CA Urvashi Porwal
Brief of the Case
In the case of M/S. MERIDIAN INDUSTRIES LTD. V/s COMMISSIONER OF CENTRAL EXCISE, it was held that if a particular item participates in or is required for a manufacturing process, but does not form part of the end product and instead it is specifically or totally consumed during a manufacturing process, the same would be treated as ‘consumables’. On the other hand, ‘raw material’, inter alia, includes any materials or goods that are required for the manufacturing process for a manufacturer. Hence the wax used in producing cotton yarn, the cotton yarn coated with wax as the use of cotton yarn with wax thereupon acting as lubricant is much more useful and becomes a value addition making it better quality cotton yarn, insofar as requirement of the buyer in using such cotton yarn for manufacture of knitted fabrics is concerned.
Brief Facts of the Case
The appellant-assessee is engaged in the manufacture of cotton yarn which is 100% Export Oriented Undertaking (EOU) constituted as per Export and Import Policy 1997-2002. During the period August, 2000 to March, 2001, it had cleared the aforesaid cotton yarn made to Domestic Tariff Area (DTA). While clearing these goods, the appellant did not pay normal excise duty that is chargeable for the aforesaid product. Instead it took benefit of Notification No.8/97-C.E. dated 01.03.1997 and paid duty at concessional rate in terms of the said notification. This notification provides for concessional rate to those products which are cleared to DTA by an EOU. However, one of the conditions for availing the benefit of the said notification is that the products that are manufactured by such EOU should have been manufactured using indigenous raw material only.
The appellant while manufacturing cotton yarn had used indigenous cotton and also imported wax. The Department sought to deny the benefit of Notification No.8/97-C.E. on the ground that imported wax was also used, which was treated as the “raw material”. Show cause notice dated 04.09.2001 was, accordingly, issued by the Superintendent of Central Excise, Pollachi-II Range, in O.C. No.777/2001 to state that the appellant was wrong in claiming the benefit of Notification No.8/97-C.E. dated 01.03.1997 since cotton yarn was manufactured out of indigenous cotton and imported wax, as wax was contained in the final product (yarn). It was stated that the appellant is maintaining separate production account for manufacture of cotton yarn both for indigenously procured and imported cotton as detailed in Annexures-I and II to the show cause notice.
The Commissioner of Central Excise, Coimbatore after hearing the matter, passed the Order-in-Original dated 21.06.2002 deciding the matter in favour of the assessee and, thus, dropped proposed demand in the show cause notice by recording the finding to the effect that:
(i) Wax disc acted as a lubricant and facilitated processing and use in the manufacturing process and remained a temporary coat.
(ii) By Circular No.631/22/2002-CX dated 28.03.2002, the Ministry of Finance held that consumables used in capital goods cannot be termed as ‘raw material’ for the manufacture of finished goods and in the case wax was only a consumable for the capital goods.
(iii) Revenue was inconsistent in having dealt with wax discs as consumable in the warehousing operation of the appellant but dealt as raw material for denying the benefit of exemption.
(iv) Benefit was available to cotton yarn manufactured wholly out of indigenous cotton as well as cotton yarn manufactured out of imported cotton yarn on which appropriate additional duty of customs was paid when removed into DTA.
However, the Commissioner of Central Excise preferred the appeal as directed by the Central Board of Excise & Customs against his own Order-in-Original No.32/2002-Commr. dated 21.06.2002 before the Tribunal.
The Tribunal allowed the appeal preferred by the Commissioner of Central Excise vide its decision dated 17.07.2007. Perusal of the decision indicates following thought process:
