Sports & Leisure Apparel Ltd. v. Commissioner Of C. Ex., Noida

[Order per : V.K. Agrawal, Member (T)]. - The issue involved in these two appeals, filed by M/s. Sports & Leisure Apparel Ltd. and their Company Secretary, is whether the benefit of exemption under Notification No. 15/2000-C.E., dated 1-3-2000 (Srl. No. 14) is available to the knitted garments manufactured by them.

2. Shri B.L. Narasimhan, learned Advocate, mentioned that the Appellants manufacture knitted/crocheted fabrics, articles of apparel and clothing accessories; that they do not take Cenvat credit of duty paid on any of the inputs used in the manufacture of woven garments; that they avail exemption in respect of knitted garments under serial No. 14 of Notification No. 15/2000-C.E., since knitted garments are manufactured out of duty paid yarn and fibres; that the duty demand has been confirmed and penalties imposed on both the Appellants by the Adjudicating Authority after denying the benefit of the exemption Notification on the ground that the condition No. 4 of the Notification has not been satisfied.

3. The learned Advocate submitted that the Appellants have satisfied all the conditions of Notification No. 15/2000-C.E.; that as per condition No. 4 of the Notification, knitted garments are exempt if manufactured out of knitted fabrics on which appropriate duty of excise has been paid and no Cenvat credit of duty paid on the inputs or capital goods has been taken; that Explanation 2 to the Notification provides that fabrics are deemed to be duty paid without production of any duty paying documents; that this condition No. 4 read with Explanation 2 provides that as long as manufacturer does not avail credit of duty paid on inputs, the manufacturer would be eligible for exemption under the Notification; that the Central Board of Excise & Customs in Budget Circular for Budget 2002 has also clearly stated that the condition for textile processors who want to avail exemption under Notification is that they do not avail Cenvat credit. He emphasized that because of Explanation 2, the knitted fabrics in question would be deemed to be duty paid even though otherwise exempt under Notification No. 14/2002; that thus the condition No. 4 of the Notification has been fully satisfied. He further submitted that condition No. 4 has been amended by Notification No. 3/2003-C.E., dated 6-1-2003 by which the part of condition No. 4 relating to duty payment on knitted fabrics has been deleted; that this amendment is clarificatory in nature and thus has retrospective operation.

4. Countering the arguments, Shri S.M. Tata, learned SDR, submitted that during the course of manufacture of garments from yarn, knitted or crocheted fabric emerges as an intermediate excisable goods which is exempted from excise duty under Notification No. 14/2000-C.E., dated 1-3-2002; that condition No. 4 of Notification No. 15/2002 (serial No. 14) consists of two parts - (a) fabrics must be duty paid, and (b) no credit of duty paid on such fabric had been taken; that thus the benefit of Notification is available only when the garments have been manufactured from duty paid fabrics; that as the fabrics has not suffered Excise duty, it cannot be said that the ‘appropriate duty of excise’ has been paid thereon and consequently the benefit of Notification would not be available. He relied upon the judgment of the Supreme Court in CCE, Vadodara v. Dhiren Chemical Industries, [ (S.C.)]. He further mentioned that by Explanation, only production of duty paying documents has been dispensed with; that the basic requirement of payment of duty on fabrics has not been taken away by the said Explanation; that accordingly the benefit of Notification is not available to the impugned goods as the same have been manufactured from the fabrics on which the appropriate duty of excise leviable has been paid. Finally he contended that the subsequent amendment in condition No. 4 by Notification No. 3/2003 will not be applicable for the past period as there is no mention in the Notification that it will have retrospective effect and secondly amendment is not of clarificatory nature.

5.1  We have considered the submissions of both the sides. Notification No. 15/2000-C.E. (Sl. No. 14) exempts ‘Articles of apparel, knitted or crocheted’ falling under Heading 61.01 of the Schedule to the Central Excise Tariff Act, subject to the condition No. 4 which reads as under :-

“If made from knitted or crocheted textile fabrics, whether or not processed, on which the appropriate duty of excise leviable under the First Schedule to the said Central Excise Tariff Act and the Additional Duties of Excise (Goods of Special Importance) Act, read with any Notification for the time being in force or the additional duty of Customs leviable under Section 3 of the Customs Tariff Act, 1975, as the case may be, has been paid and no credit of the duty paid on inputs or capital goods has been taken under Rule 3 or Rule 1 of the Cenvat Credit Rules, 2002.”

5.2 Explanation to the Notification reads as under:-

“For the purpose of the conditions specified below, textile yarns or textile fabrics shall be deemed to have been duty paid even without production of documents evidencing payment of duty thereon.”

6.1 The undisputed facts are that the Appellants buy duty paid yarn, convert them into woven fabrics/knitted fabrics which are then converted into woven garments/knitted garments. The Revenue has contended that as the knitted fabrics manufactured by the Appellants is exempt from payment of duty under another Notification No. 14/2002-C.E., dated 1-3-2002, the Appellants have not satisfied the first condition specified in condition No. 4 of Notification No. 15/2002 to the effect that Article of apparel should be made from knitted or crocheted textile fabrics on which the appropriate duty of excise has been paid. The Supreme Court in the case of Dhiren Chemical Industries, supra, has interpreted the phrase “on which the appropriate amount of duty of excise has already been paid.” The Apex Court has held as under:-

“An exemption notification that uses the said phrase applies to goods which have been made from duty paid material. In the said phrase, due emphasis must be given to the words “has already been paid”. For the purposes of getting the benefit of the exemption under the notification, the goods must be made from raw material on which excise duty has, as a matter of fact, been paid, and has been paid at the “appropriate” or correct rate. Unless the manufacturer has paid, the correct amount of excise duty he is not entitled to the benefit of the exemption notification.”   (Emphasis provided)

6.2 In the present matter it has not been disputed by the Appellants that the appropriate duty has not been paid on the knitted textile fabrics. In view of this the first part of the condition No. 4 of Notification No. 15/2002 has apparently been not complied with by the Appellants.

7. The learned Advocate has contended that the Explanation to Notification provides that fabrics are deemed to be duty paid without production of any duty paying documents and thus the said condition No. 4 only provides that the manufacturer should not avail of Cenvat credit of the duty paid on inputs. In support he has referred to Explanatory Notes issued by the Board clarifying the changes brought about by Budget 2002 in Central Excise Law. We do not find any force in this contention. Explanation to Notification No. 15/2002-C.E. only mentions that textile fabrics shall be deemed to have been duty paid even without production of documents evidencing payment of duty thereon. The Explanation thus only takes away the requirement of producing the evidence of duty payment in respect of textile fabrics. It does not anywhere mentions that the appropriate duty of excise leviable on textile fabrics need not be paid or that the textile fabrics shall be deemed to have been duty paid even if it was exempted from payment of duty or it has not suffered any payment of excise duty. Explanation to Notification No. 15/2002-C.E. only clarifies that if the manufacturer is not in a position to produce the duty paying document, the textile fabrics shall be deemed to have been duty paid. The learned SDR has rightly emphasized that the basic condition of payment of appropriate duty has not been done away with. The clarification issued by the Board for clarifying Budget changes does not help the case of the Appellants as it also clarifies that “the benefit of the rate of duty should be allowed without insisting upon any documentary proof for payment of duty.” This clarification only clarifies the fact that for extending the benefit of Notification, documentary proof for payment of duty need not be insisted upon. We also agree with the learned SDR that the subsequent amendment in Notification No. 15/2002 by Notification No. 3/2003-CE, dated 6-1-2003 is not applicable retrospectively as the same is not clarificatory in nature. We, however, agree with the learned Advocate that no penalty is imposable in the present matter as the issue relates to interpretation of exemption Notification. Accordingly we uphold the demand of Central Excise duty but set aside the penalties imposed on both the Appellants. Thus the appeal filed by the company is partly allowed and the appeal No. E/252/04-NB(A) filed by the Appellant No. 2 is allowed.