ORDER
Lajja Ram, Member (T)
1. These are two appeals filed by (1) M/s. General Industrial Corporation, Fazalganj, Kanpur (hereinafter referred to as ‘GIC’) and (2) M/s. Arkay Wires (P) Ltd., Pandunagar, Kanpur (hereinafter referred to as ‘Arkay’). Both these appeals originate from the same order-in-original and involve common issues. They were heard together and are being disposed of by this coomon order .
2. M/s. G.I.C. were engaged in the manufacture of Galvanised Stranded Stay Wire (GSS Wire) from Glavanised Iron (GI) Wire, falling under Item No. 26-AA(ia) of the 1st Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the ‘Tariff’). The GI Wire was supplied by Arkay, and GIC manufactured GSS Wire from such GI Wire, and received job charges from Arkay. M/s. Arkay Wires (P) Ltd. had also manufactured GSS Wire on their own account. It was alleged that GSS Wire was classifiable under Item No. 68 of the Tariff. It was found that the appellants had not applied for Central Excise Licence and did not account for their production in the statutory records. The value of their clearances had exceeded the exemption limit but no Central Excise Duty leviable on the excisable and dutiable goods was paid, and the said goods were removed in violation of the provisions of the Central Excise Rules, 1944 (hereinafter referred to as the ‘Rules’). The Collector of Central Excise, Kanpur who adjudicated the matter imposed a penalty of Rs. 2.00 lakhs on GIC, and demanded Central Excise duty amounting to Rs. 2,19,776.40. He also appropriated the security of the Bond amounting to Rs. 1,10,000/- towards payment of redemption fine in respect of the seized goods. Except for the orders made with regard to the seized goods, the proceedings against Arkay were otherwise dropped.
3. Both the cases were posted for hearing on 26-9-1994 when Sh. A.N. Sharma, Consultant appeared for the appellants. Sh. K.K. Jha, SDR represented the Respondents.
4. Sh. A.N. Sharma, the Id. Consultant submitted that stranding of GI Wires to make them GSS Wire would not amount to the process of manufacture. In support of his contention, he relied upon the Tribunal’s decisions in the cases of (1) Aluminium Industries Ltd., Kerala v. C.C.E., Cochin -1987 (30) E.L.T. -442 (T); (2) Indian Aluminium Cables Ltd., Ghaziabad v. C.C.E., Meerut -1987 (32) E.L.T. 798 (T); (3) C.C.E. v. Andhra Industrial Works -1991 (56) E.L.T. 838 (T) and (4) Assistant Collector of Central Excise, Anantpur v. Ranka Cables (P) Ltd. Cuddapah – Tribunal’s Order No. 156-160/86-B1, dated 11-3-1986 in Appeals No. E/2451 and 3091-3094/84-B1. He also stated that other findings of the adjudicating authority were also not correct, and pleaded for the acceptance of both the appeals.
5. Sh. K.K. Jha, the Id. SDR submitted that the process to which the GI Wire was subjected to produce GSS Wire was a process of manufacture. He explained the process of stranding, and referred to the difference in name, character and use of the product obtained after stranding of GI Wires. He stated that the goods obtained after stranding i.e. GSS Wire was in the nature of a ‘rope’ which is obtained by putting a number of plies together by grouping of the strands. In the decisions relied upon by the appellants there was no finding that there was no process of manufacture in the production of GSS Wire from GI Wire. The Id. SDR relied upon the Supreme Court’s decision in the case of Laminated Packings (P) Ltd. v. C.C.E. -1990 (49) E.L.T. 326 (S.C.). In particular, he invited attention to paras 5 and 6 of that judgment. The Id. SDR submitted that the decisions of the Tribunal relied upon by the appellants were contrary to the Supreme Court’s decision. Reliance was also placed on the Tribunal’s decision in the case of Dipen Textiles (P) Ltd. v. C.C.E. -1992 (62) E.L.T. 430 (T) wherein it has been held that slitting and cutting of jumbo rolls of video magnetic tapes into pancakes amounted to manufacture. Reference was also made to the Tribunal’s decision in the case of Reckitt and Caiman of India v. C.C.E., Bangalore – 1994 (71) E.L.T. 44 (T) wherein it has been held that for classification of the goods first the nomenclature, character and function of the product was to be determined, and then the product is to be identified for classification under the Tariff.
6. In rejoinder, the Id. Consultant again referred to the Tribunal’s decisions in support of his contention that no process of manufacture was involved in the production of GSS Wire out of GI Wire.
7. We have carefully gone through the facts and circumstances of the case and have given our due thought and consideration to the submissions made by both the sides.
8. The Adjudicating Authority, the Collector of Central Excise, Kanpur had framed the following issues for his consideration and decision :-
(i) Whether manufacture of GSS Wire out of GI Wire will amount to manufacture as defined under Section 2(f) of CESA, 1944.
(ii) Whether GSS Wire would be classifiable under Item No. 68 of the Central Excise Tariff or it would fall under Item No. 26AA of the Tariff.
(iii) Whether both the parties – GIC and Arkay – are under common proprietary interest and whether value of the goods cleared by both the parties should be clubbed for computing the exemption limit under Notification Nos. 176/77 and No. 89/79.
(iv) Whether the total capital investment on Plant and Machinery installed in the Industrial units of the parties where goods falling under Item No. 68 of the Tariff were manufactured, exceeded the value of Rs. 10 lakhs at the material time.
(v) Whether the liability to pay duty on the goods manufactured by GIC on the job charges out of the raw material supplied by Arkay would rest with GIC or it would rest with Arkay.
(vi) Whether the duty liability in respect of the goods manufactured by GIC on job charges would be limited to the remuneration for the job work only in terms of Notification No. 119/75 dated 30-4-1975 or the duty liability would be on the total value of such goods.
(vii) Whether during the years 1978-79 and 1979-80 the petitioners were eligible for exemption from payment of duty under Notification No. 176/77 dated 18-6-1977 and 89/79 dated 1-3-1979. (viii) Whether the seized goods belonged to GIC or it belonged to Arkay.
(ix) Whether Arkay and GIC were required to take out Central Excise License for the manufacture of the goods falling under Item No. 68.
(x) Whether the demand of duty was barred by limitation for the period of 6 months under Rule 9 of the Rules, or extended limit of 5 years would apply.
9. The main issue involved is whether the manufacture of GSS Wire out of GI Wires is a process of manufacture for the purposes of Central Excise levy.
10. The appellants were engaged in the manufacture of GSS Wire from GI Wires. GI Wire was a single wire. A number of strands of GI Wire were processed on a stranding machine. A given number of GI Wires were stranded, twisted and tied together in knots. The appellants have admitted that in terms of strength and utility GSS Wire was different from GI Wire. Their strength is increased and their utility is improved (refer para 7 of the reply dated 12-9-1980 of Arkay and para 4 of the reply dated 11-9-1980 of GIC). GSS Wire as produced was fit for use as Stay Wire while the GI Wire out of which the GSS Wire was produced was not usable for such purposes. Thus, in so far as utility of the product is concerned, GSS Wire does stand on a footing different from GI Wire. Section 2(f) of the Act reads as under :-
“Section 2 Definitions – In this Act unless there is anything repugnant in the subject or context, –
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(f). 'manufacture' includes any process incidental or ancillary to the completion of a manufactured product;
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and the word 'manufacturer' shall be construed accordingly and shall include not only a person who employees hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account."
The High Court of Delhi in the case of Metal Forgings (P) Ltd. v. U.O.I. and Ors. -1987 (32) E.L.T. 15 (Del.) had dealt with the provisions relating to manufacture under the Central Excise Law, and in paras 15,16 and 17 of their judgment they have held as under :-
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11. Item No. 26AA of the Tariff reads as under :-
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Item No. Tariff Description
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26AA. Iron or steel products, the following, namely :-
(i) Semi-finished steel including blooms, billets, slabs, sheet bars, tin bars and hoe bars.
(ia) Bars, rods, coils, wires, joists, girders, angles other than slotted angles, channels other than slotted channels, tees, beams, zeds, trough piling and all other rolled, forged or extruded shapes and sections, not otherwise specified.
(ii) Plates and sheets (including uncoated plates and sheets intended for tinning and forms such as ridges, channels other than slotted channels, rainwater pipes and their fittings, made from plates or sheets, but not including plates and sheets after tinning), and hoops, all sorts, other than skelp and strips
(iii) Flats, skelp and strips.
(iv) Pipes and tubes (including blanks therefor), all sorts, whether rolled, forged, spun, cast, drawn, annealed, welded or extruded.
(v) All other steel castings, not otherwise specified.
Explanation - 'Skelp' means hot rolled narrow strip of width not exceeding six hundred millimetres with rolled (square, slightly round or levelled) edge.
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It is seen that in the Tariff Item No. 26AA(ia) ‘Wires’ have been clubbed together with such base items as bars, rods, girders, angles and channels. With regard to the scope of Item No. 26AA(ia), the High Court of Delhi in the case of Metal Forging & Private Limited v. Union of India -1987 (32) E.L.T. 15 (Del.), had observed in para 31 of their judgement as under : –
* * * * * * 12. Item No... Schedule to the Act with effect from 1st March, 1975 and covered all other goods not elsewhere specified.
13. As observed by the Supreme Court in the case of Osival Agro Mills Ltd. v. C.C.E. – 1993 AIR SCW 1782 para 6 – in ascertaining the meaning of the word or a clause or sentence in the statute in its interpretation everything which is logically relevant should be admissible. “Wire” is a cold drawn product of solid section of any cross-sectional shape of which no cross-sectional dimension exceeds 13 mm (refer Explanatory Notes Chapter 73 Note No. l(o) of the Customs Cooparation Council Nomenclature (CCCN) ). In the CCCN iron or steel wire whether or not coated but not insulated, is covered by Heading No. 73.14 which is reproduced below : –
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This heading does not cover stranded wire. Stranded wire, Cables, Cordage, Ropes, Plaited Bands, Slings and the like of Iron or Steel Wire but excluding insulated electric cables, were covered by Heading No. 73.25, which is reproduced below: -
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It is thus seen that the 'Wire' and the 'Stranded Wire' are two different products and are classified differently in the CCCN. In the case of Devarsons Pvt. Ltd. v. CCE, Ahmedabad, 1984(17) E.L.T. 135 (T), the Tribunal had observed in para 16.2 of their order as under-
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14. Stranding consists of bringing the individual wires together in a pre-determined pattern, and twisting or ‘stranding’ them uniformly in concentric rings about a central wire in either a clockwise or counter-clockwise direction to form the completed strand (refer the Publication, The Making Shaping and Treating of Steel. U.S. Steel Page 867). In the case before us, the GSS Wire was manufactured out of GI Wires by stranding 7 or 8 single galvanised wires together on power driven stranding machine. In para 18 of his order, the Collector of Central Excise, Kanpur has held as under :-
In the instant case GSS Wire was manufactured out of GI Wire by stranding 7 or 8 single galvanised wires together on power driven stranding machine. There is no denying the fact that GSS Wire is a different commodity having suffered a distinct change in its physical appearance than the GI Wire though chemical property of both might be the same i.e. Iron/Steel Wire. It is not only different in physical shape but also its use is also different. In common trade parlance also both the commodities are recognised as two distinct commercial commodities. GI Wire is used for making rails wire – ropes etc. while GSS Wire is used for stay purposes and for giving strength. Thus, GSS Wire is a new and different article with distinct name, character and use and satisfies the principles enunciated by the Hon’ble Supreme Court of India in the cases cited above. I, am therefore, of the view that process undertaken by the parties for the manufacture of GSS Wire out of Galvanised Iron/Steel wire would amount to manufacture as defined under Section 2(f) of the CESA, 1944.”
15. The issue as when a new commercial commodity comes into existence following processing or manufacturing undergone by the parent object which in most cases utilise raw-material for the end product, has been a subject matter of catena of decisions. It is now well settled that different considerations 4 would apply when the Court is concerned with non-edible articles in contrast to edible articles (refer observations of the Gauhati High Court in Modern Candle Works v. Commissioner of Taxes, Assam, 1988 (71) STC 362). Whether in a particular case, the process of manufacture has resulted in a transformation of the raw-material is a question of fact to be decided in respect of each item. A general assessment of a particular process to arrive at a conclusion may sometimes prove to be fallacious (refer Tribunal decision in the case of Blwrat Forge and Press India (P) Ltd., Baroda v. CCE, Baroda, 1987 (29) E.L.T. 180 (T) ). The Hon’ble Supreme Court in the case of Talangana Steel Industries v. State of Andhra Pradesh, 1994 AIR SCW 1747, quoted with approval, the observations of the Gauhati High Court in Modern Candle Works v. Commissioner of Taxes, Assam, 1988 (71) STC 362 that different considerations would apply when the Court is concerned with edible articles in contrast to non-edible articles. With regard to , the non-edible articles they observed that, “it is the concept of the consumption of the original commodity in the course of production of a new commodity as understood commonly by the people who use it would be material. The nature and extent of the process whether the labour is manual or mechanical, whether the duration is short or long, whether the production requires expertise or not would no doubt be relevant but would not alone be decisive.” In that case, the Hon’ble Supreme Court were concerned with the classification of Wire rods and Wires – whether Iron Wires were separate commercial goods from Wire rods from which they were produced. The Supreme Court observed that it was not the substance out of which the Wire was produced which was relevant but the goods which were the object of taxation. In that case, the Wire rod and Iron wire had been clubbed together in the relevant tariff entry, and the Supreme Court held that it was the clubbing of the Iron Rod and Wire in the concerned entry which made material difference, and clinched the issue. The Hon’ble Supreme Court in the case of Laminated Packings (P) Ltd., v. CCE – 1990 (49) E.L.T. 326 (SC) had held in para 4 of their judgment that Laminated Kraft paper was distinct, separate and different goods known in the market as such from the Kraft paper. They observed that “the fact that the duty has been paid on the kraft paper is irrelevant for consideration of the issue before us. If duty has been paid then benefit or credit for the duty paid would be available to the appellant under Rule 56A of the Central Excise Rules, 1944.” On the question of manufacture, the Hon’ble Supreme Court held in para 6 as under :-
“The further contention urged on behalf of the appellant that the goods belong to the same entry is also not relevant because even if the goods belong to the same entry, the goods are different identifiable goods, known as such in the market. If that is so, the manufacture occurs and if manufacture takes place, it is dutiable. ‘Manufacture’ is bringing into being goods as known in the excise laws, that is to say, known in the market having distinct, separate and identifiable function. On this score, in our opinion, there is sufficient evidence. If that is the position, then the appellant was liable to pay duty, we are, therefore, clearly of the opinion that the order of the CEGAT impugned in this appeal does not contain any error. The appeal therefore, fails and is accordingly dismissed.”
16. There are a number of decisions of the Tribunal that the doubling and twisting of yarn is a manufacturing process falling under Section 2(f) of the Act (1) Aditya Mills Ltd., Rajasthan v. CCE, Jaipur – 1983 (14) E.L.T. 1853 (T); (2) Kiran Spinning Mills v. CCE, Bombay-II -1987 (30) E.L.T. 550 (T); (3) Collector of Central Excise v. Swan Mills Ltd. – 1989 (43) E.L.T. 440 (T) and (4) Rajasthan Spinning and Weaving Mills v. CCE – 1990 (45) E.L.T. 654 (T). The Tribunal’s decision in the case of Aditya Mills Ltd., referred to above, has been confirmed by the Supreme Court as reported in 1988 (37) E.L.T. 471 (SC). Para 6 from that judgment is extracted below :-
“Hence, the short question involved in this appeal, is : whether the goods in question, namely, a special type of yarn marked as a finished product known as TPRF Yarn’, should be treated as such and taxed on that basis. Excise duty is a duty on the manufacture of goods and not on sale. Manufacture is complete as soon as by the application of one or more processes, the raw material undergoes some change. If a new substance is brought into existence or if a new or different article having a distinct name, character or use results from particular process or processes, such process or activity would amount to manufacture. The moment there is transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use, ‘manufacture’ takes place. See the observations of this Court in UOI v. Delhi Cloth and General Mills 1963 Suppl 1 SCR 586, Union of India v. HUF Business known as Ramlal Mansukhrai, Rewari and Anr. – 1973 SCR 257, Deputy Commissioner, Sales Tax (Law) Board of Revenue (Taxes) Ernakulam v. Pio Food Packers – 1980 SCR 1271, Chowgule & Co. Pvt. Ltd. and Anr. v. UOI (1981 SCC 653) and the cases referred to in the decision of this Court in Empire Industries Ltd. and Ors. v. Union of India and Ors. 1985 Suppl SCR 292.”
17. In the light of the above discussion, there is no doubt that the process by which the GSS Wire is manufactured from the GI Wires is a process of manufacture, and the manufacture of GSS Wire out of GI Wire amounts to manufacture as per Section 2(f) of the Act.
18. In the case of Asstt. Collector of Central Excise, Anantapur v. Ranka Cables (P) Ltd., Cuddapah, Tribunal Order No. 156-160/86-B1 in appeal No. 2451 & 3091 to 3094/84-B1, the matter related whether the bare Aluminium Wires thicker than 10 SWG could be classified as Electric Wires under Item No. 33-B(ii). In the case of CCE v. Andhra Industrial Works -1991 (56) E.L.T 838 (T), the matter related to the conversion of Aluminium Wires into Aluminium Conductors. In the other two cases relied upon by the appellants – (1) Aluminium Industries Ltd., Kerala v. CCE, Cochin -1987(30) E.L.T 442 (T) and (2) Indian Aluminium Cables Ltd., Ghaziabad v. CCE, Meerut -1987 (32) E.L.T. 789 (T), it is seen that there is no discussion about the process of manufacture, transformation of the GI Wires into GSS Wire, the usage of the finished product vis-a-vis, the raw material, and the understanding of the resultant commodity GSS Wire by the people who use it. In the light of the latest decisions by the Hon’ble Supreme Court on the subject and the above discussions on facts and law there is no doubt that in the manufacture of GSS Wires, there is a process of manufacture under the provisions of the Central Excise Law.
19. As regards the issue of classification of GSS Wire, the GI Wire and GSS Wire are two separate commodities, and the GSS Wire was not classifiable under Item No. 26AA, or any other specific item in the Tariff. In the circumstances they were rightly classifiable under Item No. 68. Although, we have come to this decision of classification independently on merits, it may be mentioned that as per the “Tariff Advice No. 53/78 dt. 18-9-1978 issued by the CBEC, stranded galvanised steel wires manufactured from duty paid steel wires by the process of stranding wires by a stranding machine, were classifiable under Item No. 68 of the Tariff.
20. On the issue regarding the liability to pay duty on the goods manufactured by the GIC, the Collector of Central Excise, Kanpur has rightly held in para 32 of his order that GIC were the manufacturer and that the value of the goods manufactured by GIC on job work basis out of raw-material supplied by Arkay was to be added in the clearances of GIC and not Arkay.
21. Regarding determination of the value of the goods manufactured by GIC on job work basis, he has concluded in para 33 of his order that the value at which the goods in question were finally sold to the customers should be reckoned for computing the value of their clearances of the said goods, and that the benefit of Notification No. 119/75 was not available to them. He held in para 36 of his order that not the job charges alone but the total value of the said goods had to be taken into account for computing the value of the said goods cleared. We find no fault with the reasonings and findings of the adjudicating authority.
22. The next issue is whether the parties were eligible for exemption from payment of duty on the goods falling under Item No. 68 of the Tariff manufactured and cleared by them during the years 1978-79 and 1979-80 as envisaged tinder Notn. Nos. 176/77, dt. 18-6-1977 and 89/79, dt. 1-3-1979. The up adjudicating authority has come to the decision in para 38 of his order that the sum total of capital investment on Plant and Machinery of the Industrial Unit of Arkay did not exceed Rs. 10 lakhs, and that the value of the goods cleared by them during the financial year 1978-79 did not exceed Rs. 30.00 lakhs. Accordingly he allowed exemption in respect of the goods valued Rs. 7,34,297.10 cleared by Arkay during the financial year 1979-80 in terms of Notification No. 89/79-C.E., dated 1-3-1979. With regard to GIC, relief has been given in respect of Sales Tax and surcharge amounting to Rs. 86,655.58 which had been included in the value of the Barbed Wire. He accepted the contention of the party in this regard and held that the amount of sales tax and surcharge included in the value was required to be excluded. He also accepted the contention of the GIC that the value should be calculated at the rates prevailing at the time of clearance, and not at the rates prevailing at the time of the seizure, which were higher than the rates prevailing at the time of actual clearance. He allowed exemption to the first clearances of the goods falling under Tariff Item No. 68 upto the value of Rs. 30.00 lakhs during the year 1978-79. Further, he held in para 42 that the party for the year 1978-79 was liable to pay duty @ 5% ad valorem and not 80% ad valorem as alleged in the show cause notice. After giving these reliefs and accepting various contentions of the party, as discussed in paras 37 to 43 of his order he held that GIC were required to pay Central Excise duty amounting to Rs. 25089.85 during the year 1978-79 and Rs. 1,94,686.55 during the year 1979-80.
23. With regard to the seized goods, on the basis of facts on record and various submissions by the party, he decided that the seized goods were manufactued by GIC and not by Arkay and further held that GIC should have discharged the duty liability in respect of the seized goods.
24. On the question of licensing also, he held that while a single licence was required for all the goods falling under Item No. 68, separate licenses were required for separate premises. On the basis of the value of clearances and the exemption Notn. he held that Arkay were exempted from licensing control. With regard to GIC, he, however, held that, they had cleared GSS Wire from their Unit No. 2 during the years 1978-79 and 1979-80 with intent to evade payment of duty and that they had contravened the provisions of the Rules and were liable to penalty.
25. On the question of limitation also, the adjudicating authority after discussing the case law on the subject and analysing the various facts on record, came to the conclusion that the demand in this case was covered under Rule 9(2) of the Rules and the extended period of limitation was applicable and that the demand was not time barred and was well withing time. He observed in para 51 that, “the private records maintained by them for their own purposes, cannot be deemed to have been maintained within the knowledge of Central Excise Department.” They had not given any intimation regarding the manufacture and clearance of the goods in question in their Unit No. 2. They wilfully suppressed the fact of manufacture and clearance of the said goods in their Unit No. 2 so that by concealing the clearance figures of Unit No. 2 they could avail benefit of exemption Notn. Nos. 176/77 and 89/79, and could evade payment of duty. He came to the conclusion that GIC had suppressed the facts and as such extended period of five years under Rule 9(2) read with Section 11A was applicable. In para 52 of his order he held as under :-
“In this regard, I would like to place reliance on different decisions of the CEGAT in chain of decisions viz. Rekha Industries Bombay v. Central Board of Excise and Customs, 1983 ECR 938, Goodwin Rubber Works v. Collector of Central Excise, Cochin 1983 ECR 504D, Ceakay Rubber Industries v. Collector of Central Excise, Madras 1983 ECR 687D and also RisM Enterprises, Bombay, 1984 ECR 762 wherein it has been categorically held that demand under Rule 9(2) was enforceable in all cases where there had been manufacture and removal of goods without intimation to the Central Excise authorities and without obtaining Central Excise Licence and without payment of duty besides maintaining statutory records. It was also held in the case of Rishi Enterprises, Bombay v. Collector of Central Excise (supra) that in all such cases extended period of limitation of 5 years would apply. In the instant case, as discussed at paras 49 & 50 above, the- party No. 2 did not obtain a Central Excise licence, did not maintain Statutory records and cleared the said goods without intimation to the Central Excise authorities and without payment of duty. I, therefore, do not find any force in the argument of the party and am of the considered view that demand in this case is covered under Rule 9(2) of the Central Excise Rules, 1944 and the extended period of limitation would apply. Hence the demand is not time barred but is well within time.”
We agree with the findings of the Adjudicating Authority.
26. With regard to the issue No. 3 (whether both the parties were under common proprietary interest and whether value of the goods cleared by both the parties should be clubbed for computing the exemption limit under Notn. Nos. 176/77 and 89/79, and issue No. 4 (whether the total capital investment on Plant and Machinery installed in the Industrial units of the parties where the goods falling under Item No. 68 were manufactured, exceeded the value of Rs. 10 lakhs at the material time), the adjudicating authority had decided in favour of the appellants.
27. We, thus find that the adjudicating authority has analysed all the facts and circumstances of the case, and has given relief wherever it was due. In the circumstances, we find no merit in the appeals. Both the appeals are rejected.