESTAT erred in bifurcating the chain and misreading Notification No.5/98-CE.
Respondents
- The two partnership firms are distinct; no unity of operations or ownership to club their processes.
- CESTAT rightly noted affidavits retracting panchnama statements and found no power use at Unit 1.
- Show cause notice against Unit 2 was dropped; its power-aided step should not affect Unit 1’s exemption.
Factual Background
On 21 January 2003, excise officials searched two adjoining textile units and recorded panchnama noting electric-powered machinery. A show cause notice dated 14 July 2003 alleged non-entitlement to exemption for power-aided processes from bleaching through packing, demanding duty, interest and penalty. The Commissioner’s original order of 27 September 2006 confirmed duty and penalty against Unit 1; CESTAT set it aside on 5 October 2011. The Commissioner appealed to the Supreme Court.
Statutory Analysis
- Section 2(f), Central Excise Act, 1944 (pre-2017 amendment): manufacture includes incidental or ancillary processes integral to product completion.
- Notification No.5/98-CE Entry 106 (02 June 1998): exempts “cotton fabrics processed without the aid of power.”
- Court interprets that any process in the manufacturing chain using power, even if by separate units, disqualifies the exemption.
Alert Indicators
- ✔ Precedent Followed – Affirms Standard Fireworks Industries and Collector of Central Excise, Jaipur decisions on integrally connected power-aided processes.