S.L. Peeran, Member (J)
1. Both these appeals arise from OIO No. 3/02 dated 31.1.02. The appellants were permitted to undertake manufacture of printed synthetic and blended cotton fabrics, grey fabrics, bleached fabrics etc., falling under Chapter 52. They had availed the benefit of the Notification No. 20/98 C.Ex dated 18.7.98. It is the allegation of the Revenue that the appellants have wrongly availed the benefit of the said notification in as much as that the concessional rate of duty for fabrics of cotton and man made fabrics is availed when they are not subjected to any process and that they are produced in 100% export oriented undertaking only from the raw materials produced and manufactured in India. It is alleged that they were using the raw materials such as imported Polyvinyl alcohol (PVA 117) apart form indigenous raw materials, hence they were ineligible for the benefit of the said notification. The Managing Director admitted in his statement that they are manufacturing 100% cotton and polyester cotton fabrics. Their main raw materials is yarn which is obtained indigenously and the same is subjected to the process of sizing and weaving after which it undergoes inspection before final dispatch. The clearances are being made after obtaining necessary permission from VEPZ and Assistant Commissioner of Central Excise; that they are using some sizing material in the process of manufacture of cotton grey fabrics to strengthen the yarn before using it for weaving and that they are using imported PVA 117 apart from the indigenous raw material procured on CT 3 during the sizing process; that the raw materials are cotton yarn, starch, softener, binder and dyes and chemicals. They had imported a quantity of 6000 Kgs of PVA and 100 Kgs of acrylic binder as raw material. The raw material PVA 117 is used in the sizing process to give a better strength to the yarn and to withstand the tension in high speed weaving and the acrylic binder is used to strengthen the dyes. On the basis of this statement, the benefit of the notification has been denied. The Commissioner has recorded his finding that the assessee has used the imported raw material such as PVA, acrylic binder and hence the benefit is not available.
2. It is the contention of the appellants that the item PVA is not a raw material but is consumable. They strengthen the yarn by dipping the same in the process of sizing in these solutions. The yarn cannot be sized and reeled. After the reeling the cotton yarn is dipped in water to wash off completely these consumables. Therefore, they are not raw materials. It is contended that the definition of raw material is that the raw material should remain intact in the final product. Hence, PVA 117 is a consumable. They have supported their plea by referring to Sevaks Dictionary of Textiles which defines the process of sizing as an operation carried out on warp yarn before weaving to increase the weaving efficiency. It is stated that the dictionary also states that for this purpose, the fibres are coated with a thin layer of adhesive which include PVA. After the weaving, the PVA is removed by washing. Further reliance is placed on Encyclopedia of Textile Finishing which described PVA as a synthetic polymer used for many applications like sizing. Reference is also made to the book on Technology of Textile Processing which while discussing the use of PVA in fabrics explains in detail as to how the fabrics that is made of yarn is subjected to sizing has to be desized before subjecting it to any process of dyeing, printing etc., They have also produced technical write-up to explain that PVA is completely washed off before any further process is undertaken. Reliance is placed on the Gujarat High Court judgment rendered in the case of Arvind Mills v. UOI 1983 ELT 326 (Guj) which takes note of the fact that the sizing material is completely washed off before the fabric is used for dyeing or printing. Therefore, they submit that PVA is not a raw material but only a consumable which is washed off ultimately. Reference is also placed on the judgment rendered in the case of CCE v. Ashima Fabrics . wherein the Department proposed to deny the benefit of exemption to the fabric cleared in the DTA on the ground that the imported PVA was used as a raw material in the manufacture of finished fabrics. After due consideration, the Commissioner dropped the demand on the ground that PVA 117 used in the process of sizing of fabric was only a consumable and not raw material. The revenue's appeal against the Order of the Commissioner has been dismissed by the West Regional Bench. Further reference is made to this Bench order rendered in the case of Forbes Gokak Ltd. v. CCE (F.O No. 1094/05 dated 5.7.05) wherein benefit of exemption notification has been extended to wax which is used in the manufacture of knitting yarn as consumables. Learned Counsel argued on the basis of the above material. He further contended that the demands are also hit by time bar as the import of PVA 117 was within the knowledge of the department and it's use was well known to them. Therefore, the show cause notice issued covering the period 11.11.98 to 15.1.02 issued on 31.1.2001 invoking larger period is not sustainable.
3. Learned SDR defended the order and submitted that the item is a raw material and not a consumable.
4. On a careful consideration of the submissions made in the light the technical literature and extracts from various dictionaries, it is clear that the item PVA 117 is used in the process of sizing as a consumable. The said material is washed off before the yarn is used for weaving. To be a raw material, the used material should remain as an input in the final product. Learned SDR relied on the ruling rendered in the case of CCE Guntur v. Asia Peroxide Ltd. (Final Order No. 422-423/2004 dated 4.2.04) In this case, the items used in the course of manufacture were several and all of them had been imported and they had not been consumed as consumables but had been used as raw materials. Hence this judgment is clearly distinguishable. The other judgment relied by learned DR is in the case of CCE v. Century Denim wherein imported indigo pure dye, fixing agents,
woven interlining, thread, twill tape, buttons, stickers etc., were imported and used as raw materials. The same remained in the final product and were not consumables. Hence this judgments is also clearly distinguishable. The Tribunal in the case of CCE v. Ashima Fabrics (supra) has clearly held that PVA 117 used for making sizing mixture cannot be considered as raw material and the finding recorded by the Commissioner that PVA is consumable goods was required to be upheld in the light of the materials and technical literature relied by the Commissioner. On our independent examination also, we have clearly seen from the technical literature produced that the item PVA is not a raw material but it is a consumable. The Encyclopedia of Textile Finishing at page 1683 also clearly spells out that the Polyvinylalcohol dispersions is significantly decreased by heating treatment above 120C application particularly for sizes, finishes etc., The definition of sizing in Sevak's Dictionary of Textiles at Page 505 also shows that sizing is an operation carried out on warp yarn before weaving to increase the weaving efficiency by reducing the yarn breakage during weaving. It states that this is done by preventing the surface-protruding fibres of yarn. For this purpose, the fibres extending along the yarn surface are coated with a thin layer of starch, tallow, china clay etc. It is carried out by immersing the yarn for a few seconds in a hot mixture of an adhesive (starch, carboxy methyl cellulose, poluvinyl alcohol etc.,) A lubricant and softner C tallow, emulsified vegetable oils and their solubilised products), a preservative (pentachlorophenol, sodium silicofluoride etc.). The yarns are then squeezed and dried.
5. Hon'ble Gujarat High Court in the case of Arvind Mills Ltd., v. UOI (supra) has held that sizing is necessary for weaving purposes after the yarn is completely manufactured. It has held that sizing process is carried out to add some strength to the yarn to withstand stress and strain of weaving. The sizing so added is removed completely after weaving and bleaching process to make the fibre suitable for dyeing, printing etc., This bench in the case of Forbes Gokak Ltd., (supra) has held that application of wax on the fibre is used as a consumable and not as raw material. In view of the material placed before us, the contention of the appellant that PVA is not used as a raw material is required to be upheld. The appellants are entitled to the concessional benefit of the Notification in question. Further more, the appellant had declared that they were using the material with full knowledge of the Department. Hence there is no suppression of facts for invoking larger period. The appeal is allowed both on merits as well as on time bar with consequential relief if any.
(Operative portion of the Order already pronounced in open court on conclusion of the hearing)