CASE NO.: Appeal (civil) 4322 of 1999 PETITIONER: M/s. Kores India Ltd., Chennai RESPONDENT: Commissioner of Central Excise, Chennai DATE OF JUDGMENT: 23/11/2004 BENCH: ARIJIT PASAYAT & C.K.THAKKER JUDGMENT:
J U D G M E N T
With
[C.A. Nos. 2682-2690 of 2000]
ARIJIT PASAYAT, J.
These appeals are inter-linked. In Civil Appeal No.4322 of 1999
M/s Kores India Ltd., Chennai (hereinafter referred to as the
‘assessee’) calls in question legality of the judgment rendered by the
Customs, Excise and (Gold) Control Appellate Tribunal, South Zonal
Bench, Chennai (in short the ‘Tribunal’) holding that demand for duty
raised in respect of typerwriter/telex ribbons is in order. In the
connected appeals Commissioner of Central Excise, Indore calls in
question legality of the New Delhi Bench of CEGAT taking a divergent
view in holding that duty was not payable.
Background facts in a nutshell are as follows:
So far as civil appeal no.4322/1999 is concerned, show cause
notice was issued by the Collector of Central Excise, Chennai (in short
the ‘Commissioner’) on 22.3.1993, inter alia, proposing levy of duty on
the typewriter ribbons cleared by the assessee during the period
1.3.1988 to 30.9.1992 by invoking extended period of limitation under
proviso to Section 11A of the Central Excise and Salt Act, 1944 (in
short the ‘Act’). In the reply to the show cause notice, assessee took
the stand that no process of manufacturing is involved in the concerned
transaction. Assessee receives excise duty paid on typewriter/telex
ribbons in jumbo rolls of 210 mtrs. or more length from two small scale
units in Madras. In the assessee’s factory typewriter rolls are fed
into cutting and spooling machines wherein the ribbons of standard
length of 10 mtrs. and 5 metrs. are cut and spooled into metal spoons.
The ribbons in spools are packed and sold by the assessee. With
reference to Heading 96.12 of the Schedule to the Central Excise Tariff
Act, 1985 (in short the ‘Tariff Act’) it was submitted that since
appropriate central excise duty had been levied on the rolls there is
no question of paying any further duty. Apart from cutting of ribbons
into standard pre-determined lengths, the assessee does not take any
activity on the ribbons received. It is to be noted that by order-in-
original no.40/93 dated 19.8.1993 passed by the Collector of Central
Excise, duty of Rs.2,89,76000/- was levied on clearance of carbon
papers and typewriter ribbons from the assessee’s factory at Madras.
Duty was affirmed under Rule 9(2) of the Central Excise Rules, 1944 (in
short the ‘Rules’) read with proviso to sub-section (1) of Section 11A
of the Act. Further demand of Rs.2,14,066/- was confirmed on seized
carbon papers and ribbons. Seized goods of both varieties valued at
Rs.5,36,276.36 were held to be liable for confiscation and were
released by enforcing the Bank Guarantee furnished to the extent of
Rs.50,000/-. Collector also levied penalty of Rs.30 lakhs under Rule
173Q of the Rules.
Show cause notice related to the two products i.e. carbon papers
for the period 1.3.88 to September, 1992 and typewriter/Telex ribbons
for the period 1.4.88 to September, 1992. The present dispute relates
only to typewriter/telex ribbons.
The CEGAT held that the cutting of ribbons in smaller size and
spooling them into on the automatic spooling machines amounts to
manufacture and, therefore, duty is payable on these ribbons. The
conversion is done as per requirement of consumers in different spools
to suit Typewriter machines of different brand names. Ribbons received
by the Madras Unit cannot be supplied to the customers in the form
received by merely reducing the length by cutting. It is further held
that the product becomes saleable commodity only after it is spooled
according to the desired sizes and, therefore, excise duty is payable
as a new and distinct identity is acquired. The factual findings
recorded by the Collector were affirmed.
In the connected appeals the stand of the assessee was accepted
and the levy of duty by the Collector of Central Excise, Indore was
deleted. While the Chennai Bench observed that manufacturing process
was involved the New Delhi Bench held otherwise. It was concluded that
manufacturing of ink ribbon is complete without process of cartridges
and that Chapter Heading 96.12 does not make any distinction in
Cartridges and the cassettes.
In support of civil appeal no.4322/1999 Mr. V. Lakshmikumaran,
learned counsel submitted that CEGAT was not justified in holding that
any manufacturing process was involved. According to him cutting the
jumbo rolls into the smaller size may amount to processing but by no
stretch of imagination it amounts to manufacturing. Reference was made
to Prince Khadi Woollen Handloom Prod. Coop. Indl. Society v. C.C.E.
[1996 (88) ELT 637 (SC)] and Union of India v. J.G. Glass Industries
Ltd. [1998 (97) ELT 5 (SC)] to buttress the plea. It was submitted that
whenever the intention was to include a particular activity within the
manufacturing activity it was specifically provided. Reference was
made to Chapters 37, 48 and 85 of the Tariff Act, as position stands in
2002-2003. In any event, according to him, the extended period of
limitation was not available to be applied because to infer suppression
of facts something more than mere bonafide mistake was necessary to be
established by the Revenue. As a matter of fact, various authorities
have entertained doubt as to whether the activities in question
involved manufacturing process. Particular reference was made to the
New Delhi Bench judgment of CEGAT which is the subject matter of appeal
in civil appeal nos.2682-2690/2000.
Burden is on the Revenue to prove manufacture. Strong reliance
was placed on Aman Marble Industries Pvt. Ltd. v. Collector of C.Ex.,
Jaipur [2003 (156) ELT 396 (SC)] which involves cutting of marble
blocks into slabs. It was pointed out that if cutting of the blocks of
marble into slabs does not amount to manufacturing, as was held by this
Court, there is no reason to adopt a different yardstick so far as
cutting of typewriter rolls of ribbons into smaller sizes is concerned.
At this juncture it is necessary to note that the duty component
involved in the present dispute after grant of revenue by the CEGAT in
respect of carbon paper is Rs.42,72,308.03. This was in addition to
Rs.54,335/- which related to seized articles. Penalty was limited to
Rupees 5 lakhs. In civil appeal nos.2682-2690/2000 the duty involved
is Rs.70,22,974.46/-, which was deleted by the impugned judgment.
In response, Mr. M. Parasaran, learned ASG, submitted that nature
of activity has been analysed in great detail by the Collector and
CEGAT. Taking note of the factual position it has been concluded that
manufacturing activity is involved. It has been clearly established
that different commercial commodity has come into existence and the
commodity which was already in existence serves no purpose and no
commercial use after the process. A new name and character has come
into existence. The original commodity after processing does not
possess original identity. It is pointed out that there cannot be
bonafide doubt in the mind of assessee in not obtaining licence and not
disclosing the turnovers. With clear knowledge that the process
involved manufacture, the activity was undertaken and, therefore, duty
was payable. It is the legal duty of the assessee to take out the
licence and pay duty. It has been deliberately avoided to be done with
malafide intention and, therefore, there was clear case of suppression
of facts attracting extended period of limitation.
In Black’s Law Dictionary, (5th Edition), the word ‘manufacture’
has been defined as, “the process or operation of making goods or any
material produced by hand, by machinery or by other agency; by the
hand, by machinery, or by art. The production of articles for use from
raw or prepared materials by giving such materials new forms,
qualities, properties or combinations, whether by hand labour or
machine”. Thus by process by manufacture something is produced and
brought into existence which is different from that out of which it is
made in the sense that the thing produced is by itself a commercial
commodity capable of being sold or supplied. The material from which
the thing or product is manufactured may necessarily lose its identity
or may become transformed into the basic or essential properties. (See
Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam v. M/s. Coco Fibres (1992 Supp. (1) SCC 290).
Manufacture implies a change but every change is not manufacture,
yet every change of an article is the result of treatment, labour and
manipulation. Naturally, manufacture is the end result of one or more
processes through which the original commodities are made to pass. The
nature and extent of processing may vary from one class to another.
There may be several stages of processing, a different kind of
processing at each stage. With each process suffered the original
commodity experiences a change. Whenever a commodity undergoes a
change as a result of some operation performed on it or in regard to
it, such operation would amount to processing of the commodity. But it
is only when the change or a series of changes takes the commodity to
the point where commercially it can no longer be regarded as the
original commodity but instead is recognized as a new and distinct
article that a manufacture can be said to take place. Process in
manufacture or in relation to manufacture implies not only the
production but also various stages through which the raw material is
subjected to change by different operations. It is the cumulative
effect of the various processes to which the raw material is subjected
to (sic that the) manufactured product emerges. Therefore, each step
towards such production would be a process in relation to the
manufacture. Where any particular process is so integrally connected
with the ultimate production of goods that but for that process
processing of goods would be impossible or commercially inexpedient,
that process is one in relation to the manufacture. (See Collector of
Central Excise, Jaipur v. Rajasthan State Chemical Works, Deedwana,
Rajasthan (1991 (4) SCC 473).
‘Manufacture’ is a transformation of an article, which is
commercially different from the one, which is converted. The essence
of manufacture is the change of one object to another for the purpose
of making it marketable. The essential point thus is that in
manufacture something is brought into existence, which is different
from that, which originally existed in the sense that the thing
produced is by itself a commercially different commodity whereas in the
case of processing it is not necessary to produce a commercially
different article. (See M/s. Saraswati Sugar Mills and others v.
Haryana State Board and others (1992 (1) SCC 418).
The prevalent and generally accepted test to ascertain that there
is ‘manufacture’ is whether the change or the series of changes brought
about by the application of processes take the commodity to the point
where, commercially, it can no longer be regarded as the original
commodity but is, instead, recognized as a distinct and new article
that has emerged as a result of the process. There might be borderline
cases where either conclusion with equal justification can be reached.
Insistence on any sharp or intrinsic distinction between ‘processing
and manufacture’, results in an oversimplification of both and tends to
blur their interdependence. (See Ujagar Prints v. Union of India (1989
(3) SCC 488).
To put differently, the test to determine whether a particular
activity amounts to ‘manufacture’ or not is: Does new and different
goods emerge having distinctive name, use and character. The moment
there is transformation into a new commodity commercially known as a
distinct and separate commodity having its own character, use and name,
whether be it the result of one process or several processes
‘manufacture’ takes place and liability to duty is attracted.
Etymologically the word ‘manufacture’ properly construed would
doubtless cover the transformation. It is the transformation of a
matter into something else and that something else is a question of
degree, whether that something else is a different commercial commodity
having its distinct character, use and name and commercially known as
such from that point of view is a question depending upon the facts and
circumstances of the case. (See Empire Industries Ltd. v. Union of
India (1985 (3) SCC 314).
Keeping in view the aforesaid principles it has to be examined
whether the Collector and CEGAT were justified in holding that
manufacturing activities were made out. As appears from the order of
the Collector, reference was made to the statements given by two
officials of the assessee. Ribbon in rolls of 210 mtrs. and above in
length are purchased from M/s Solar Packaging (P) Ltd., Madras and M/s
Saket Stationery Mfg. Co. Bombay. The said Jumbo rolls were fed into
cutting and splitting machines in their premises and ribbons of
standard lengths of 10 mtrs. and 5 mtrs. were cut/slit and subsequently
wound/spooled on the metal spools and 10 such spools are blister packed
and sealed with aluminium foil. It was categorically observed that the
assessee produced ribbons in spools out of Jumbo rolls and the
resultant product is a distinct, identifiable article having distinct
name, function and use. The resultant product is also commercially
distinct as understood in commercial parlance and has a separate
market. Their function and use are also completely different and both
products are not inter-changeable. The ribbon in Jumbo rolls cannot be
used in a typewriter and similarly a person who requires 30 pieces of
spool ribbon will not be satisfied if he is offered Jumbo rolls of
equal length. In fact, assessee has a separate unit, machinery and work
force to manufacture in spool form. In that view of the matter, it was
held that the process involved amounted to manufacturing.
At this juncture it is relevant to point out that the assessee
had contended before the Collector that the inputs/raw materials used
have suffered excise duty and if any duty is payable, they should be
allowed Modvat credit and the proportionate amount on account of such
credit should be deducted from the proposed demand. This plea was
turned out as required documentary evidence to show that entire
quantity of inputs used have suffered tax was not produced. Before
CEGAT it was accepted that there was possibility that manufacturers
were operating under exemption available to SSI Units and the goods
would have discharged “nil” duty. It was also accepted that since the
goods were received from the depots and not directly received from one
factory, therefore, any duty (paying documents) were not available. It
is to be noted that once the Jumbo rolls are cut into smaller sizes,
they completely lost their earlier identity and cannot be used for the
same purpose as was done before cutting. In a hypothetical case, even
if the smaller sized ribbons are stitched together or fixed together in
any manner, there is no possibility of its use as Jumboo rolls. The
factual findings recorded that the processing resulted in coming into
existence of a commercial product having distinct name, character, and
use are on terra firma. No case is made out for interference with the
factual findings.
Coming to the plea of limitation CEGAT noticed that there was
manufacturing and removal under Rule 9(1) at the Madras unit and,
therefore, demand of duty under Rule 9(2) read with Section 11A was
applicable. It was concluded that there was clear contravention of
Rule 9(1) with the intention to evade. Therefore, the contention that
the assessee harboured bonafide and germine belief of the non-
exciseability of the product was not acceptable. No clarification from
the department was sought for and accordingly extended period of
limitation was applicable.
In M/s Padmini Products v. Collector of Central Excise, Bangalore
(1989 (4) SCC 275) it was observed with reference to earlier judgment
in CCE v. Chmphar Drugs and Liniments, Hyderabad (1989 (2) SCC 127)
that in order to avail limitation beyond a period of six months and up
to a period of five years, in view of the proviso to sub-section (1) of
Section 11A of the Act, it had to be established that the duty of
excise had not been levied or paid or short-levied or short-paid, or
erroneously refunded by reason of either fraud or collusion or wilful
mis-statement or suppression of facts or contravention of any provision
of the Act or Rules made thereunder, with intent to evade payment of
duty. It was observed that something positive other than mere inaction
or failure on the part of the manufacturer or producer or conscious or
deliberate withholding of information which the manufacturer knew
otherwise, is required to be established before it is saddled with any
liability beyond the period of six months. Whether, in a particular set
of facts and circumstances, there was any fraud or collusion or wilful
mis-statement or suppression of facts contravention of any provision of
the Act, is a question of fact depending upon the facts and
circumstances of a particular case.
It is to be noted that strong reliance was placed on Government
Order passed in 1982 ELT 4840 A (GOI), dated 16.1.1982 to contend that
there was bona fide plea about non-exciseability. Reference was also
made to the order passed by the New Delhi Bench which is the subject
matter of challenge in the connected appeals and the order dated
12.4.1996 passed by a Collector who dropped the proceedings initiated.
Except the Government of India’s order, all other orders were passed
subsequent to the issuance of the show cause notice. In this case the
assessee could not have anticipated any such adjudication at the
relevant point of view. Further, Government of India’s order did not
relate to ribbons. In any event, the Collector factually focussed on
the conduct of the assessee to conclude lack of bonafides. At no point
of time the Department was informed about manufacturing activity
undertaken at their unit at Madras as required under law and, there was
suppression of facts relating to manufacturing and removal of such
goods. In this context, the Collector observed as follows:
“Further perusal of invoices prepared for sale
effected from Madras indicate that the price quoted is
inclusive of excise duty whereas in reality they did not
pay for Central Excise duty at all for the goods produced
at Madras. This apart, perusal of copies of Price Lists;
and certain gate passes seized from the Make up Depot
disclosed that KIL, were manufacturing identical goods in
question in their Thane Unit apart from other varieties.
The goods in question have been appropriately classified as
goods falling under 48.16 and 96.12 respectively and
cleared on payment of duty. The copies of price list
clearly indicate that KIL have filed price list and sought
approval of assessable value for the goods in question.
These factors goes to show that M/s KIL had clear knowledge
that the subject goods are excisable goods and are eligible
to duty under Chapter 48.16 and 96.12 respectively.
Knowing fully well about the classification and the
obligation, they have deliberately suppressed the materials
facts in so far as their Madras Unit is concerned and have
evaded payment of Central Excise duty. In the
circumstances, I have no hesitation to hold that the charge
of suppression of fact and removal of goods in
contravention of Rules with intent to evade payment of duty
is fully established and the extended time limit under Rule
9(2) read with proviso to Section 11A is invokable for
demand duty.”
In view of the factual position as noted by the Collector and
affirmed by the CEGAT there is no substance in the plea that the
extended period of limitation was not applicable.
It is noted in the Collector’s order with reference to the price
lists, and some gate-passes seized from the Make up depot, that the
assessee was manufacturing identical goods in their Thane unit apart
from other varieties. Additionally, with reference to sales invoices it
was noted that the price quoted is inclusive of excise duty, though no
excise duty was paid in respect of the goods which according to Revenue
was manufactured at Madras.
As noted above, looked from any angle order of the Collector as
affirmed on the point involved by CEGAT does not warrant any
interference being based factual conclusions which cannot be termed as
perverse. The conclusions are based on relevant materials. Civil
Appeal No. 4322/1999 is dismissed.
Coming to the other appeals, in view of the position indicated in
detail in civil appeal No. 4322/1999, these appeals deserve to be
allowed and are accordingly allowed. There shall be no order as to
costs in these appeals.