The court affirmed that manufacturing involves interconnected processes, ruling that distinct units' activities in cotton fabrication were part of a continuous process and thus could not be treated separately for excise duty assessment.

JUDGMENT :

ATUL S. CHANDURKAR, J.

1. This appeal under Section 35-L (b) of the CENTRAL EXCISE ACT , 1944 (for short “the Act of 1944”) as it stood prior to its amendment by Act 25 of 2014 takes exception to the Order dated 5.10.2011 passed by the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (for short “the CESTAT”). By the said order, the CESTAT has set aside the Order-in-Original dated 27.09.2006 passed by the Commissioner of Customs and has discharged the show cause notice dated 14.07.2003 that was issued to the respondent Nos. 2 and 3 herein.

2. It is the case of the appellant that on the basis of information received by its intelligence agency, Bhagyalaxmi Processor Industry (hereinafter, Unit No. 1) and Famous Textile Packers (hereinafter, Unit No. 2) were processing cotton fabrics with the aid of power but without following any of the procedures laid down under the Act of 1944 as well as the Rules framed thereunder. The preventive staff carried out a search of both the Units on 21.01.2003 and executed a panchnama. It was noted that the factory premises of both the Units were situated in a common premises within the same compound. Both the Units were having industrial electricity connection as well domestic lighting connection. In Unit No. 1, a bail packing machine with an electric motor, a mercerizing machine as well as bleaching machinery were found installed. In the premises of Unit No. 2, a squeezing machine with electric motor as well as a stentering machine fitted with oil engine and driers operated with the aid of electric power were found. In the electric room, there were five electric meters of which two electric meters were for industrial connection, two other meters were for domestic lighting purposes while one meter was for the diesel generator set. After taking a stock and recording the statements of the partners of Unit Nos.1 and 2 along with other employees of both the Units, the Commissioner, Customs and Central Excise issued show-cause notice dated 14.07.2003 on the premise that both the Units were not entitled to exemption from paying customs duty. He made a demand of excise duty under Section 11-A(1), interest on the amount of duty under Section 11 A B and penalty under Section 11 A C of the Act of 1944. Both the Units were called upon to submit their reply to the same.

3. Reply to the show cause notice was submitted on 15.12.2005 denying the contents thereof. It was asserted that cotton fabrics were being processed without the aid of any power and hence the Units were entitled to exemption in view of Entry No. 106 of Notification No. 5/98-CE. The Commissioner of Central Excise considered the entire material and vide Order dated 29.07.2004 held that both the Units were jointly and severally liable to pay the amount of duty with interest as well as penalty under the Act of 1944.

The said Units being aggrieved by the aforesaid order preferred an appeal before the CESTAT. Vide its order dated 01.07.2005, the CESTAT held that the joint and several liability of each Unit could not have been fixed. It therefore set aside the Order-in-Original dated 29.07.2004 and remanded the proceedings to the Commissioner for reconsideration.

4. After remand, the Commissioner, Central Excise reconsidered the entire material. After assessing the evidence on record, he held that the statements recorded on 21.01.2003 were sought to be retracted by the partners of Unit Nos.1 and 2 after a pe