DEEMED CREDIT ON COTTON FABRICS

DEEMED CREDIT ON COTTON FABRICS

INTRODUCTION: -

The Notification No. 6/2002-CE (N.T.) dt. 01.03.2002 provides for deemed credit on textile fabrics. The independent processor gets deemed credit on cotton as well as man made fabrics.

The rate of deemed credit is prescribed under Point 2 (iii) (ii) of this Notification. This clause reads as follows: -

“In case of a manufacturer other than a composite mill, shall be equivalent to the amount calculated at the rate of –

(a) 33 1/3 %. Of the aggregate of the duty of excise leviable under the Central Excise Act, 1944 and the additional duty of excise leviable under the Additional Duties of Excise (Goods of special importance) Act, 1957 reads with any Notification for the time being in force, on the final product of cotton (not containing any other textile material) declared herein;

(b) 66 2/3 %. Of the aggregate of the duty of excise leviable under the Central Excise Act, 1944 and the additional duty of excise leviable under the Additional Duties of Excise (Goods of special importance) Act, 1957 reads with any Notification for the time being in force, on the final product other than those specified in sub-clause (a),

and credit of the declared duty so deemed to have been paid shall be allowed to the manufacturer of the final products, without production of documents evidencing payment of duty on the declared inputs, at the time of clearance of the said final product.”

PLAIN INTERPRETATION:

Thus, the deemed credit on cotton fabrics is 33 % and other fabrics is 67 %. But the cotton fabrics are further qualified by words “(not containing any textiles material).” Thus, the plain reading on this clause implies that the 100 % cotton fabrics will get the benefit of deemed credit @ 33 % and all other fabrics will get the benefit @ 67 %.

CONTENTION OF THE DEPARTMENT:

But this is not accepted by the department. The argument forwarded by them is that any fabrics which have cotton contents more than 50% will be classified as cotton fabrics as per Point no. 2A of section XI relating to “Textile and Textile article”. The exact wording in this clause is as follows: -

“Goods classifiable in Chapter 50 to 55 or in Heading No, 58.09 or 58.02 and of a mixture of two or more textile materials are to be classified as if consisting wholly of that one textile material which predominates by weight over any other single textile material.

When no one textile material predominates by weight, the goods are to be classified as if consisting wholly of that one textile material which is covered by the heading which occurs last in numerical order among those which equally merit consideration.”

This classification will be applicable to impugned Notification and as such all cotton fabrics will be getting benefit of 33 % only.

LEGAL VIEW:

It is settled principal of interpretation of statute that, interpretation Rules, section notes and Chapter notes to the schedules to Central Excise Tariff Act are not relevant for the purpose of interpreting notification. Thus, meaning of cotton fabrics given in section note can not be taken into consideration for interpreting the notification. Secondly, the plain reading of notification should be preferred rather the technical, scientific or dictionary meaning. On this settled principal also the reasoning of department is wrong.

Lastly, the contention of the department is totally erroneous and they are not taking into consideration the word “not containing any textile material.” If these words can taken, no other interpretation is possible.

CONCLUSION:

In view of clear cut wordings, it is suggested that a clarification in this regard will end this useless dispute and assessee and department can utilize their time and money on a constructive work.

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DEEMED CREDIT ON COTTON FABRICS

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