Commissioner of Custom Vs Narsibhai Karamsibhai Gajera & Ors. (Supreme Court of India)
Power Used Anywhere in Chain, Exemption Lost — Units Cannot Break Up Manufacturing to Claim “No-Power” Benefit-Continuous Process Test Reaffirmed: CESTAT Erred in Splitting Integrated Fabric Processing, Says Supreme Court
The Supreme Court set aside the CESTAT order & restored the Commissioner’s Order-in-Original dated 27-09-2006. The controversy centred on whether cotton fabrics processed by Unit No.1 were eligible for exemption u/s Entry 106 of Notification No.5/98-CE which applied only when fabrics were “processed without the aid of power”.
Unit No.1 carried out bleaching & mercerizing, after which the wet fabrics were transferred to adjacent Unit No.2 for squeezing & stentering with the aid of power, & then brought back to Unit No.1 for bailing packing. CESTAT treated the two Units as independent entities & held that the processes could not be clubbed. The Supreme Court disagreed & reiterated that “manufacture” u/s 2(f) involves a series of integrally connected processes, if any part of the continuous chain uses power, the entire manufacture is regarded as done with the aid of power.
The Court held that bleaching, mercerizing, squeezing, stentering, drying & packing formed one continuous, integrated manufacturing process converting grey fabric into cotton fabric. The fact that stentering (a power-intensive process) occurred in Unit No.2 was immaterial because the final product emerged only after cumulative processing by both Units; therefore the benefit of the “without aid of power” exemption could not be claimed. CESTAT was found to have misdirected itself by over-emphasising separate ownership & ignoring the operational integration. Consequently, the Order-in-Original fastening duty, interest & penalty on Unit No.1 was restored.
