Case Note & Summary
The case involves an appeal by the Commissioner of Customs, Central Excise & Service Tax, Rajkot against an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dated 5.10.2011. The CESTAT had set aside the Order-in-Original dated 27.09.2006 passed by the Commissioner of Customs and discharged a show cause notice dated 14.07.2003 issued to respondent Nos. 2 and 3. The appellant's case was that based on intelligence, Bhagyalaxmi Processor Industry (Unit No.1) and Famous Textile Packers (Unit No.2) were processing cotton fabrics with the aid of power without following procedures under the Central Excise Act, 1944 and the Rules. A search on 21.01.2003 revealed that both units were situated in a common premises with industrial electricity connections and domestic lighting. In Unit No.1, a bail packing machine with an electric motor, a mercerizing machine, and bleaching machinery were found. In Unit No.2, a squeezing machine with an electric motor, a stentering machine fitted with an oil engine, and driers operated with electric power were found. The electric room had five electric meters. The Department issued a show cause notice alleging that the units were engaged in the manufacture of processed cotton fabrics without payment of duty. The Commissioner confirmed the demand and imposed penalties. The CESTAT, however, set aside the order, holding that the Department failed to prove that power was actually used in the processing. The Supreme Court allowed the appeal, holding that the CESTAT had not properly appreciated the evidence. The Court noted that the presence of power-driven machinery and electricity connections raised a presumption of power usage, which the assessee failed to rebut. The Court also held that the processing activities amounted to 'manufacture' under Section 2(f) of the Act. The impugned order was set aside, and the matter was remanded to the CESTAT for fresh consideration.
Headnote
A) Central Excise - Manufacture - Section 2(f) Central Excise Act, 1944 - Processing of cotton fabrics with the aid of power - The issue was whether the activities of bleaching, mercerizing, and stentering cotton fabrics with the aid of power amounted to 'manufacture' under Section 2(f) of the Act. The Court held that any process incidental or ancillary to the completion of a manufactured product, including the use of power, falls within the definition of manufacture, and the assessee failed to rebut the presumption of power usage. (Paras 1-10) B) Central Excise - Burden of Proof - Section 2(f) Central Excise Act, 1944 - Use of power in processing - The Court held that once the Department establishes the presence of power-driven machinery and electricity connections, the burden shifts to the assessee to prove that power was not actually used in the processing. The CESTAT erred in discharging the notice without considering the evidence of power usage. (Paras 11-15) C) Appellate Tribunal - Powers of CESTAT - Section 35L Central Excise Act, 1944 - Setting aside findings of fact - The Court held that the CESTAT must apply its mind to the evidence on record and cannot set aside findings of fact without proper analysis. The impugned order was set aside for non-application of mind. (Paras 16-17)
Issue of Consideration
Whether the CESTAT was justified in setting aside the Order-in-Original and discharging the show cause notice without properly appreciating the evidence regarding the use of power in the processing of cotton fabrics, and whether the processing activities amounted to 'manufacture' under Section 2(f) of the Central Excise Act, 1944.
Final Decision
Appeal allowed. Impugned order of CESTAT dated 5.10.2011 set aside. Matter remanded to CESTAT for fresh consideration in accordance with law.
Law Points
- Manufacture under Section 2(f) of Central Excise Act
- 1944 includes any process incidental or ancillary to the completion of a manufactured product
- use of power in processing cotton fabrics attracts excise duty
- burden of proof on assessee to show non-use of power
- CESTAT must consider evidence on record before setting aside findings of fact.
