Madras High Court
Titan Company Limited vs Commissioner Of Central Excise Ltu on 21 October, 2021
Author: Anita Sumanth
Bench: Anita Sumanth
W.P. No.37765 of 2016 & 1038 & 1039 of 2017
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 21.10.2021
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
W.P.Nos.37765 of 2016 and
1038 & 1039 of 2017 and
WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016
Titan Company Limited,
Rep. by its Group Manager – Taxation,
P.Manivannan No.3,
SIPCOT Phase I, Hosur-635 126. ... Petitioner in W.P. No.37765 of
2016
M/s.Premier Optical Pvt. Ltd.
rep. by its Director, No.80,
GN Chetty Road,T.Nagar,
Chennai-17. ... Petitioner in W.P. No.1038
of 2017
Mrs.Geetanjali D Souza Prabhu,
102, DonataEctasy, 35 Davis Road,
St. Thomas Town, Bangalore 560 084. ... Petitioner in W.P. No.1039
of 2017
Vs.
1 Commissioner of Central Excise LTU,
1775 Jawaharlal Nehru Inner Ring Road,
1
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W.P. No.37765 of 2016 & 1038 & 1039 of 2017
Anna Nagar Western Extn,
Chennai-600 101.
2 Additional Director General
Directorate General of Central Excise,
Intelligence Delhi Zonal Unit, West Block-8,
Wing No.3, First Floor, Section 1,
R.K.Puram, New Delhi-110 066.
3 Chairman Central Board of
Excise & Customs Department of Revenue,
Ministry of Finance, North Block,
Secretariat, New Delhi. .... Respondents in W.P. No.37765 of 2016
1 Commissioner of Central Excise Chennai II,
Central Excise, Commissionerate,
New No.692 MHU Complex
Anna Salai Chennai-2.
2 The Joint Commissioner of
Central Excise, Chennai II, Commissionerate,
3rd Floor, MHU Complex,
Nandanam, Chennai-35. .... Respondents in W.P. Nos1038& 1039 of 2017
Prayer in W.P. No.37765 of 2016: Writ Petition filed under Article 226 of the
Constitution of India praying to Writ of Prohibition prohibiting the 1st respondent
from proceeding in any manner pursuant to the show cause notice series
F.No.DZU/INV/F/CE/351/2015 dt.23.03.2016 issued to any Titan Eye + Store.
Prayer in W.P. No.1038 of 2017: Writ Petition filed under Article 226 of the
Constitution of India praying to Writ of Prohibition prohibiting the 2nd respondent
from proceeding with the adjudication of the Show Cause Notice No.33/2016
2
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W.P. No.37765 of 2016 & 1038 & 1039 of 2017
dated 06.04.2016 issued by the 1st respondent and Statement of Demand issued
pursuant thereto.
Prayer in W.P. No.1039 of 2017: Writ Petition filed under Article 226 of the
Constitution of India praying to Writ of Prohibition prohibiting the 2nd respondent
from proceeding with the adjudication of the Show Cause Notice No.43/2016
dated 5.5.2016 issued by the 1st respondent and Statement of Demand issued
pursuant thereto.
For Petitioner : Mr.Arvind Datar, Senior Counsel for
Mr.P.R.Ranganath in W.P. No.37765 of 2016
Ms.L.Maithili in W.P. Nos.1038 & 1039 of 2017
For Respondents : Mr.A.P.Srinivas,
Senior Standing Counsel in all WPs
COMMONORDER
The question that arises for resolution in this writ petition is as to whether the petitioners are liable to remit excise duty on the activity of fixing of prescription lenses in spectacle frames. The provisions of the Central Excise Act, 1944 (Act) provide for the levy of excise duty on ‘manufacture’ and what is moot 3 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 is whether the fixing of a lens in a spectacle frame is an activity that amounts to manufacture.
2. Show Cause Notices (SCN) have been issued to 457 Titan Eye+ Stores as well as the showrooms of Premier Optical Pvt. Ltd. that sells spectacles under the brand name ‘Lawrence and Mayo’. In the case of Titan, a request was made by the petitioner for centralization of all the cases in one Commissionerate for ease of ad- judication, since the 457 noticees were spread all over the country and to avoid multiplicity of proceedings.
3. The petitioner in W.P. No.1039 of 2017 is a Director of Premier Optical Pvt. Ltd. and has approached this Court, since the show cause notice mulcts liability on her as the person responsible for the operations of the Company. Pursuant to the SCNs, the petitioners are now in receipt of personal hearing intimation notices calling for their appearance, at which stage, they have approached this Court by way of the present writ petitions.
4. Essentially, the process leading to manufacture of a product/commodity would involve appreciation of facts that are best left to the officers of the concerned Department. Thus, and to get over the question of alternate remedy, the petitioners would immediately draw my attention to a judgment of the Hon’ble 4 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 Supreme Court in the case of Assistant Commercial Tax Officer Vs. Mehta Opticians (Civil Appeal No.773 of 1995) confirming the decision of the Rajasthan High Court on the very issue that falls for consideration in this batch.
5. The short judgment of a three Judge Bench is on point, and reads as under:
‘This is how Ground A (a) of the Special Leave Petition (reads):
“(a) Whether the High Court is justified in holding as under:-
It is not in dispute that frames and glasses are exempted from payment of tax. The spectacles being not a different commodity would not attract tax on their sales.
Particularly, when there is no exemption notification exempting frames and glasses from payment of tax and both the frames and glasses are exigible to tax @ 8%.” When Mr.S.K.Jain, Learned counsel for the appellant, proceeded to argue, we drew his attention to paragraph 5 of the judgment of Court under appeal, which is quoted in the ground above […] Mr.Jain persisted in arguing that frames and glasses were not exempted from payment of tax. We pointed out to him that it was impermissible for him to so argue when the High Court had specifically recorded that “it is not in dispute” that frames and glasses were exempted from payment of tax and no application had been made by the appellant to the High Court to correct this statement, it was only when we commenced the dictation of an order to so record that Mr.Jain said that he would not urge this contention.
All that an optician does, as the record suggest is to fit lenses into a spectacle frame: he carries out no process of manufacture and no separate or distinct commodity emerges. The judgment under appeal is, therefore, uphold.
The appeal is dismissed with costs.5
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6. The above judgment, according to the petitioner, is binding upon the parties in terms of Article 141 of the Constitution of India. The issuance of the impugned show cause notices and the continuation of the proceedings thus constitute a fundamental and jurisdictional flaw, rendering the proceedings bad in law, and the present Writ Petitions, maintainable.
7. The specific argument on maintainability is that the show cause notices have been issued, and are being pursued without taking note of, and contrary to the ratio of the binding Judgment of the Hon’ble Supreme Court affirming the de- cision of the Rajasthan High Court in the case of Mehta Opticians and if the same had been taken note of in proper perspective than the question of issuing present show cause notices would not have arisen at all. I note that in reply to the show cause notices, though Premier Opticals appears to have filed detailed replies, there is no reference therein to the judgments in Mehta Opticians, Bholanath Sreemany vs. Additional Commissioner of Commercial Taxes (Cal.HC) (1978 42 STC 248) or Amazon Seller Services Private Limited vs. Commissioner of Central Excise, Thane-I (2016 (3) TMI 69) (cited before me). As far as Titan is concerned, no re- ply to the SCN has been placed before the Court.
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8. Reliance in this context, is placed upon the judgement of the Hon’ble Court in the case of Hindustan Poles Corporation V. CCE (2006 (256) ELT 481(SC)), to the following effect:
'40. Before we part with this case we would like to impress upon the respondent authorities that before issuance of show cause notices the Revenue must carefully take into consideration the settled law which has been crystallized by a series of judgments of this Court. The Revenue must make serious endeavour to ensure that all those who ought to pay excise duty must pay but in the process the Revenue must refrain from sending of indiscriminate show cause notices without proper application of mind. This is absolutely imperative to curb unnecessary and avoidable litigation in Courts leading to unnecessary harassment and waste of time of all concerns including Tribunals and Courts'.
9. Additionally and in order to aid better understanding of the issue, the petitioners also take me through a series of decisions also involving the same issue on merits, that is, whether the fitting of prescription lenses upon spectacle frames would constitute ‘manufacture’ for the purposes of levy of central excise duty.
10. In the case of Bholanath Sreemany, a Division Bench of the Calcutta High Court dealt with the identical issue and the description of the activity undertaken by that assessee is set out as follows:
‘The petitioner states that in the course of his business, a customer comes to him with a prescription from a doctor, selects a particular frame, settles the price thereof and the frame is then appropriated to the contract of sale within the meaning of explanation 2(a) to Section 2(g) of the Bengal Finance (Sales Tax) Act, 1941. The petitioner then fixes the glasses, according to prescription, to the frame which has already become the chattel of the customer. There are thus 7 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 two distinct sales-one of frame and the other of the glasses and it is the case of the petitioner that he does not charge anything for fitting. It is alleged that the Commercial Tax Officer, Alipore, who examined the petitioner’s books of account, records and documents under Section 14(1) of the Act, completely misunderstood the nature of the transaction and the legal implication thereof and by an order dated 7 th April, 1970, held that the petitioner manufactures spectacles from parts of spectacles purchased by him and sells such spectacles to customers.’
11. Upon consideration of the above factual matrix, the Bench held that while manufacture implies a change, every change would not be manufacture. There must be a transformation of the raw materials into a new and distinct article having a distinctive name, character or use. The Bench was of the view that a manufacturer of spectacle, by assembling the lenses and the frames, does not create anything new so as to bring such activity within the purview of manufacture.
12. In the case of Amazon, the Authority for Advance Rulings constituted under the Act considered the plea for advance ruling on whether 15 different types of activities engaged in by it would amount to 'manufacture' under the Central Excise Act. One of those activities related to ‘spectacles and frames’. The description of the activity under the head ‘placing spectacles/sunglasses frames inside cases’ was that cases were generally received separately from the spectacles and the sunglasses, from the manufacturers. The case and the glass/spectacle were 8 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 first identified, then matched. In some cases, the screws at the temples and the hinges on eyewear could have become loose during storage and this was repaired with the help of a screw driver.
13. The argument of the Revenue was that when lenses were fitted in frames, a distinct marketable product emerged, since a frame and lens separately, and without integration did not have any marketability. However, the case of the petitioner was accepted by the Authority, placing reliance upon the decision of the Calcutta High Court in the case of Bholanath Sreemany (supra),
14. Yet another argument advanced was that though the petitioner has been engaged in the same activity for several years, the impugned show cause notices had come to be issued in 2016 without there being any justification in that regard or any change in circumstances. Having accepted the stand of the petitioner for many years to the effect that the activity of assembly of frames and spectacles did not constitute manufacture, there was no justification in the Revenue taking a different stand now. The judgment of the Hon’ble Supreme Court in the case of Radhasoami Satsang V. Commissioner of Income Tax ((1992) 1 SCC 659) is relied on for this proposition.
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15. A perusal of the show cause notice reveals that the activity carried out in the show rooms was the manufacture and clearance of spectacles carrying 'Titan Eye+’ Brand. Though adverse inferences are sought to be drawn by the respondents on other grounds as well, such as violation of conditions contained in Notification 8/2003-CE dated 01.03.2003, this point has not been argued and both the parties before me have confined the scope of the arguments to (i) whether the respondents were right in law in having issued the impugned show cause notices inspite of binding judicial precedents to the opposite effect and (ii) whether the assembly of prescription lenses on to a spectacle frames is an activity that amounts to ‘manufacture’ attracting levy of duty under the Act.
16. The trigger for the impugned proceedings was a search conducted in the showrooms of the petitioners when the Investigating teams found that the show room had the facility for eye testing and watch fitment, as well as a lens lab. The following machines/equipments were found in the premises (as per SCN dated 23.03.2016 in the case of Titan Company Limited) Sr.Nos. Name of the Instrument Function of the Instrument 1 Autorefracto-meter To find out the refractive error of the +Keratometer eye 10 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 2 Chart Projector For checking the vision 3 Chair unit without vision drum To seat the customer 4 Auto-lensometer To check the spectacle lens power 5 Manual Lensometer To check the spectacle lens power manually.
6 Retinoscope To find out the refractive error of the eye.
7 Trial set without case Keep the powered lenses 8 Trial frame For keeping the lens while checking vision 9 Ishihara’s book To check the colour blindness 10 Rubber Occluder – Black color It is used for blocking the eye – Medium Size 11 JCC (+-0.50) For refining the cylindrical power 12 JCC (+-0.25) For redefining the axis of the cylindrical power 13 Slit Lamp – AIA 11 model with To check eye disease 2 steps 14 Pupillometer To check the IPD 15 Ultra Sonic Cleaner To clean the spectacle frame 16 UV tester To check the UV efficacy 17 Geneva lens measure To check the base curve of the lens 18 Thickness gauge with dial To check the spectacle lens thickness 19 Near vision chart-qty 3 To check the near vision 11 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 20 Semi auto edger To give the desired shape to the lens 21 Supra Grooving machine To make the o for supra frame lenses 22 Rimless drilling machine To make the holes in the lens 23 Hand edger To polish the edges of the lens 24 Screw dispenser – Tip adjuster To keep all the of screws and nose pad
17. That apart, the show room has also had the facilities for eye testing, the grinding of spectacle lenses and fixing of lenses in the spectacle frame to make a spectacle. The technicians were trained to do the work of cutting, edging, grinding of the lenses and fit the same in the frame to make a complete spectacle. For the aforesaid purposes, the following machines were used.
Sr. Description Function/Usage
No.
1 Hand Edger Used for manual edging of the pattern.
2 Auto Edger Used for auto edging (cutting and edging) of
the lenses.
3 Blocker Machine Used for measurement of Intra Papillary
Distance, i.e. the location of the axis and
height of centre of eye.
4 Rimless Drilling Machine Used for drilling in the lenses for fitting in
the rimless frame.
5 Grooving Machine Used for grooving in the lenses to be fitted
12
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W.P. No.37765 of 2016 & 1038 & 1039 of 2017
in semi rimmed frames.
6 Dummy Driller Machine Used for drilling hole in the dummy lenses,
which come fitted with the frames to use the
same as pattern.
7 Warmer Used for warming the sheet frame.
8 Ultra Sonic Used for cleaning of the spectacles, as
servicing.
18. The petitioner explained the manufacturing process at the time of the Inspection in the following terms:
1. The customer visits their premises.
2. The customer selects a frame of his choice depending on brand, price, look, quality, etc.
3. The customer selects lenses of his choice depending on brand, price, look, quality, etc.
4. The customer either already has a prescription (details of power of lenses required) or he gets his eyes tested at the showroom.
5. If the customer wants to get his eyes checked, the optometrist of the showroom checks eyes of the customer, to get (ascertain) the power of lenses required for correcting his vision.
6. After getting the power of lenses/glass required for the customer, either they get the same from their store in the premises or if not available in the store, they place order to get the same from their warehouse at Bangalore.
7. Their technician, after getting the lenses of requisite power of standard shape and size, resizes the same so as to make it fit in the frame chosen by the customer. For this purpose he undertakes the following processes – i. Remove dummy lens from the frame, which comes fitted with the frame from the factory.
ii. Verify the power of the lens (Pre Quality Check) iii. Makes pattern of lens with the help of dummy lens, by cutting the “un-cut plastic pattern” into the requisite shape, 13 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 iv. Keep the pattern in the blocker machine to get the optical centre of eye and for putting the optical centre of the lens at the centre of eye and affixes blocking tape at the optic centre of eye in the lens so determined, fixes the lens in the Auto Edging Machine to cut to the requisite size/shape.
v. Keeps lens in the Edging Machine for cutting and grinding to required size.
vi. Keep the lens in the grooving machine, if grooving is required. vii. Fit the lens so made, in the frame selected by the customer, to get a complete spectacle.
He also informed that the spectacles were delivered to the customer with a spectacle case, lens cleaning cloth, invoice, “Titan Eye +” warranty card in a paper bag; that all these goods were provided by M/s.Titan. The officers also resumed certain documents, sample spectacle case, lens cleaning cloth, paper bag, etc. under Panchnama dated 27.08.2015, drawn on the spot (RUD-3).
19. In addition a warranty was also extended to the customers. All in all, the Revenue is of the view that the processes involved in the activity were complex and complicated enough to constitute ‘manufacture’. Moreover, the activities led to the conversion of raw materials, being prescription lenses and spectacle frames, into a marketable commodity, being a spectacle, a commercially distinct product.
20. To a pointed query put by the Court, the petitioners would specifically confirm that manufacture of the power lens i.e., the conversion of lens blanks into prescription lens is a taxable activity and that such activity takes place in the workplace/factory. They also confirm that the frames used are either imported or manufactured indigenously in a factory, subject to central excise duty. These two 14 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 activities i.e. manufacture of the spectacle frames and prescription lenses are, admittedly excisable events and the petitioners are liable to remit duty in regard to the aforesaid two events, where applicable. The petitioners also engage in sale of ready-made eye-wear that is purchased by customers, off-the-shelf. I am not, in these writ petitions, concerned with either of the aforesaid activities.
21. Post manufacture of the spectacle frames and lenses, the goods are sent separately to the petitioners’ show rooms and what is undertaken in the show room is only an assembly of the prescription lenses and the spectacle frames wherein the lenses are merely mounted upon the frames, to result in a spectacle.
22. No doubt, the minute break-down of the machinery and the processes as described in the SCN indicate a chain of events requiring skill and sophistication, that appear very significant in magnitude and impact. However, the end result of all the processes only results in assembly of the lens with the frame. This, in my view, does not amount to manufacture. The process of assembly is bound to involve some amount of refining and fine-tuning of the individual components and this, by itself, will not tantamount to manufacture. In fact, most establishments engaged in selling eye-wear provide a gamut of services in this area including, having an optician in their employ or on call, and infrastructure for 15 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 the testing of vision. Thus, notwithstanding that a distinct commercial product is obtained upon assembly of a lens with a spectacle frame, this would not result in such assembly being equated to manufacture.
23. The judgments in the cases of Mehta Opticians, Bholanath Sreemany and Amazon decide and reiterate the issue of whether the activity of assembly sim- pliciter including fitting and minor adjustments that are part and parcel of the pro- cess of assembly, constitute ‘manufacture’ for the purposes of the Act, in favour of the assessee. The show cause notices, to this extent, and insofar as they purport to equate the process of assembly to manufacture, are quashed.
24. These Writ Petitions are allowed. Connected Miscellaneous Petitions are closed. No costs.
21.10.2021 Index: Yes Speaking order rkp/kbs 16 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 To
1. Commissioner of Central Excise LTU, 1775 Jawaharlal Nehru Inner Ring Road, Anna Nagar Western Extn, Chennai-600 101.
2. Additional Director General Directorate General of Central Excise, Intelligence Delhi Zonal Unit, West Block-8, Wing No.3, First Floor, Section 1, R.K.Puram, New Delhi-110 066.’
3. Chairman Central Board of Excise & Customs Department of Revenue, Ministry of Finance, North Block, Secretariat, New Delhi.
4. Commissioner of Central Excise Chennai II, Central Excise, Commissionerate, 17 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 New No.692 MHU Complex Anna Salai Chennai-2.
5. The Joint Commissioner of Central Excise, Chennai II, Commissionerate, 3rd Floor, MHU Complex, Nandanam, Chennai-35. 18 https://www.mhc.tn.gov.in/judis/ W.P. No.37765 of 2016 & 1038 & 1039 of 2017 DR. ANITA SUMANTH, J.
rkp/kbs W.P.Nos.37765 of 2016 and 1038 & 1039 of 2017 and WMP. Nos.1008 & 1009 of 2017 and 32365 of 2016 21.10.2021 19 https://www.mhc.tn.gov.in/judis/