Customs, Excise and Gold Tribunal - Delhi
A.D. Steel Syndicate vs Collector Of Central Excise on 23 January, 1998
Equivalent citations: 1998(103)ELT180(TRI-DEL)
ORDER
S.K. Bhatnagar, Vice President
1. This is an appeal filed against the order of Collector of Customs and Central Excise, Pune dated 31-8-1989.
2. Learned counsel stated that the appellants are manufacturer of Organic Surface Active Agents (O.S.A.A.) and have been supplying the same to NOCIL, since 1986 as per orders placed by NOCIL upon them. NOCIL required the said Agarwal Organics Pvt. Ltd. in accordance with their orders to deliver the goods in bulk packing i.e. carboys to the appellants whom they had engaged for repacking of the product in the packing material supplied to them by NOCIL. Accordingly, the said Agarwal Organics Pvt. Ltd. were packing the goods in carboys and sending them to the appellants in returnable containers on payment of duty on G.P. 1s i.e. gate passes as instructed by NOCIL. Full duty was paid by the said Agarwal Organics Pvt. Ltd. on the products on their "as-is-as were" conditions at the time of their removal from their factory in accordance with the settled law i.e. duty was to be paid on the goods manufactured in a factory in as-is-as-were condition at the time of their removal from the factory. Duty was always reimbursed by NOCIL in accordance with the practice of the trade as duty was borne by the buyer and no part of this consideration falls upon the appellants. The appellants acted within the framework of law.
3. It was also his submission that on 23-11-1987, the Departmental officers visited the premises of the appellants and seized the stock of packed Teepol. The appellants were not carrying on any manufacturing activity. They were only receiving Organic Surface Agents In bulk from the said Agarwal Organic Pvt. Ltd. and then repacking the same in small containers. The empty containers of different sizes viz. 500 gms., 1 Kg. and 5 Kgs. were received by the appellants from their customer viz. NOCIL either directly or through and other authorised agency. The process of repacking the liquid detergent into small containers with brand name as a process is not ancillary to the completion of manufactured product.
4. It was also his submission that O.S.A.A. were already fully manufactured and the process of repacking even with brand name does not bring into existence a new excisable product having different name or character. In the case of Prabhat Zarda Factory Ltd. v. Collector reported in 1988 (34) E.L.T. 239 (Tribunal), it has already been held that the cost of repacking does not form part of assessable value under Section 4, if same are after clearance of bulk packages from the factory, repacks item into smaller packages. There was no ground to circumventing the provisions of Notification No. 223/87 which came into effect 1-10-1987 as the appellants were already engaged in this job activity much prior to the notification and right from 1986. Neither the goods which were transferred to the appellants belonged to the appellants nor the packing materials which were supplied by NOCIL belonged to the appellants.
5. It was his submission that packing, refilling does not amount to 'manufacture'. The finding that it is ancillary to the completion of manufacture does not find place in the show cause notice. In general, packing of manufactured goods for their safety or protection is not a process incidental or ancillary to the completion of manufactured goods.
6. Learned DR reiterated the Department's view as contained in the order-in-original and in particular to the finding portion of the order and emphasised that the circumstances of the case show that the process of packing into small containers was shifted from the premises of Agarwal Organics Pvt. Ltd. in October, 1987 to the appellants' premises with a view to circumvent provisions by Notification No. 223/87. Since the process was incidental and ancillary to the manufacture of goods but was carried out without a Central Excise Licence and without following the prescribed procedure and formalities, the goods in question were confiscated and the duty has been demanded and fine imposed.
7. Learned counsel cited the following case law in support of his contentions :-
(a) Commissioner, Sales Tax v. Jagan Nath Cotton Co. reported in 1995 (60) ECRl(SC).,
(b) CCE v. S.D. Fine Chemicals reported in 1995 (51) ECC 74 (SC).
(c) Modi Paint v. CCE reported in 1994 (2) RLT 225 (Tribunal).
(d) Garware Paints v. CCE reported in 1992 (62) E.L.T. 178 (Tribunal).
(e) CCE v. Prabhat Pkg. reported in 1990 (47) E.L.T. 102 (Tribunal).
(f) Indian Oil v. CC reported in 1987 (27) E.L.T. 482 (Tribunal).
(g) V.R. Industries v. Supdt, Central Excise reported in 1988 (33) E.L.T. 260 (A.P.)
(h) Raja Radio Co. v. CC reported in 1995 (77) E.L.T. 251 (S.C.).
8. We have considered the ahove submissions. We observe that learned counsel's arguments have a lot of force. The appellants' contention that neither the material (Organic Surface Active Agent) nor the packing material belongs to them has not been contradicted or shown to be wrong. On the contrary, in his finding portion, the Collector himself comes to the conclusion that the Organic Surface Active Agent was manufactured by M/s. Agarwal Organics Pvt. Ltd. on the basis of specifications given by NOCIL who in turn, marketed the goods under the trade name 'Teepol'.It is also not in dispute that the product is a liquid detergent produced in bulk by M/s. Agarwal Organics which is transferred to the appellants M/s. A.D. Steel Syndicate for packing into small containers and these have trade mark 'Teepol'.
9. The Collector has held the appellants liable to pay central excise duty on the ground that the activity of packing the material into small containers is a process incidental and ancillary to the process of manufacture of the Organic Surface Active Agents since it is this process which makes them marketable and therefore, the appellants were required to comply with the central excise formalities and were liable to duty and other consequences.
10. From the facts admitted and accepted by both the sides, it is apparent that the learned counsel's contention that neither the material (Organic Surface Active Agent) not the packing material (which is admittedly supplied by NOCIL) belong to the appellants, is correct and the only issue is whether the process of transferring the material from bulk containers to small containers is a process amounting to manufacture or ancillary thereto and therefore, the appellants were liable for action.
11. In this connection, we find that wherever legislature wanted to declare such a process as amounting to manufacture (and manufacture undoubtedly includes processes incidental and ancillary to manufacture)/ it has so provided in the tariff by inclusion of a specific chapter note to that effect. This is evident from Chapter Note 2 of Chapter 9, Chapter Note 2 of Chapter 24, Chapter Note 5 of Chapter 30 and Chapter Note 4 of Chapter 33. There is, however, no such inclusion corresponding to the above Chapter Notes in Chapter 34 under which the Organic Surface Active Agents fall. Therefore, the, appellants' contention that the process undertaken by them is not a process of manufacture is correct.
12. Furthermore, once admittedly the goods were being manufactured (that in albiet form) by M/s. Agarwal Organics Pvt. Ltd., the duty liability, if any, was on that firm and in fact, the Collector himself refers to some duty having been paid by M/s. Agarwal Organics and the duty (or a part of it) could not be demanded in respect of the same goods from another person.
13. If the Department was of the opinion that the cost of packing the material into small containers in which they are marketed under the trade name 'Teepol' was also required to be included for the purpose of determining the assessable value, that was an entirely different matter and if such processes were undertaken and charges were incurred by or on behalf of M/s. Agarwal Organics, it was for the Department to issue a show cause notice to them but, they have not even been impleded in this case and the order passed by the Collector with reference to adjustment to be made is not clear.
14. The Collector has also ordered re-valuation on the basis of prices approved within the jurisdiction of the A.C. It is, therefore, not clear as to how he has arrived at the duty liability in anticipation of such an action by the Assistant Collector.
15. However, since the very basis of the Department's case is not correct, the order of the Collector is required to be set aside and the appeal accepted with consequential relief, if any due.