2004 (97) ECC 356 (Tri)
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
South Zonal Bench -- Bangalore
Dr. S.L. Peeran, Member (J) and Shri K.C. Mamgain, Member (T)
Aldec Corporation & Ors.
Versus
Commissioner of C. Excise, Hyderabad-II
Appeals No. E/368/2000, E/374/2000, E/375/2000 & E/379/2000
[Arising out of Order-in-Original No. 28/99 dated 30.11.99 passed by the Commissioner of Central Excise (Appeals), Hyderabad]
Final Order No. 925-928/2004, 14.5.2004, Certified on 18.5.2004
Demand
Classification Sub-heading 761690 -- Conversion of sheets into sheets of lesser thickness and cutting the sheets into strips and painting the strips does not bring into existence a new product know in the market with distinct character and use. The painted strips can be sued for various purposes including for manufacture of `venetian blinds'. No new excisable product has come into existence which should be classified under chapter S.H. 7616.90. Appeals are allowed -- Sec. 11A, 173Q of CEA.
PRESENT :
S/Shri Arvind P. Datar, Sr. Advocate & B.N. Gururaj, Advocate for the appellants.
Shri L. Narasimha Murthy, SDR for the respondent.
Cases Cited :
1. Balsara Extrusion Pvt. Ltd. v. CCE, 2001 (131) ELT 586(T)............................... [Para 5]
2. Britannia Biscuit Co. v. CCE, 1997 (89) ELT 22 (SC)........................................ [Para 5]
3. Cardcure Engg. Co. v. CCE, 1996 (86) ELT 351 (T).......................................... [Para 5]
4. CCE v. A1 Bright, 2001 (130) ELT 896 (T)........................................................ [Para 5]
5. CCE v. Akay Powerline Products (P) Ltd., 2001 (130) ELT 678 (T)..................... [Para 5]
6. CCE v. M.M. Khambatwala, 1997 (57) ECC 22 (SC).......................................... [Para 5]
7. CCE v. Pratap Rajasthan Special Steel Ltd., 1999 (137) ELT 437 (T)................. [Para 5]
8. Foils India Laminates Pvt Ltd. v. CCE, Jaipur, 1999 (111) ELT 728 (Tri.)............ [Para 8]
9. Formica India v. CCE, 1995 (77) ELT 511 (SC)................................................. [Para 5]
10. Gujarat Steel Tubes Ltd. v. State of Kerala, 1989 (23) ECC 3 (SC)................... [Para 5]
11. Headway Lithographic Co. v. CCE, Kolkatta-I, 2003 (88) ECC 17 (Tri.-Kol.)....... [Para 8]
12. Hindustan Motors Ltd. v. CCE, 1998 (61) ECC 575 (T)..................................... [Para 5]
13. Kanthal Bimetals (India) Ltd. v. CCE, 1999 (106) ELT 337 (T).......................... [Para 5]
14. Karnataka Electricity Board v. CCE, 1999 (105) ELT 328 (T)............................ [Para 5]
15. Prakash Construction & Engg. Co. v. UOI, 1991 (56) ELT 58 (Bom.)................ [Para 5]
16. Prolite Engg. Co. v. Union of India, 1995 (75) ELT 257 (Guj)............................ [Para 5]
17. Pushpam Pharmaceuticals v. CCE, 2002 (80) ECC 6 (SC).............................. [Para 5]
Per : K.C. Mamgain
These 04 (four) appeals are filed by the appellants, M/s Aldec Corporation & Others, against the Order-in-Original No. 28/99 dated 30.11.1999 passed by the Commissioner of Customs & Central Excise, Hyderabad.
2. The facts in brief are that the appellants, M/s Aldec Corporation are Trader in Aluminium coils. They purchase duty paid Aluminium Sheets from M/s Hindalco Industries Ltd. and paint from M/s Goodlass Nerolac Paints Ltd. The Aluminium sheets in coils and paints were sent to M/s Vittaleshwara Painting Industries (hereinafter referred to as M/s Vittaleshwara) which is an independent partnership firm. M/s Vittaleshwara had sent the duty paid Aluminum sheets to another independent partnership firm M/s Srinivasa Rolling & Engg. Works (hereinafter referred to as M/s Srinivasa) for the purpose of slitting and rolling the Aluminium sheets to reduce the width and the thickness of the same. M/s Srinivasa thereafter send back the goods to M/s Vittaleshwara in consideration for job charges. M/s Vittaleshwara, on receipt of the slited and rolled Aluminium strips, painted the same and returned it to M/s Aldec Corporation in consideration for job charges. M/s Aldec Corporation sold the painted Aluminium strips in coils as received from the M/s Vittaleshwara without carrying out any further process on the same.
3. A show cause noticed dated 28.3.95 covering the period from April 1990 to October 1994 was issued by the Commissioner of Central Excise demanding duty amounting to Rs. 1,51,68,141 on painted Aluminium Slats besides proposing to confiscate 650.55 kg. of painted Aluminium slats seized from the premises and proposing penalty under 173Q of Central Excise Rules. Show cause notice dated 5.7.95 was issued to them by Superintendent of Central Excise demanding duty amounting to Rs. 9,57,655 for the period from December 94 to April 95 and also proposing penalty under Rule 173Q of the Central Excise Rules. The main grounds in the show cause notice issued by the Commissioner in March 95 was that M/s Aldec Corporation failed to obtain Central Excise License/Registration inasmuch as the activity undertaken by them amounts to manufacture of excisable goods namely painted Aluminium Slats falling under sub-heading 7616.90 attracting appropriate duty.
4. Shri Aravind P. Datar, learned Sr. Advocate, assisted by Shri B.N. Gururaj, learned Advocate, appeared for the appellants.
5. Ld. Sr. Advocate pleaded that M/s Aldec Corporation are Trader who got the Aluminium sheets converted into aluminum strips and got it painted through the job workers, namely M/s Vittaleshwara and M/s Srinivas and then sold the painted strips. They did not undertake any manufacturing activity. The cutting into strips is done by M/s Srinivas and painting is done by M/s Vittaleshwara. Neither cutting or slitting of Aluminium sheets into Aluminium strips amounts to manufacture nor painting of the Aluminium strips amounts to manufacture. The activities of both these firms, namely M/s Srinivas and M/s Vittaleshwara had been examined earlier by the department as on 4.2.1986 and the Superintendent had passed an order holding that the activity carried out by M/s Vittaleshwara amounts to manufacture. However, on appeal, the Commissioner (Appeals) decided the activity does not come under the purview of the Central Excise law. The order of the Commissioner (Appeals) dated 27.8.1987 was accepted by the department. Regarding the activity undertaken by M/s Srinivas, a show cause notice was issued on 17.4.86 stating that carrying out the activity of slitting and rolling amounts to manufacture. The case was decided by the Additional Commissioner of Central Excise by order dated 26.11.86 and it was held that activity of M/s Srinivas does not amount to manufacture and it is outside the scope of Central Excise law. The department accepted this order of the Additional Commissioner. Consequent to the above proceedings, the appellants' view that they are traders and their activity does not amount to manufacture was reiterated and confirmed. However, on 11.11.94, the department has carried our search and seizure operation in the premises of the appellants as well as in the premises of M/s Srinivas and M/s Vittaleshwara. On 14.11.94, the Assistant Commissioner of Central Excise by an order directed the appellants to get themselves registered with the Central Excise. The order of 14.11.94 was challenged by the appellants before the Commissioner (Appeals) and the Commissioner (Appeals) in his order dated 13.12.94 passed an order holding that there is no justification to call the appellants as manufactures and he set aside the order of the Assistant Commissioner dated 14.11.94. However, inspite of this, they received a show cause notice dated 28.11.95 demanding duty of Rs. 1,51,68,141 and proposing penal action against them. Ld. Sr. Advocate pleaded that show cause issued by the Commissioner is time-barred. The entire operation of M/s Aldec Corporation, M/s Vittaleshwara and M/s Srinivas was known to the department right from the year 1986 and proceedings initiated by the department were dropped either at the stage of Additional Commissioner or at the stage of the Commissioner (Appeals). In 1994, the proceedings initiated for taking license against M/s Aldec Corporation were also dropped by the Commissioner (Appeals). Therefore, the entire activities of M/s Aldec Corporation, M/s Vittaleswara and M/s Srinivas were known to the department and extended period under Section proviso 11A cannot be made applicable for demanding duty. On this ground alone both the show cause notices decided by the Commissioner in the impugned order are time barred as these have been issued after a period of six months from the relevant date. He relied on the following decisions --
(i) Balsara Extrusion Pvt. Ltd. v. CCE, 2001 (131) ELT 586(T)
(ii) Hindustan Motors Ltd. v. CCE, 1998 (61) ECC 575 (T) : 1998 (104) ELT 721
(iii) Pushpam Pharmaceuticals v. CCE, 2002 (80) ECC 6 (SC) : 1995 (78) ELT 401 (SC)
(iv) Prolite Engg. Co. v. Union of India, 1995 (75) ELT 257 (Guj).
The other ground taken by him was that M/s Aldec Corporation were only suppliers of raw material and they are not manufacturers. They relied up on the following decisions --
(i) CCE v. M.M. Khambatwala, 1997 (57) ECC 22 (SC) : 1996 (84) ELT 161 (SC)
(ii) Britannia Biscuit Co. v. CCE, 1997 (89) ELT 22 (SC)
(iii) Cardcure Engg. Co. v. CCE, 1996 (86) ELT 351 (T)
He also stated that the activity of slitting, cutting, punching holes, painting, galvanizing, etc. does not amount to manufacture. In the present case, the Aluminium sheets were slitted to Aluminium strips by M/s Srinivas and thickness of the strips was reduced to 0.23 mm. However, slitting of sheets into strips does not amount to manufacture. He also pleaded that M/s Vittaleshwara did only the painting of the strips and it does not amount to manufacture. He relied on the following decisions --
(i) Gujarat Steel Tubes Ltd. v. State of Kerala, 1989 (23) ECC 3 (SC) : 1989 (42) ELT 513 (SC) - followed in CCE v. A1 Bright, 2001 (130) ELT 896 (T)
(ii) CCE v. Akay Powerline Products (P) Ltd., 2001 (130) ELT 678 (T)
(iii) CCE v. Pratap Rajasthan Special Steel Ltd., 1999 (137) ELT 437 (T)
(iv) Karnataka Electricity Board v. CCE, 1999 (105) ELT 328 (T)
(v) Kanthal Bimetals (India) Ltd. v. CCE, 1999 (106) ELT 337 (T)
He also pleaded that since the matter has been finally decided by the Commissioner (Appeals) that the activity undertaken by the appellants does not amount to manufacture and they do not require any Registration/License, the Commissioner cannot over-rule the decision of the Commissioner (Appeals) without challenging it in appeal. He relied up on the decision of Bombay High Court in case of Prakash Construction & Engg. Co. v. UOI, 1991 (56) ELT 58 (Bom.). He further pleaded that if the above contention of the appellants are not accepted, then they are eligible for Modvat credit. They relied upon the decision of the Supreme Court in case of Formica India v. CCE, 1995 (77) ELT 511 (SC)
7. Shri L. Narasimha Murthy, SDR appeared for Revenue. He pleaded that show cause notices are not time barred as new facts have come to the notice of the department. In the earlier proceedings before the Additional Commissioner or the Commissioner (Appeals), these facts were not available. He stated that M/s Vittaleshwara and M/s Srinivas are hired labourers of M/s Adlec Corporation and they were not independent job worker. He stated that detailed investigation carried out clearly shows that M/s Adlec Corporation are the manufacturers. In the case decided by the Additional Commissioner in Order-in-Original dated 26.11.86, he has come to the conclusion that the activity undertaken by M/s Srinivas does not amount to manufacture under Section 2 (f) and the items produced by them are not liable to duty. The Collector (Appeals) in his order dated 27.8.97 has held that M/s Vittaleshwara took painting of Aluminium strips which cannot be said to be resulted in manufacture of different goods from the raw materials painted. Thus, it is clear that in both the cases, the issue decided was different. Therefore, extended period for demanding duty is fully applicable. He stated that during the investigation, it came to the light that M/s Vittaleshwara and M/s Srinivas are not job workers of M/s Adlec Corporation but are their hired labourers. Salaries drawn by partners of M/s Vittaleshwara and M/s Srinivasa were from M/s Adlec Corporation. The partners of M/s Vittaleshwara and M/s Srinivasa are not accounting any financial gain as there is no financial interest of these firms. This has been clearly demonstrated in Paragraphs 54 to 60 of the Commissioner's order. The Commissioner in Para 63 of the order has observed that the function of the each unit viewed in isolation may not amount to manufacture, but when the entire activity is seen as a whole then it is clear that the whole operation was being done by M/s Aldec Corporation. Therefore, they become manufacture in view of Section 2 (f) of the Central Excise Act.
8. Ld. DR stated that the activity of slitting of Aluminium sheets into strips amounts to manufacture and he relied on the following decisions in support of his claim --
(i) Foils India Laminates Pvt Ltd. v. CCE, Jaipur, 1999 (111) ELT 728 (Tri.)
(ii) Headway Lithographic Co. v. CCE, Kolkatta-I, 2003 (88) ECC 17 (Tri.-Kol.) : 2003 (156) ELT 658 (Tri.-Kol.)
Ld. DR said that in view of the aforesaid decisions, the order of the Commissioner may be upheld.
9. We have carefully considered the submissions made by both the sides. It has been pleaded by the appellants that the operation carried out by M/s Vittaleshwara and M/s Srinivasa is not process of manufacture as no new product has come into existence. This issue has already been decided by the Commissioner (Appeals) in his order dated 26.8.87 holding that activity of painting carried out by M/s Vittaleshwara does not amount to manufacture. The Additional Commissioner of Central Excise in his order dated 26.11.86 held that the activity of slitting and rolling does not amount to manufacture. The Deptt. accepted both the orders of the Additional Commissioner and the Commissioner (Appeals). We find that in the impugned order the Commissioner has given a finding that the raw materials required for manufacture of painted Aluminium slats was Aluminium sheets of width 472 mm and of thickness 2.03 mm. These sheets are slit to smaller sizes of 50 mm/25 mm width and their thickness is reduced to 0.23 mm. In Para 81, the Commissioner has observed that the Additional Collector in his Order-in-Original No. 74/85 dated 26.11.1986 has held--
"In order for an activity to be considered as manufacture as defined in Section 2 (f) a new product would emerge. However, in the present case, the product that emerges after the process continues to fall under the same sub-item namely, Tariff Item No 27 (6) as raw material."
The Collector (Appeals) in his Order-in-Appeal dated 27.8.1997 held --
"In the case of M/s Vittaleshwara, painting of aluminum strip cannot be said to result in manufacture of goods, different from the raw material painted."
However in Para 86 of the impugned order, the Commissioner has now observed that --
"the issues relating to classification in the earlier cases are entirely different from the present issue of classification before me. And earlier when the cases relating to M/s Vittaleshwara and M/s Srinivasa were decided, M/s Aldec were not issued a show cause notice.....It is not the contention of the department even now that the process involved at M/s Srinivasa or at M/s Vittaleswara, in isolation, may amount to manufacture. What the department now alleges is that all the processes undertaken at both the premises of the so-called job workers put together amount to manufacture. Therefore, the contention of M/s Aldec are not correct."
We find from Paragraphs 24 to 30 of the Commissioner's order, the process of manufacture is given and according to which manufacturing process involves --
"slitting and re-rolling of the aluminium sheets into smaller and thinner strip/slats reducing the width and thickness and painting the resultant product. Process involving slitting and re-rolling are done at M/s Srinivasa and painting of the resultant product at M/s Vittaleshwara. M/s Aldec purchased raw materials, namely aluminum sheets, paints and other related chemicals required for the manufacture of the goods. They send the entire raw materials to M/s Vittaleshwara on job work for the manufacture of Painted Aluminium Slats in coil form. The aluminium sheets of width 472 mm and of thickness 2.03 mm running in mill length. (A mill length = 100 feet) which are classified under Chapter Sub-Heading 7606.20 are purchased from M/s Hindalco. M/s Srinivasa has undertaken the process of slitting, cold rolling and edge trimming as per the requirements. At this state, the wide aluminum sheets of about 18" to 20" are slit to smaller sizes of 50 mm/25 mm and their thickness is reduced to 0.23 mm the required width and thickness for ultimate use in the Venetian Blinds. The resultant product is known as aluminium strip or slat....On receipt of processed material from M/s Srinivasa, M/s Vittaleshwara carries out painting and baking of aluminum strips/slats...."
10. We find that the processes which were carried out in 1985-86 remains as same at the relevant time. At that time these processes are not considered as manufacture. At the present time also only Aluminium sheets are cut in to strips and painted. Again the product, aluminum strip remains under Chapter heading 7606. There are large number of judgments of the Tribunal and other judicial forums that cutting, slitting of sheets does not amount to manufacture. For considering a process as manufacture, it should result in a new product with distinct name, character and use. Every transformation does not amount to manufacture. In the present case, conversion of sheets into sheets of lesser thickness and cutting the sheets into strips and painting the strips does not bring into existence a new product known in the market with distinct character and use. The painted strips can be used for various purposes including for manufacture of `venetian blinds'. But these themselves are not a distinct identifiable new product. The decisions relied upon by the learned SDR are not applicable on the facts and circumstances of the present case. Thus, apparently no new product has come into existence. However, in Para 24 of the impugned order, it is proposed that the finished product which is offered for sale falls under chapter Sub-Heading No. 7616.90. No discussion has been recorded in the Order-in-Original that how this product falls under chapter S.H. 7616.90. Chapter S.H 76.16 is for other articles of Aluminium like nails, tacks, staples, screws, bolts, nuts, etc. We do not find that the Aluminium strip can be classifiable under chapter S.H. 7616. Therefore, we do not find the reason given that the process of manufacture has taken place and other articles of Aluminium have come into existence. Therefore, we do no find that any new excisable product has come into existence which should be classified under chapter S.H. 7616.90. Since no new excisable product has come into existence, therefore, there is no need of going into other issues.
13. In view of our above findings, these appeals are allowed.
……………………..