Custom, Excise & Service Tax Tribunal
M/S. Natraj Album Industries Ltd vs Cce, Gurgaon on 27 November, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
COURT NO. III
Excise Appeal Nos. 2087-2088 of 2005
[Arising out of Order-in-Appeal No. 142-145/AKG/RTK/ 2005 dated 28.3.2005 passed by the Commissioner (Appeals), Customs & Central Excise(Appeals), Gurgaon ]
For approval and signature:
Hon'ble Ms. Archana Wadhwa, Member (Judicial)
Hon'ble Mr. Sahab Singh, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 : Yes
of the CESTAT (Procedure) Rules, 1982 for
publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair : Seen
copy of the Order?
4. Whether Order is to be circulated to the : Yes
Departmental authorities?
M/s. Natraj Album Industries Ltd. Appellant
M/s. Natraj Stationery Products P. Ltd.
Vs.
CCE, Gurgaon Respondents
Appearance:
Shri B.L. Narasimhan, Advocate for the Appellants Shri M S Negi, DR for the Respondent Coram:
Honble Ms. Archana Wadhwa, Member (Judicial) Hon'ble Mr. Sahab Singh, Member (Technical) Date of Hearing: 06.11.2013 Date of decision : 27.11.2013 ORDER NO . FO/ 58367-58368 /2013-Ex(Br) Per Ms. Archana Wadhwa (for the Bench):
Both the appeals, are being disposed of by a common order as they arise out of same impugned order passed by Commissioner (Appeals). We have heard Shri B.L. Narasimhan, learned Advocate for the appellant and Shri M S Negi, learned DR the Revenue.
2. As per facts on record, the appellants are engaged in the manufacture of photo album classifiable under heading No. 48.20. The said photo album are exempted from payment of Central Excise duty leviable thereon. The appellants factory was visited by the Central Excise officer on 19.2.2003 and their manufacturing process was examined. Statements of Directors of the assessee appellants were also recorded wherein they detailed the manufacturing process and clarified that they use paper, paper board, BOPP film, lay flat tubings and glue etc. for the manufacture of inserts in the album. The process as detailed by the Director, in their statement is as follows:
(i) The Lay Flat Tubings were purchased from outside and PVC sheets were obtained on cutting the edges of the Lay Flat tubings;
(ii) PVC sheets, emerging in two layers after the cutting of edges, were re-rolled and further cut to required sizes;
(iii) Thereafter, the re-rolled PVC sheets were put on High Frequency Machines for the manufacture of Slip in Sheets, and
(iv) After the edges were cut, the lay flat tubing did not remain Lay Flat Tubing, but became two layers of Film/sheet.
3. From the foregoing, Revenue entertained a view that inasmuch as the appellants are purchasing lay flat tubings classifiable under heading No. 39.17 and are doing the edge cutting of the said tubings, the process result in emergence of the plastic film which are known in the trade parlance by a different name and have different use and are classifiable under heading 39.20. As such, it was felt that the appellants are liable to pay duty on the PVC films being manufactured by them out of lay flat tubings. The Revenue also took note of another unit, M/s. Ankit Polytex which were using identical process and was clearing PVC films on payment of duty under heading 39.20 of the Central Excise Tariff Act.
4. In view of the above, proceedings were initiated against the appellant by way of issuance of show cause notice dated 1.10.03 and show cause notice dated 6.11.2003 raising demand of duty of Rs.15,14,164/- from M/s. Natraj Album and Rs. 78,797/- from M/s. Natraj Stationery for the period 1998-1999 to February, 2002 by invoking the extended period of 5 years. The notice also proposed confirmation of interest and imposition of penalties on the appellants as also on their Directors. The said notice culminated into passing of an order by the original adjudicating authority confirming the demands raised against the manufacturing units along with confirmation of interest and imposition of penalties upon them as also on the Directors.
5. On appeal against the above orders Commissioner (Appeals) vide his impugned order upheld the same in respect of duty confirmation and limitation. However, he remanded the matter to the original adjudicating authority for examination of the appellants claim of exemption under notification No. 8/1998 and 8/1999, i.e. small scale exemption notification, as also on the point of filing of declarations along with the manufacturing process. He, however set aside the penalties imposed upon the Directors.
6. Hence, the present two appeals.
7. After hearing both the sides, we find that the facts are not much in dispute. The demands stand confirmed against the appellant in respect of process of edge cutting of lay flat tubings adopted by them during the course of manufacture of in leaves of album on the ground that such process amounts to manufacture of PVC films / sheets and inasmuch as their final product is duty-free, the appellant is required to discharge the duty liability on the films.
8. It is seen that the appellants are procuring the lay flat tubings which are plastic film running in length and in rolls. The said lay flat tubings are cut by the appellant from the edges so as to convert the tubular PVC fitts into PVC film. The said flat surfaced product which comes into existence is cut to size by the appellants and used for the manufacture of inleaves of album. As per the appellants the product purchased by them in rolls cannot be held to lay flat tubings, though they are loosely named as lay flat tubings. The same are two surfaces of the PVC sheets, which comes out of the machines in tubular form but supplied in flat form, and is collected in rolls and sold width wise. The said product which was purchased from the market is never sold as circumference-wise or tempo wise or radius wise and as such, cannot he held to be a tubing. For using the said product, the edging of the tubes have to be cut so as to make open the tubes and to obtain the sheets. The said process, by no stretch of imagination, can be held to be the process of manufacture.
9. We have seen the two products i.e. tubings in which shape they are purchased from the market and the sheets which emerged after the edge cuttings. The technical literature on poly tubings and sheetings produced by the appellant on record reveal that poly tubings or lay flat tubings are continuous roll of polythene sleeving open at one end and rolled up at the other and are meant for inserting the products into the said tubings which are cut to required length and heat seal, staple or taped on one or both ends. The said tubings are cut to their size for converting into the sheets. Such polytubings come into existence by very popular and known process of blown film extrusion. The said literature also shows that lay flat tubings which came into existence are either kept as such or the edges of the lat flat tubings are slit off to produce two flat film sheeting and wound up into reels.
10. The question required to be decided is as to whether by adopting the process of edge cutting of the tubular form of PVC film, whether the appellant m can be said to have undertaken the process of manufacture, in terms of provisions of provisions of Rule 2(f) of the Central Excise Act, 1944. The said section has been the subject matter of the dispute before various Courts including the Honble High Court and the Honble Supreme Court. The test of manufacture was laid down by the Honble Supreme Court as back as in 1962 in the case of Union of India vs. Delhi Cloth and General Mills Co. Ltd. [1977 (1) ELT (J 199) (SC)]. It was held that manufacture means bringing into existence a new substance known to the market and not merely producing some change in a substance. The said decision of the Honble Supreme Court stand referred to and relied upon by various Courts while deciding the issue of manufacture.
The Honble Supreme Court in the case of Commissioner of Central Excise, Chennai vs. Tarpaulin International [2010 (256) ELT 481 (SC)] held that the process of converting tarpaulin sheets by stitching margins and fixing eyelets does not amount to manufacture inasmuch as the said process do not change the basic characteristic of the raw material into something different. The original material which was tarpaulin is still called tarpaulin made ups even after undergoing the said process of stictching and fixing eyelets. Accordingly, the Honble Supreme Court held that to attract duty there should be manufacture to result in different goods and mere conversion of the tarpaulin into tarpaulin made up would not amount to manufacture.
In the case of CCE New Delhi vs. S R. Tissues Pvt. Ltd. [2005 (186) ELT 385 (SC)] the Honble Supreme Court has held that slitting /cutting of jumbo rolls of plain tissue paper or aluminum foils into smaller size would not amount to manufacture on first principles as character and end-use of the paper did not undergo any change. The characteristics of tissue paper and the jumbo rolls are not different from the characteristics of tissue paper and toilet tissue , table and fragranted facial tissues etc. and as such, cutting and slitting of tissue paper is not the process amounting to manufacture under section 2(f) of the Act. The Honble Supreme Court also held that mere mention of a product in the tariff heading does not necessarily implies that that the said product was obtained by a process of manufacture. Just because raw material and the finished product were classifiable under two different headings, it cannot be presumed that the process of obtaining of finished product from such raw material automatically constitute manufacture.
In the case of Commissioner of CCE, Bangalore vs. Osnar Chemical Pvt. Ltd. [2012 (276) ELT 162 (SC)], the Honble Supreme Court held that process of mixing polymers and additives to heated bitumen does not amount to manufacture inasmuch as the same merely resulted in the improvement of quality of bitumen, but bitumen remained bitumen. As there was no change in the characteristics or identity of bitumen and only its grade or quality was improved, the said process cannot be held to be a result in transformation of bitumen into a new product.
In the case of CCE Chandigarh vs. Mahavir Spinning Mills Ltd. {2001 (130) ELT 65 (Tri-Del)] it was held that paraffin wax purchased from the market in lump form when melted and put into moulds to cast it into a more convenient form for captive use in winding machine to wax product i.e. sewing thread does not result in manufacture inasmuch as the character of wax is not changed.
Similarly in the case of CCE, Madras, vs. Kutty Flush Doors and Furniture Co.(P) Ltd. [1988 (35) ELT 6 (SC)] it was held that inasmuch duty becomes chargeable only when a new and entirely different item emerged having a distinct name, character and use which is dependent upon various factors.
Larger Bench in the case of Anil Dang vs. CCE, Vapi [2007 (213) ELT 29 (Tri-LB)] held that slitting and cutting of duty paid plastic laminated film jumbo rolls cannot held to be an activity amounting to manufacture inasmuch as the plastic laminated film jumbo rolls is same commodity as classifiable laminated rolls in smaller rolls.
We may also take note of the Honble Delhi High Courts decision in the case of Faridabad Iron and Steel Traders Association vs. Union of India [2004 (178) ELT 1099 (Del)] holding that process of cutting or slitting of steel sheet in coil form to specific sizes not does not amount to manufacture, since no new, different and distinct articles emerged from the process. The said decision of the Honble Delhi High Court was upheld by the Honble Supreme Court when the appeals filed by the Revenue were dismissed by Honble Supreme Court. Based upon such development, Central Board of Excise and Customs issued a circular No. 811/8/2005-CX dated 2.3.2005 withdrawing its earlier circular dated 7.9.2001 holding that such process amounts to manufacture.
11. Though the appellants have placed before us plethora of judgments, on the point of manufacture but we are of the view that above referred decisions, which are directly on the issue involved, fully cover the appellants case. In the absence of any dispute on the factual position, that the appellants are only edge cutting the PVC polytubings so as to make the in-leaves for the photo albums and in the ratio of the declaration of law the above referred decision, there can be no doubt about the fact that mere edge cutting of tubing so as to split it into one PVC film will not be covered by the definition appearing under section 2(f) of the Central Excise Act. PVC product remains PVC product only and it is only shape of such PVC film which is being changed from the tubular form to lay flat form. Otherwise there is no difference in the composition of the product which only remains PVC film.
12. As such, we fully agree with the learned advocate appearing for the appellant that the said process of edge cutting will not get covered by the definition of manufacture. Similarly as held by the Honble Supreme Court in the above referred decision, the fact that starting product and the final product which fall under separate sub- headings would also not changethe scenario. Accordingly, we hold that appellants are not indulging into any act of manufacture of polyethylene sheets from polyethylene lay flat tubings and the confirmation of demand is not justified. The same is accordingly set aside along with setting aside of interest and penalties imposed upon the appellants.
13. Though we have held in favour of the appellant on merits and as such, there is no requisite to arrive at finding of limitation but for academic reason we hold that inasmuch as the demand stand raised by invocation of longer period and there being no evidence of suppression or malafide intention on the part of the assessee, invocation of longer period of limitation is not justified. Accordingly, we hold that demand is barred by limitation.
14. Both the appeals are allowed on merits as also on limitation.
(Pronounced in the open court on )
( Archana Wadhwa ) Member(Judicial)
( Sahab Singh ) Member(Technical)
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