By TIOL News Service

MUMBAI, FEB 24, 2017: THE appellants are engaged in the manufacture of readymade garments [Ch. 62.01]. They surrendered their Central Excise Registration certification on 09.03.2004 stating that all their products were classifiable as handicraft and, therefore, they were exempted under Notification No. 76/1986-CE dated 10.2.1986.

Subsequently, appellant's premises was visited by the CE officers and stock of readymade garments valued at Rs.51,93,000/- was seized under the reasonable belief that the same cannot be categorized as handicrafts.

Inasmuch as per the statement of the Partner of the appellant, it was revealed that embroidery was done on the goods with the help of machine run on motor .

SCN came to be issued demanding CE duty by denying the exemption claimed and the same was confirmed by the lower authorities.

Before the CESTAT, the appellant submitted that major part of the garments such as embroidery, hand painting, crocheting, ornamentation etc. was done manually and only occasionally pedal operated machine was utilized during the process of manufacture; therefore, even if a small part of the process is carried out with the help of pedal operated machine, the garments will remain as handicrafts. Reliance is placed on the Circular No. 773/6/2004 dated 28.1.2004 and the decision of the Tribunal on an identical issue in Vira Enterprises - Order No. A/85089-85091/17/EB dated 01.09.2016. The appellant also drew support from the apex court decision in Louis Shoppe – 2002-TIOL-126-SC-CX. Moreover, the Central Excise Registration was surrendered under bona fide belief that their product is covered under exemption Notification No. 76/1986 as handicrafts and, therefore, suppression of facts cannot be alleged.

The Bench considered the submissions and observed –

++ As per the statement of the appellant, occasionally the pedal operated machines were used, however, the hand process such as, embroidery, painting, crocheting and ornamentation was done. The Hon'ble Supreme Court in the case of Louis Shoppe (supra) has held that even if some machine is used in the process, the goods would still be treated as handicraft and that handmade readymade garments would be treated as handicraft and accordingly eligible for exemption under Notification No. 76/86.

++ We have gone through the Board's Circular No. 773/6/2004 -CX dated 28.1.2004, wherein it was clarified that classifying the goods as handicraft one or more the process such as hand painting or hand printing or handicrafts Tie and Dye or handicrafts Batik, embroidered or crocheted ornamentation, appliqué work of sequins, glass or wooden beads, shells, mirrors or Ornamental motifs of textiles and other materials, extra warp/wept ornamentation of cotton, silk, zari (metal thread in Gold /Silver/ wool or any other fibre yarn are carried out. In the facts of the present case, except the part of the embroidery process, which was carried through pedal operated machine, most of the processes such as painting/ornamentation was done manually. Hence the goods is correctly classifiable as handicrafts.

Extracting and relying upon the decision of the Tribunal in the case of Vira Enterprises , the Bench concluded that the captioned product in which even if a small part of the process was carried out by the machine, the garments would still fall under the category of handicrafts and product in question is entitled for the exemption under Notification No. 76/86-CE.

The impugned order was set aside and the appeals were allowed.

(See 2017-TIOL-580-CESTAT-MUM)