ORDER
Jyoti Balasundaram, Member (J)
1. The above captioned appeals involve common issues and are hence heard together and disposed of by this common order.
2. E/2540/84-D. – This appeal arises from the order of the Collector of Central Excise (Appeals) confirming the demand of duty on blank cassette tapes cleared by the appellants for further use in the manufacture of recorded cassette tapes within their factory for the period from 5-3-1983 to 9-7-1983 and rejecting the request for grant of proforma credit for the purpose of adjustment in RG-23, Part II.
3. The facts of the case are as follows :-
The appellants manufacture recorded video cassette tapes for which they first import video magnetic tapes in Pancake form falling under T.I. 59(5) of the erstwhile Central Excise Tariff and plastic covers falling under T.I. 68. The assembly of the two results in formation of a blank video cassette tape falling under T.I. 59(5). Subsequently they are used for recording video programs and duty is collected under T.I. 59(5) as T.V. image and sound recording media falling under T.I. 59(6). The Central Excise Department called upon the appellants to pay duty on blank video cassette tapes arising upon assembly of plastic covers and magnetic tapes. The Assistant Collector held that an entirely new product known as video cassette tape comes into existence when the magnetic tape is assembled with the plastic cover, and therefore demanded duty on the blank tapes. He also disallowed the claim for proforma credit by way of adjustment in RG-23, Part II register due to non-compliance with Rule 56A procedure. The lower appellate authority upheld the order of the adjudicating authority, holding that when video magnetic tapes were converted into video cassette tapes, a product having distinct name and character had emerged and thus there was no double levy, even though both video magnetic tapes and video cassette tapes were classified under T.I. 59(5). He also held that as the appellants had not intimated that they were importing video magnetic tapes in pancake form and empty plastic covers separately, disallowing proforma credit granted earlier was justified.
4. C/284/88-D. – This appeal arises against the order of the Collector of Customs (Appeals) dated 11-11-1987 in this background :-
The appellants had imported video cassettes without tape and video magnetic tapes which were cleared under Heading 39.07 and Heading 92.01/13 of the Customs Tariff respectively. A demand notice for short-levy of duty was issued to them on the ground that video cassettes without tapes were also assessable to duty as video magnetic tapes imported in unassembled condition under Heading 92.01. The demand was confirmed by the Assistant Collector and was upheld by the lower appellate authority, rejecting the appellants’ contention that Video Cassette tape is only a cover made out of plastic and assessable as articles made of plastics in terms of Chapter Note 2 to Chapter 92 which lays down that cases, boxes and similar containers imported with articles of that Chapter are to be classified with such articles if they are of a kind normally sold therewith and such items imported separately are to be classified under the appropriate headings.
5. The issues for consideration in these appeals are :-
(1) whether assembly of magnetic tapes and plastic covers amounts to "manufacture" within the meaning of Section 2(f) of the CESA 1944. (2) whether the appellants would be entitled to the grant of proforma credit under Rule 56A in respect of duty already paid. 6. We have heard Shri Koshy, learned counsel for the appellants and Smt. Vijay Zutshi, learned JCDR for the respondents.
7. The appellants were given an Industrial licence for the manufacture of Video Tape Recorder Systems with Monitors with an annual capacity of 500 Nos. In pursuance of this Licence, the appellants started manufacturing Video Tape Recorder Systems with Monitors, from February 1982. The Import Licence issued to the appellants included in the list attached thereto 420 numbers of Video Cassettes falling under entry at Sl. No. 689 (26) in Appendix III of Licensing Policy April 1981 – March 1982). After introduction into the market of the VCR produced by the Appellants, it was realised that for successful marketing of the VCRs, it was necessary to have as ready stock about 20 numbers of Video Cassette Tapes per VCR. This amounted to additional imports of Video Cassette Tapes. This was taken up with the DGTD & Import Licensing Authority and as per the advice received from them, the appellants obtained an additional list attached to the aforesaid Import Licence for importation of 5000 sets of Video Magnetic Tapes against Entry No. 580(35) in Appendix V and Video Cassettes without Tape against Entry 580(36) of Appendix V of the Import Policy for April 1981 – March 1982. According to the advice received and according to the additional list that was attached to the licence, the Appellants had to import their requirements of Video Cassette Tapes in a dis-assembled form i.e. Video Magnetic Tape as one constituent and the Video Cassette without tape being the other constituent respectively, falling under Entry 580(35) and 580 (36) in Appendix V of the Import Policy April 1981 – March 1982. As the appellants were not engaged in the manufacture of Video Cassette Tapes in pursuance of the licensing policy according to which the additional list attached to their licence, required import of Video Cassette Tapes in two constituents in dis-assembled form, the appellants accordingly negotiated with the foreign suppliers for the supply of the requisite number of Video Cassette Tapes after dis-assembly individual Video Cassette Tapes into two constituents, one the Video magnetic tape as for an individual cassette and the other as the Video Cassette without tape i.e. the empty case, the requisite number of screws for bringing the two constituents together being also supplied. The assembly of video cassette tapes takes place merely putting the magnetic tape and plastic case together and fixing the screws supplied by the foreign supplier.
8. The law on the point as to what constitutes manufacture is well settled. In the case of Union Carbide Co. Ltd. v. Union of India [1978 (2) ELT (J180)] the Calcutta High Court held that “Manufacture implies a change but every change in the raw material is not manufacture exigible to duty. To be manufacture exigible to duty there must be such transformation that a new and different article which can ordinarily come to the market to be bought and sold and known to the marketing having a distinctive name, character and use must emerge.
9. In the case of Union of India v. Delhi Cloth and General Mills [1977 (1) ELT (J199)] the Supreme Court defined manufacture thus “The word ‘Manufacture’ used as a verb is generally understood to mean as ‘bringing into existence a new substance’ and does not mean merely ‘to produce some change in a substance'”. However, minor in consequences the change may be. This distinction is well brought about in a passage thus quoted in permanent Edition of Words and Phrases Vol. 26 from an American Judgment. The passage runs thus :
“Manufacture implies a change but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use.”
9A. Our attention has been drawn by the appellants’ counsel to the decision of the Madras High Court in the case of T.I. Cycles of India v. UOI, reported in 1983 ELT 681 wherein it was held that assembling of cycle parts does not amount to manufacture as envisaged by Section 2(f) of the CESA as no new marketable commodity is produced or brought into existence when cycle parts are assembled by the buyer, who imports cycles in C.K.D. condition. At this juncture, the learned JCDR sought to distinguish the facts of the case (supra) from those of the present appeals. She contended that the High Court considered trade practice in cycles which is the reverse of that in video cassette tapes, as the practice in trade relating to cycles was to import them in CKD condition which practice was not established in the present case. We do not see how this would make any difference, as the test of manufacture has not been satisfied in this case. We fail to see how assembly of magnetic tape and plastic covers amounts to manufacture: The arguments advanced by the learned JCDR do not clinch the issue.
10. Attention is next invited to the decision reported in 1984 (18) ELT 14 (Maharashtra Agro Industries Development Corporation Ltd. v. Collector of Central Excise, Bombay) wherein this Tribunal held that assembly of bullock carts by assembly of bought out items (duty paid) alongwith some self-manufactured items will not amount to manufacture within meaning of Section 2(f) of the CESA. In this case the appellants do not even manufacture any of the components of the Video Cassette tapes as or the magnetic tapes, plastic covers and screws are imported and merely assembled into Video Cassette Tapes.
11. In the light of the above discussion, we hold that the assembly of Video magnetic tape with plastic covers does not amount to manufacture and the appellants are therefore entitled to succeed in appeal No. E/2450/84-D.
12. Having held in favour of the appellants on the question of manufacture, it is not necessary for us to go into the question of eligibility for proforma credit under Rule 56A. However, we observe that, as per the calculations of the appellants the duty liability towards assembled unrecorded video cassettes would be totally covered by the available credit. The details of payment of duty for the period March 1983 to 8th July 1983. (Notification 187/83 was issued on 9-7-1983 which notification exempted unrecorded video cassettes, issued for recording within the premises from payment of duty) are as under:
1. Duty liability in respect of unrecorded Video Cassettes assembled and removed within the factory for recording Rs. 1,09,593.75
2. Proforma credit available in respect of C.V. Duty paid on Imported Magnetic Tapes also during the relevant period Rs. 1,10,429.42
3. Had the credit at Sl. No. 2 not been utilised in the manner it was done, the amount of such credit available for payment of duty on unrecorded Video Cassettes would have been Rs. 1,10,429.42
4. On the basis of the duty liability in respect of unrecorded Video Cassettes adjusted in the above manner the proforma credit of such duty available for payment of duty on recorded Video Cassettes produced and cleared during the said period Rs. 1,09,593.75
The duty liability on recorded Video Cassettes produced and cleared during this period Rs. 63,393.75
Thus payment of duty as per Sl. No. 3 would be fully adjusted as Proforma Credit made at Sl. No. 4.
From this, it will be seen that no payment of cash towards duty would be involved.
13. As we have held that assembly of Video Magnetic Tape with plastic covers will not amount to manufacture, we also held that the Customs authorities were perfectly justified in confirming the short-levy demand on the ground that Video Cassette without tapes were also assessable to duty as Video Magnetic Tape imported in dis-assembled condition under Heading 92.01 of the Customs Tariff.
14. In the result Appeal No. E/2450/84-D is allowed with consequential relief, if any, and Appeal No. C/284/88-D is dismissed.