Full Judgment
2. M/s. Rupalee Dyeing and Printing Works (hereinafter Rupalee) was a partnership firm, which was in existence from 1976. It was engaged in bleaching, dyeing and printing of textile fabrics by use of machine operated with power. It was also engaged in padding and calendering fabrics. These finishing processes were exempted from duty by Notification No. 253/82. Rupalee availed of this exemption in respect of fabrics, which it subjected to finishing, and paid duty on the fabrics, which it subjected to dyeing and finishing. Around 1985, Fatimaben Ismailbhai Devdiwala, the mother of the four brothers who were the partners of Rupalee, set up in the premises adjoining Rupalee, but in the same compound a unit named India Textiles. India Textile was doing bleaching, dyeing printing of fabric without aid of power or steam. Such activity was exempted from duty by Notification No. 130/82, and later by its successor 48/90. It also had facility for carrying out calendering and padding. The fabrics processed by India Textiles were sent to Rupalee for finishing, from where they were cleared without payment of duty.
3. In July 1996, by issue of Notification No. 8/96, the exemption granted by Notification No. 253/82 to finished process was made subject to the condition that it would only be available to a factory which did not have the facility for carrying out bleaching, dyeing or printing with the aid of power. Subsequent to the issue of this notification, the partners of Rupalee set up a factory named Rainbow Textile Mills (hereinafter referred to as Rainbow). Rainbow functioned in a part of a factory, which was earlier with Rupalee, and the machinery used by it was given on lease by Rupalee. Rainbow carried out only the finishing processes. The object of setting up Rainbow was to avoid by Rupalee the consequence of Notification No. 8/96. The finishing of fabrics processed by Rupalee would now be done by Rainbow, and not by Rupalee.
Therefore the finishing of fabrics processed by Rupalee and India Textile would not be liable to duty. The department initially refused to register Rainbow on the ground that there was no demarcation between Rainbow and Rupalee but subsequently, in April 1998, registration was granted.
4. Notice was issued in February 1998 for the period from February to September 1997. The notice proposed to deny the exemption in Notification No. 8/96 on the ground that Rainbow was not a factory distinct and separate from Rupalee, and therefore the restriction contained in the notification would apply. Fabrics processed by Rupalee were therefore liable to duty. The extended period contained in the proviso Under Section 11A(1) was invoked on the ground that the fact that Rainbow was not a separate factory had been suppressed. It is on adjudication of this notice that the Collector has passed the order impugned in the appeal.
5. It is primary contention of the Advocate for the appellant that the goods on which duty was been demanded were processed, not by Rupalee but by India Textiles. This processing was undertaken without the aid of power and no duty was therefore payable on such processing. This was the contention that was raised in the reply to the notice. The Collector, he contends, has not applied his mind to this aspect and has concluded, without considering the submissions made before him, that the fabrics were processed by power by Rupalee with the use of power.
6. If, as claimed, the fabrics were finished by hand in India Textiles, there would be no question of payment of duty. If, on the other hand, the fabrics were processed by using power in Rupalee, duty would be payable irrespective of where the printing, padding were carried on.
The entire issue revolves around this question.
7. Subsequent to the hearing, the Advocate for the appellant submitted to the Collector, by letter dated 1.4.99, copies of a register maintained by India Textiles of the fabrics processed by it (India Textile). These have not been considered. In concluding whether the fabrics were processed by India Textile were liable to duty, this register would be relevant; as also evidence to show whether India Textile had machinery operated with the aid of power to bleach, dye or otherwise process fabrics. Evidence relating to manufacture and clearance from Rainbow would also have to be looked at, to consider whether or not Rupalee processed the fabrics.
8. The Advocate for the appellant says that he would only require an opportunity of hearing to explain the evidence already produced.
9. Accordingly, we allow the appeal and set aside impugned order. The Commissioner shall give the appellant reasonable opportunity of being heard and pass orders on the notice in accordance with law. Both sides are at liberty to produce evidence in support of their contention.