The Supreme Court has held that even if the manufacturer has paid duty on the raw material, he will still be liable to pay excise duty if a new product is made from them. The apex court thus allowed the appeal of the central excise collector against the decision of the Customs, Excise and Gold Appellate Tribunal (Cegat) in a case involving Kapri International.
The assistant collector of central excise had issued a notice of demand to the company for clandestine clearance of bedsheets, bedspreads and similar other products. It was confirmed by the central excise commissioner. There was also an order of seizure and penalty.
The company moved Cegat, which set aside the action of the authorities. The revenue authorities moved the Supreme Court. The attorney-general argued that by cutting cotton fabrics from running length in small pieces to make bedsheets, bedspreads, table cloth and similar items amounted to manufacture of new products, which had a definite identity in the market. It was appected by the apex court.
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The attorney-general further argued that though the material (cotton fabrics) had earlier been subjected to duty, but new products had come into being, and their manufacturer was liable to pay duty again. This was also accepted by the apex court.
Cegat had held that since the raw material had already suffered a duty under tariff item 19(I), products manufactured by such material could not be subjected to the levy again.
Saying that Cegat was not right on this point, the apex court pointed out that in its 1990 judgment in the Laminated Packings Ltd vs Central Excise Commissioner case, it had said that even if the original goods belonged to the same entry in the Tariff Act, if the final goods are different or known by a different identity in the market, they were liable to pay duty.