May 31, 2004
F. No. 56/3/2003-CX-1
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Subject : Excise Duty on readymade garments claimed as `Handicrafts’
The undersigned is directed to refer to the Notification 76/86-CE dated 10.2.86 providing excise duty exemption to handicrafts’, and Board’s circular No. 773/6/2004-CX dated 28th January, 2004 on the above subject. Certain doubts have been raised about the scope of the aforesaid circular.
02. The matter has been examined. It may be recalled that Hon’ble Supreme Court in the case CCE, New Delhi vs. Louis Shoppe & Anr. 1996 (83) ELT 13 (SC) = ( 2002-TIOl-126-SC-CX ) , laid down, as basic principle, that goods can be characterized as `handicrafts’ if the following tests are satisfied –
|(a)||It must be predominantly made by hand. It does not matter if some machinery is also used in the process.|
|(b)||It must be graced with visual appeal in the nature of ornamentation or in-lay work or some similar work lending it an element of artistic improvement. Such ornamentation must be of a substantial nature and not a mere pretence.|
03. The aforesaid circular while emphasizing the principle laid down by Hon’ble Supreme Court, gave certain examples (in consulation with the Development Commissioner, Handicrafts) of garment which can predominantly be made and graced with ornamentation by hand. Thus, apart from advising that the view of the Development Commissioner, Handicrafts, (as mentioned in the circular) may alo be considered within the standards laid down by the Supreme Court in Louis Shoppe case, the said circular has not made any material change.
04. Further, the Apex Court also had the occasion to examine the issue in the case of Padmini Products vs CCE, 1989 (43) ELT 195(SC), wherein it upheld the decision of the Tribunal that agarbaties are not “handicraft” because `skill of the worker and the use of hand” – the two pre-requisites for a product to qualify as a handicraft were not employed. In para 7 of the said order, the Apex Court referred to the definition of `handicraft’ given in Encyclopaedia Britannica, which is as follows:
`Occupation of making by hand usable products grade with visual appeal. Handicrafts encompass activities that require a broad range of skills and equipment, including needle work, lace-making, weaving, printed textiles, decoration, basketry, pottery, ornamental metal working, jewelling, leather working, wood working, glassblowing, and the making of the stained glass.’
05 The aforesaid observations of the Hon’ble Supreme Court and the definition relied upon in the judgement as above, form the basis for determining the eligibility of readymade garments as `handicraft’ for the purposes of exemption from Central Excise duty. Thus, any views expressed in this regard, such as that by the Development Commissioner (Handicraft), Ministry of Textiles have to be read harmoniously without deviating from the law laid down by the Apex Court.
06 Essentially, whether a particular item would merit to be classified as `handicraft’ is a question of fact. No specific test can be laid down nor is it possible for the Board to lay down criteria for individual cases. However, the above stated guidelines should be kept in view while deciding cases. Determination of factors such as intricacies of designs, extent and originality of ornamentation, the quantum of individual artistic skill as well as the extent of value addition on account `ornamentation by hand’ could help at arriving at the correct conclusions.
07 This issues with a view to clarifying the said Circular dated 28.01.2004.
08 This may be brought to the notice of the field formations.
09 Receipt of this Circular may please be acknowledged.
Under Secretary to the Govt. of India