Cropping of Grey Fabrics Does Not Constitute Manufacture, No Excise Duty Payable: CESTAT [Read Order]
CESTAT ruled that the cropping of grey fabrics does not amount to manufacture and no excise duty is payable on such cropped fabrics.
![Cropping of Grey Fabrics Does Not Constitute Manufacture, No Excise Duty Payable: CESTAT [Read Order]](https://images.taxscan.in/h-upload/2025/10/06/2094226-grey-fabric-manufacture-excise-duty-cestat-taxscan.webp "Cropping of Grey Fabrics Does Not Constitute Manufacture, No Excise Duty Payable: CESTAT [Read Order]")
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the cropping of grey fabrics does not amount to manufacture and no excise duty is payable on such cropped fabrics. Madura Coats Private Limited, the appellant, is engaged in the manufacture of cotton yarn, polyester yarn, blended yarn, and various fabrics. During a stock verification...
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the cropping of grey fabrics does not amount to manufacture and no excise duty is payable on such cropped fabrics.
Madura Coats Private Limited, the appellant, is engaged in the manufacture of cotton yarn, polyester yarn, blended yarn, and various fabrics. During a stock verification conducted by the central excise department, certain shortages and excesses were noticed in the finished goods.
The department issued show cause notices alleging unaccounted production and clearance without payment of duty and demanded duty of Rs. 1,25,60,718 along with penalties.
The appellant explained that the discrepancies arose due to software changes, accounting errors, and inter-factory transfers. They argued that the cropping process applied to grey fabrics did not bring into existence a new product with a distinct name, character, or use, and hence, it could not be considered manufacture under the Central Excise law.
They relied on the Tribunal’s earlier decision reported in 2018 (11) G.S.T.L. 407 (Tri.-Chennai), which had taken a similar view.
The revenue counsel argued that the appellant’s records showed differences in stock, and the demand was correctly raised. They submitted that the cropped fabrics were liable to duty as processed goods.
The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that there was no evidence of clandestine removal of goods and that the department had adopted inconsistent bases for calculating shortages and excesses. The tribunal explained that the cropping process did not change the character or use of the grey fabrics and thus could not be treated as manufacture.
The tribunal further observed that duty cannot be demanded on an activity that does not amount to manufacture. It set aside the duty demand of Rs. 26,70,702 on cropped grey fabrics and allowed the appeal with consequential relief.
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