Customs, Excise and Gold Tribunal - Tamil Nadu
Kores India Ltd. vs Cce on 19 March, 1999
Equivalent citations: 1999(83)ECR809(TRI.-CHENNAI)
ORDER V.K. Ashtana, Member (T)
1. This is an appeal against Order-in-Original No. 40/93 dated 19.8.1993 passed by the Collector of Central Excise, wherein, demand of duty of Rs. 2,89,76,000/- (Rs. Two crores Eighty Nine Lakhs and Seventy Six Thousand) on clearance of carbon paper and typewriter ribbons effected from the appellant's factory at Madras has been confirmed under Rule 9(2) read with proviso to Sub-section 1 of Section 11A of Central Excise Act, 1944.
2. Further demand of Rs. 2,14,066/- (Rupees Two Lakhs Fourteen Thousand and Sixty Six) has been confirmed on seized carbon papers and ribbons under the same law. Also seized goods of both varieties totally valued at Rs. 5,36,276.36/- have been held liable for confiscation and the bond under which they were provisionally released has been enforced on the Bank Guarantee furnished therein to the extent of Rs. 50,000/-. Learned Collector has also imposed a penalty of Rs. 30 lakhs on the appellants under Rule 173Q.
3. Briefly, the issue concerns the dutiability of two items as alleged in the show cause notice dated 22.3.1993 covering period as follows:
(a) Carbon paper for the period 01.3.1988 to September, 1992.
(b) Typewriter/Telex Ribbons for the period 1.4.1988 to September, 1992.
4. The main contention of the appellants before us is that the nature of activity which results in the production of both the carbon paper as well as the ribbons is such that it does not amount to manufacture under Central Excise law and, therefore, they denied all allegations contained in the show cause notice.
5. Heard Dr. P.V. Jois, learned Advocate along with Ms. S. Vijayadharani, Advocate for the appellants and Smt. Dolly Saxena, Joint Chief Departmental Representative and Shri R.K. Sharma, Senior Departmental Representative for the Revenue.
6. Learned Advocate submits that the Madras unit is a branch of Kores India and that they obtained carbon paper of larger dimensions popularly known as Royal Size or Brief Size from their manufacturing unit in Mumbai and that the same is cleared from Mumbai on payment of duty under Sub-heading 48.09. He submits that at Madras the said larger dimensional sheets are sized, slit, packed in boxes after wrapping in butter paper and finally the said boxes are shrink packed to remove the air which leads to longer shelf life of the product. The size of the carbon paper so emerging confirms to the commercial size called fullscap having dimensions of 210 mm x 330 mm. Learned Advocate submits that in their Mumbai unit the base paper of size 660 mm x 420 mm is first taken up for coating of various chemicals and pigments and the resultant coated carbon paper is then either cut into half to obtain the brief size or is further cut by another half to obtain the fullscape size. If the product at Mumbai is cleared in the form of brief size or royal size in view of the tariff description in Sub-heading 48.09 and the diamensions mentioned therein, duty is paid under that heading. When the fullscape size is cleared from the Mumbai factory then duty is paid under Subheading 48.16 as its dimensions are lesser than those prescribed under Sub-Heading 48.09. Learned Advocate, therefore, submits that though the Central Excise Tariff Act, 1985 contains these two sub-headings both referring to carbon paper, yet depending on what size is produced at their Mumbai factory, the same attracts duty in either of the two sub-headings. However, that does not mean, contends learned Advocate, that when the duty paid carbon paper under Sub-heading 48.09 received at Madras if further reduced in dimensions and then packed as fullscape carbon papers, this activity would amount to manufacture as alleged in the show cause notice. Learned Advocate urges that this is because what was received was also carbon paper and what emerges after these operations at Madras is also carbon paper. Therefore, there is no material change in the end product as a sequel to these operations at Madras which lead to the emergence of a distinct and new identity of a commodity known in the market as such which are the essential ingredients to attract the charge of manufacture under the Central Excise law. He further submits that if this constitutes manufacture, then in Mumbai unit when the royal size/brief size was further slit by half to obtain the fullscape size they would be eligible to duty exemption thereon under Notification 217/86 and when the same was done at Madras they would be eligible for MODVAT benefit. He submits that though this has been conceded by the learned Collector in the Order-in-Original, they have yet been denied the benefit of MODVAT credit in the order impugned.
7. In support of these submissions, learned Advocate cites the following decisions:
i) In the case of Kores India Ltd. v. CCE as reported in 1982 ELT 253 (Bom.) : 1982 ECR 401D (Bom.), wherein, it has been held that while inter-leaving of paper may amount to manufacture, slitting of paper is not amounting to manufacture. He submits that the learned Collector has not considered the full import of this decision in the Order-in-Original impugned.
ii) The decision in the case of DCM Ltd. v. CCE as , wherein, according to learned Advocate a Constitutional Bench of the Apex Court has upheld the findings in the case of Moti Laminates [1995 (57) ECR 1 (SC)] and has reitereated the legal position that to attract excise duty on manufacture, distinct goods would emerge which have marketability.
iii) He cites the case of Khan Mills as reported in 1988 (34) ELT 5 (SC) : 1988 (16) ECR 115 (SC) : ECR C 1187 SC and refers to para 4 thereof in his support.
iv) He cites the case of Bhor Industries Ltd. v. CCE as stresses the findings in para 7 thereof.
v) Cites the case of International Conveyors v. CCE as reported in 1998 (28) RLT 605 (Tri.) : 1998 (79) ECR 344 (T), wherein, it is held that twisting/doubling of yarn does not amount to manufacture.
vi) Cites the case of Realco Papers as , wherein, it is held that mere slitting of paper rolls does not amount to manufacture.
vii) He also refers to the decision of the Hon'ble Supreme Court in the case of Krishna Carbon Paper as reported in 1998 (37) ELT 480 (SC) : 1989 (20) ECR 273 (SC) : ECR C 1257 SC which explains as to what is carbon paper.
viii) He also cites the decision in the case of Purolator Industries Ltd. as , wherein, it is held that mere cutting and pleating of filter paper is conversion but not manufacture.
ix) He also cites the decision of Government of India in their own case as reported in 1982 ELT 480A (GOI) in his support.
x) He also cites the decision in the case of Bhadrachalam Paper Boards Ltd. v. CCE as , wherein, it is held that wrapping and packing for the mere convenience of distribution of finished products would not amount to manufacture.
xi) He submits that in the case of Hindustan Spinning and Weaving Mills as reported in 1998 (28) RLT 137 (CEGAT), wherein, it has been held that engraving i.e. printing of design on duty paid Nickel Screen Cylinders does not amount to manufacture.
xii) In the decision of Systems Packing as it was held that slitting of paper does not amount to manufacture.
xiii) In the case of P.C. Cherian as reported in 79 ELT 593 SC the Hon'ble Apex Court ruled that using existing article for its betterment does not amount to manufacture. Learned Advocate submits "that shrinked packing and slitting in this case is only for the betterment of that article and, therefore, would not amount to manufacture.
xiv) In the case of Final Order No. ED/SB/1464/83 dated 11.5.1984, the Hon'ble Tribunal has held that cutting of rough marble blocks does not amount to manufacture. He submits that this has been followed in the case of Amrut Shreelay as .
8. Ld. Advocate submits that Order-in-Original issued by Collector of Central Excise, Calcutta bearing No. 55 (Ch. 48) 93 COMM NR 45/96 dated 12.7.1996 wherein on a similar issue the Ld. Commissioner has held that for both these products at Calcutta unit there is no manufacture involved and therefore no excise duty is attracted. Ld. Advocate submits that to the best of his knowledge this Order-in-Original has acquired finality as this has not been appealed against by the department. He also refers to Trade Notice No. 56/89 based on a Board Circular wherein the CBEC has clarified that cutting/slitting does not amount to manufacture as reported in 1989 (42) ELT T 32.
9. To a query from the Bench, Ld. Advocate replied that such a view that cutting and packing is not amounting to manufacture would not hold Sub-Heading 48.16 redundant or otiose for the reason that where the final product described under the said sub-heading emerges from the basic manufacturing stage, i.e. coating of the base paper, the final products would be cleared under that sub-heading as is the case in their Mumbai unit.
10. With respect to typewriter ribbons, he submits that the above arguments hold mutatis mutandis. In this case, the cutting of pre-determined lengths of the ribbon from the jumbo reel and rewinding on metal spools and repacking thereof would not amount to a dutiable process of manufacture under sub-heading 96.12 as alleged in the show cause notice for the following reasons:
(a) Sub-heading 96.12 covers ribbons both with or without spools. Since whatever duty is leviable has been already discharged by the Jumbo reels under the same sub-heading and since mere cutting and packing thereof would not amount to manufacture, therefore there was no question of again paying duty under the same sub-heading as these products were emerging from Madras unit. He therefore submits that the department is in error in wanting to tax this product again.
11. Ld. Advocate further submits that both the demands are also hit by limitation. In view of the fact that the show cause notice was issued as late as 22.3.1993 and seeks to cover the period in both the cases ending Sept., 1992, i.e. the notice is issued after the normal period of 6 months. He submits that they have a unit at Indore wherein the excise licence/declaration were asked to be cancelled and there was no contrary action by the department for the same products as involved here. Therefore, Ld. Advocate submits that the appellants harboured a bona fide belief that the processes undertaken in respect of these goods at Madras would not attract any excise duty. In view of the said bona fide belief, there was no intimation given to the jurisdiction excise authorities on all these nature of operations, etc. He submits that since nothing has been suppressed and no fraud is involved and there was no intention in this respect, therefore the extended period would not be applicable in this case at all. In this connection, he cited the case of Cosmic Dye Chem as wherein it is held that if there is an intent to evade, only then the extended period would be applicable. But as in this case there was a bona fide belief that no manufacture is involved, therefore, the extended period is not applicable. He also refers to the above noted Trade Notice which also contributed towards harbouring this bona fide belief apart from the fact that the Order-in-Original of Calcutta noted above issued in 1996 also was in their favour.
12. Ld. Advocate further submits that in the event it is held that either of these two products would pay duty at Madras, then since duty had been paid earlier at Mumbai, Modvat credit would be available to the Madras unit thereon. In this connection he cites the decision of Formica India as reported in 1995 (77) ELT 51 (SC).
13. Ld. D.R. Shri Sharma commenced his submissions with a brief resume of the items involved and the nature of operations done at Madras. With respect to carbon papers, he submitted that these operations included sizing, cutting, packing in butter paper and thereafter in boxes and finally also shrink wrapping these boxes, i.e. removal of air to preserve shelf life. With respect to typewriter ribbons, he submits that jumbo reels of required length upto 210 meters were put on spooling machines which automatically cut pieces of desired length of 5 or 10 meters and wound them on a metallic spool. Thereafter, they were packed appropriately.
14. He submits that Section 2(d) of the Act defines excisable goods, i.e. specified in the Schedule to the Central Excise Tariff Act, that at both stages, i.e. in the bigger dimensional forms as well as end products in the Madras unit, these were clearly goods, because there was no dispute regarding their marketability and their identity as goods in the commercial market. He further submits that even if they were excisable goods when they were received from Mumbai factory, it is the contention of the department that even after cutting, packing etc., they again emerged as fresh excisable goods because their nature changed and this change of nature was satisfying the new end-use namely that of use on smaller dimensional rolls on the typewriter, etc. In this connection, he cited the following case laws:
(a) Decision in the case of Dipen Textiles as , wherein in para 16 the text laid down is that since pancakes had a different name and a different end use, known as such in the market, as also since the assessee had not cleared any cassettes, therefore even though the jumbo reels pancakes figure in the same tariff sub-heading, the conversion from the former to the latter amounted to manufacture. Applying the ratio of the said principle to the facts of this case, Ld. D.R. submits that the carbon paper in Royal/Brief size is known in the market as being different from the fullscape size carbon paper. The end use is also different in as much as the larger size carbon paper is used for copying larger size transcripts and the fullscape paper is used for copying either manually or on typewriter of smaller size documents.
(b) He also cites the case of Rolls Prints Packing Ltd. as wherein in the context of movement of goods under Rules 57F(2) it has been held that on return, inspection, counting and packing done in the recipient factory which processes incidentally and are incidental or ancillary to the completion of the manufacture of the product. He submits that the mere inspection, counting and packing in that cases were incidental to manufacture; here sizing, cutting, sophisticated packing, etc. would also qualify to be incidental and ancillary to the completion of the manufactured product and therefore falling within the ambit of the definition of manufacture under Section 2(f) of the Act.
(c) He also cites the case of Karnataka Graphic Industries as reported in 1996 (67) ECR 370-T wherein it was held that Telex and Teleprinter rolls were different from printing and writing paper.
(d) He also cites the case of Garware Plastics and Polymers as reported in 1993 (63) ELT 670-T and applies the ratio thereof towards the decision as to whether the fullscape size carbon paper would fall under 4816.00 or not.
(e) He cites the case of Shyam Oil Cake as reported in 1999 (104) ELT 268-T : 1999 (81) ECR 40 (T) and submits where there is a separate Tariff entry under the new Tariff, i.e. Central Excise Tariff, 1985, the same cannot be ignored as the new Tariff is based on the internationally acclaimed H.S.N. System.
(f) He also cites the case of S.N. Sundarson as wherein it is held conversion from rocks to slabs constitutes manufacture.
(g) He cites the case of Hindustan Polymers as which has been followed in the case of India Cements as which holds that the definition of manufacture under Central Excise Act is an inclusive one. Therefore, he submits that these operations at Madras would fall within the ambit of such definition.
(h) He also cites the case of K. Rasiklal and Company as reported in 1986 STC 238 (Guj.) and also the decision in the case of East End Paper Industries Ltd. as , wherein it is held that wrapping constitutes manufacture.
15. He submits that in the Order-in-Original passed by Ld. Collector of Central Excise, Calcutta, noted above, the Ld. Collector has not considered the detailed question of two different tariff entries in the Tariff as has been done in the decision of Garware Plastic and Polymers supra and therefore, said decision has no binding or even persuasive effect on this issue.
16. With respect to typewriter ribbons, Ld. D.R. submits that the jumbo rolls as received by the Madras unit of the appellants are not capable of being used as such as ribbons. In any case, they have to be cut and rewound on the spool to desired lengths and packed, before it can be used. Therefore, the case law of Dipen Textiles clearly applies to this case in as much as the jumbo reels are not known as typewriter ribbons in the market and only when they are cut in the length of 5 or 10 meters and wound on metal spools and packed that they become recognisable as a new and distinguished commodity which is known as typewriter ribbons in the commercial market. The argument that there is no separate sub-heading in the tariff to cover these typewriter ribbons would not be material to a finding regarding its manufacture for the simple reason that even ribbons on spools or in casettes are covered by this heading which by also recognising another product as ribbons not in spools or cassettes as merely sought to tax either or both. In this respect, he cites the case of Lamtab Packing as wherein it is held that merely because the commodity disputed falls within the same heading, that would not be preclude it to be taxed. Similar ratio is also available in the case of/. G. Glass Industries as reported in 1998 (78) ECR 761.
17. Ld. D.R. further submits that the appellant's premises at Madras though called as depot by them, has been registered under the Factories Act in view of the machineries installed therein and in view of the fact that the number of workers employed allows it to be qualified under the Factories Act as a factory. He submits that the appellants were aware that the nature of activities undertaken by them could also be done in a factory under that law, yet, no query was made in writing with the department as to whether excise duty would be attracted.
18. He further submits that price as available on the packages of the fullscap size, i.e. fullscap carbon paper indicated is the same as the price of the product at Mumbai and is inclusive of excise duty.
19. He further submits that the carbon paper which is obtained from Mumbai has a different dimension and a different use and while Royal/Brief sizes answer to the description under heading 4809 whereas the fullscap carbon paper sheets produced at Madras are answering to the description under sub-heading 48.16. By no stretch of imagination, they can be called as identical goods. Therefore, the latter should be paying duty under 48.16 as is also held in the Order-in-Original impugned.
20. He submits that with respect to sub-heading 48.09 and 48.16, the scheme in the Central Excise Tariff is that two different items are recognised which lead to a legal fiction but this legal fiction has statutory force. He submits that in many sub-headings in this tariff, even the process of manufacture has been defined as is the case in sub-heading 17.01 and 17.02. In the instant case, the distinction between 48.09 and 48.16 is therefore on physical characteristics and it is clearly the intention of the Legislature to tax both as and when they occur, i.e. produced.
21. He further submits that with respect to carbon paper, the decision in the case of Dipen Textiles supra was further followed by the Hon'ble Tribunal in the case of Electronic Mechanical Industries as in and submits that when we apply the ratio thereof in this case, it is clear that Royal size/brief size carbon paper cannot be used for typing documents in fullscap size and therefore, the two products have a distinct commercial identity.
22. He further submits that the decision in the case of DCM supra cited by Ld. Advocate is not applicable to the facts of this case as in that case the only issue dealt is the test of marketability for any products to be goods. Ld. DR submits that in this case there is no dispute that all the products whether cleared in jumbo rolls/larger dimensions or in reels/smaller dimensions are "goods" known as such in the market.
23. Ld. DR with respect to typewriter ribbons, took us to the statement dated 19.10.1992 of Shri D.R. Raghunathan, an employee of the appellants factory and submitted that with respect to ribbon rolls, it has been clearly deposed therein that they are receiving such jumbo rolls from two sources apart from their factory at Mumbai. These two sources are M/s. Solar Packaging Pvt. Ltd., Madras (Depot) and M/s. Saket Stationery Manufacturing Co. (Pvt.) Ltd., Bombay. These jumbo rolls are converted into 5/10 meters in various spools, duly blister packed, etc. He has further deposed that while the carbon paper received from their factory at Thane was on payment of excise duty under excise gate pass, in respect of these ribbons, they were receiving them from the two depots of these two companies "under Invoice only". He deposed that no excise gate pass was received and these are supplied to them from the depots.
24. Ld. DR also submits that in his statement dated 5.11.1992 the Branch Manager of the appellants at Madras Shri Jacob Ittycheriah has deposed that their unit at Madras had licence under Factories Act; that whenever royal size carbon paper is required by the consumer, they ordered the same from their Mumbai factory, but this is in very rare cases. With regard to the conversion of ribbons into spool form, this is as per the requirement of consumers in different spools like for Godrej M. 12, Remington Standard, Halda Standard, etc. It is deposed that the size to which the jumbo reels are cut depends upon the requirement of the customer. He further gives details of the blister packing and that the automatic spooling machine with cutter (power operation) is used for these purposes. Ld. DR in this connection submits that the appellants have at no stage either during the original proceedings or before this Tribunal led any evidence to the effect that the jumbo reels received from these two companies noted above had discharged duty in terms of duty paying documents. He submits that this is also a view taken by the Ld. Collector in the Order-in-Original impugned (para 39) wherein he has observed that the appellants have not produced the required documentary evidence to prove that the entire quantity of inputs used has not suffered duty and he therefore, submits that Modvat credit would not be available to them in view of the aforesaid infirmities in the appellant's case.
25. Learned DR therefore concluded that both the processes would attract Excise Duty; that no Modvat credit would be available and since the appellants had not taken any steps to inform the department regarding the nature of activ -ity of operations at Madras, therefore they cannot claim the demands to be time barred under law particularly when this is not a case of merely suppression etc. under proviso to Section 11A but a case of clandestine manufacture and removal under Rule 9(2).
26. Learned Advocate rose to rebut as follows:
(i) The fact that they had taken out the licence under the Factories Act has no nexus with the processes undertaken therein to be constituting manufacture under Central Excise Act as the two concepts were entirely different. He further submits that the fact that they had taken out licence under Factories Act only goes to show that their bona fide towards being a law abiding company.
(ii) With respect to the statement of Shri Ranganathan as noted above, he submits that the statement should be read as a whole and therein the deponent has deposed only as a reaction to the questionnaire statement put to him in the form of "you explained to me" that there are two headings covering two different types of carbon paper etc. He further submits that what is deposed is that excise gate passes were not received because sources of supply was from the depot and not the manufacturers. The manufacturer could even be an unit operating under Small Scale Industries Scheme.
(iii) He submits that with respect to the limitation claim by the appellants, Rule 9(2) would only be attracted it they had dealt with any excisable goods in contravention of Rule 9(1). In turn, Rule 9(1) concerns the production or manufacture of such excisable goods. He submits that since in either of these items no manufacture is involved, therefore Rule 9(2) as also Rule 9(1) are not at all involved in their case. He further submits that in para 13 of page 113 of the Paper Book in their reply to show cause notice before the Collector's adjudication stage, this has been made clear. He further submits that neither the show cause notice nor the said order clearly shows that the such Jumbo Ribbons were received without payment of duty in their Madras unit. Therefore such a presumption is without any base. He again reiterated the decisions in the case of Systems Packaging and also Realcosupra. Therefore, Ld. Advocate again reiterated his above noted submissions and concluded that both on merits as well as on time bar they had established a very strong case in their favour and prayed that the appeal may be allowed. He also submits that under these circumstances, there should be no imposition of penalty.
27. We have carefully considered the rival submissions as well as records of the case. As there are two products involved in the dispute, we propose to take them one by one for consideration.
28. With respect to the product Carbon paper in full-scap size as it emerges from the operations at the unit at Madras, we find that on a detailed consideration of the nature of the activities undertaken to produce the same, as well as the nature of the goods which emerged therefrom, we are in agreement with Learned Advocate's submission that the same does not amount to a process of manufacture thereby attracting duty of excise for the following reasons:
(1) The tariff heading 48.09 reads as under:
48.09 "Carbon paper, self-copy paper and other copying or transfer papers (including coated or impregnated paper for duplicator stencils or offset plates) whether or not printed, in rolls of a width exceeding 36 c.m. or in rectangular (including square) sheets with at least one side exceeding 36 cm in unfolded state.
The tariff under heading 48.16 reads as under:
48.16 "Carbon paper, self-copy paper and other copying or transfer papers (other than those of heading No. 48.09), duplicator stencils and offset plates, of paper, whether or not put up in boxes.
A plain reading of the two entries and a comparison thereof shows that both the headings cover the basic general product namely Carbon Paper. Therefore, the Legislature itself has recognised the existence of a fundamental and basic product known commercially and called Carbon Paper. Thereafter, in view of the market trends indicating to the Legislature that the said carbon paper can be cleared in larger dimensions, the Legislature under heading 48.09 has prescribed the cut-off dimensions as indicated therein to ensure that whenever carbon paper is covered in those dimensions, it does not escape the tax net. Similarly, the same carbon is also sought to be taxed by the Legislature when it is cleared in smaller dimensions and in paper boxes or as loose sheets and therefore entry in sub-heading 4816.00 specifies this intention. When these two entries are harmoniously read together, the fact that emerges is that Legislature has recognised carbon paper as a basic general product. In view of this position emerging from a plain reading of the two headings, we cannot but find substantive merit in Learned Advocate's submissions that when carbon paper is cut to reduce its dimension, it does not change into anything new but remains the basic general product, namely, carbon paper.
(2) It is our considered view that mere cutting of this carbon paper from royal or brief size into full-scap size i.e. by cutting it merely into half or quarter, the said carbon paper does not become a new and distinct identity i.e. a product which is known differently in the market other than carbon paper. To do that, appellants would have had to engage into a more substantial form of operations whereby a new product would have emerged into existence instead of confining themselves to mere cutting and packing, There is no change of character of the carbon paper noticed by us here.
(3) Learned DR has very ably contended that since the end-use is a different one in these two cases, therefore when this difference in end-use is read with a different tariff sub-heading namely 48.16, then the said operations would result in the emergence of a commercially distinct item known to the market as such. On careful consideration of this argument, we find that while on the face of it's this certainly seems an attractive one, going deeper into the matter, we find that end-use, by itself, would not change the nature of the commodity.
29. In this connection, we find that the aforesaid findings are supported by the decision by Govt. of India in appellants' own case in Order No. 43/1982 dated 16.1.1982 as reported in 1982 ELT 480A (GOI) wherein it has been held with respect to paper that cutting to size is not manufacture under Section 2(f) of the Act. In this case also, the department's main contention that since royal size/brief size is cut into full-scap size therefore a new product emerges and therefore it amounts to manufacture. This is directly an argument in contradiction with Govt. of India's own decision noted above, in respect of a similar commodity concerning paper.
30. In the case of Bhadrachalam Paper Boards as , the Hon'ble High Court of Andhra Pradesh has considered a similar issue of cutting of paper into convenient sizes. It is held that cutting of paper into convenient sizes for transport or distribution cannot be said to constitute production or manufacture as envisaged by Section 2(f) of Central Excise Act. In this case also, the cutting from larger dimensions to full-scap size is basically for convenient distribution to the customers and therefore it is difficult for us not to accept and apply ratio of the Hon'ble High Court's decision.
31. In the case of Computer Graphics Private Ltd. as the Hon'ble High Court at Madras, in whose jurisdiction this Tribunal also sits has held that in the case of graphic art films cutting of these films into sheets of various sizes so that they can be sold in the market is not amounting to manufacture under the Act. While coming to the said decision, the Hon'ble High Court had relied on the decision of in the case of UO1 v. Delhi Cloth and General Mills wherein it has been held that "manufacture" is a word generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a substance". The Hon'ble High Court had also relied on the case of Brakes India Ltd. as which in turn had held that though manufacture implies a change, however, every change is not a manufacture. The Hon'ble Madras High Court had therefore laid down the test that the end result of process(es) through which original commodity is made to pass shall result in a distinct and different commodity. We find that in this case what is fed into the process is carbon paper and albeit of larger dimensions and the outcome is also carbon paper and therefore the product remains carbon paper despite this process and no new distinct product emerges.
32. In the appellants' own case, the Hon'ble High Court at Bombay, [1982 ELT 253 (Bom) : 1982 ECR 401D (Bom)] had held that process of cutting jumbo or large rolls of paper into specific sizes and dimensions and then to roll them into the Teleprinter Rolls with the aid of power driven machines amounts to manufacture under Section 2(f) of the Central Excise Act. We find that in this case, the process considered is not merely cutting of larger rolls of paper into specific sizes but also a further process is involved i.e. to further roll them into the Teleprinter rolls with the aid of power driven machine. This amounted to manufacture under Section 2(f) because the teleprinter rolls were known as a distinct commodity in the market which was different from mere paper rolls. The High Court also noted that slogan printing was done on the roll itself and there was an additional process of interleafing these rolls with carbon paper according to the requirements of the customers. These findings of the Hon'ble High Court of Bombay are contained in para 20 of the said judgment which is reproduced as below:
20. The observations would clearly indicate that the facts of that case were entirely different from the facts of the present case. In that case all that was done was to cut large size paper, that is, jumbo rolls into suitable sizes as per the requirements of the customers. No process or operation was carried out by power driven machine and the paper was only cut into suitable sizes and it did not lose its original identity from the base material, that is, printing and writing paper. In this case, however, the end product has not only lost its original identity with the large size or jumbo rolls but apart from being cut into different sizes, there is a warning mark printed at the end of the roll for caution of the teleprinter operator. Further, a slogan printing is done on the roll itself indicating the name of the customer and the end product that emerges has a distinctive name, characteristics and usage and also known in the market differently. There is also an additional process of inter-leafing these rolls with carbon paper according to the requirements of the customers. It is, therefore, difficult to see how the learned Counsel for the petitioners can take any assistance of this decision in support of its submission that what was made is teleprinter rolls and not manufacturing of teleprinter paper A plain reading thereof shows that while considering the operations which were limited to cutting of paper into suitable sizes, the Hon'ble High Court has clearly observed that by this cutting into suitable sizes, the paper did not loose its original identity from the base material. It was only when certain other operations were done like slogan printing, affixing the warning mark at the end of the printer roll to give warning that the paper is about to finish, and inter-leafing with carbon paper etc. that a different product with a different identity came into existence and the original product lost its identity. In the present case, no activity other than cutting and packing is done on the carbon paper. In fact, it is not even disputed that the printing of the name of the manufacturer etc. on the reverse of the carbon paper is also not done at Madras but is contained in the larger dimensional carbon paper received from their Mumbai factory.
33. We also note that the aforesaid judgment of the Hon'ble High Court at Bombay has since been supported by the Hon'ble Apex Court vide in Civil Appeal No. 3519/20 of 1990 decided on 22.1.1997 and as reported in 1997 (93) ELT 322 (SC).
34. Learned D.R. has also submitted strenuously that the two sub-headings under chapter 48 noted above have statutory force under the scheme of things under the Central Excise Tariff. Therefore, because the full-scap carbon paper in boxes cleared by the appellants' unit at Madras falls under the description of sub-heading 4816.00, ipso facto, the product becomes dutiable under the said subheading.
35. We are unable to agree to this submission. Simply because a product is specified in this tariff sub-heading, and an end product satisfies that definition, it cannot be said, per se, that the product would attract Excise Duty. This is because excise duty is on manufacture. Therefore, the fact of manufacture has to be read within the tariff entry and mere mentioning in tariff entry alone does not lead to a levy of excise duty. This position has been confirmed by this Tribunal in the case of Elecon Engineering Co. Ltd. and Ors. as reported in 1999 (31) RLT 5 (Cegat) : 1999 (82) ECR 677 (T) which after taking into consideration a large number of decisions on this subject has held as follows:
13. In view of the foregoing discussions, we are of the view that in the aforesaid appeals manufacture of goods does not take place in the light of the aforesaid decisions of the Apex Court, the High Court and the CEGAT; notwithstanding the fact that some of the items are specified in Central Excise Tariff Heading 7308. The appeals are, accordingly, allowed with consequential relief to the appellants. Individual appeals also raise several incidental issues like the demands being time barred. We are not going into those submissions as the appeals are being allowed on merits.
Since in view of the discussions noted above, we are clearly of the opinion that no manufacture is involved, therefore this submission of Ld. DR is difficult to accept.
36. In view of the aforesaid findings on merits of the product carbon paper in full-scap size, which we have held above not to attract Excise Duty under 48.16, there being no manufacture involved, we are not required to consider the issue of limitation pleaded by appellants as no duty is being ordered to be confirmed on this count at all.
37. This leaves us with the question of duty liability on Typewriter/Telex ribbons. We find after a careful consideration of the submissions and records of the case, that the nature of operations, the end products emerging therefrom, with respect to this commodity are quite different from the case of Carbon Paper discussed above. In this case we find as follows:
(a) The Jumbo reels of ribbons received at Madras Unit are merely Jumbo reels but are neither Typewriter ribbons nor Telex ribbons as are known to the market. This is so because in his statement dated 5.11.1992 the Branch Manager of the appellants at Madras, Shri Jacob Ittychariah has deposed that the conversion of Jumbo ribbons into spool form is as per the requirement of consumers in different spools to suit typewriter machines like Godrej M-12, Remington Standard, Halda Standard, etc. He has clearly deposed that ribbons in 10 mts and above are spooled on the automatic spooling machine and then packed suitably for these purposes. Therefore from this deposition of the appellants' Senior employee itself it is clearly evident that these ribbons in the form in which they are received by the Madras unit cannot be supplied to their various customers by merely reducing the length by cutting. The product becomes a saleable commodity in the market only when it is spooled according to the desired sizes which is suitable to the particular model and make of the machine. Hence the product which emerges after spooling and packing namely a Typewriter/Telex ribbons as acquired a new and distinct identity from the Jumbo rolls, which has now become a specific commodity namely Typewriter/Telex ribbons in spools of specified lengths. It is not disputed that these would fall under Chapter heading 96.12 of the schedule to CETA 85.
38. This view is supported by the decision of the Hon'ble Tribunal in the case of Dipen Textiles (P) Ltd. as wherein the issue which was considered was whether slitting of Jumbo rolls of Audio/Video tapes into pancakes of a smaller length and wound as such would amount to manufacture or not. The view taken therein was that even though Jumbo rolls as well as pancakes are both covered under the same Tariff heading namely 8523.13, yet since pancakes were clearly a distinct commodity known in the market as such and were used for filling the Cassette, therefore even mere cutting of the ribbon into the required sizes and rewinding as pancakes would amount to manufacture. In the instant case, we find that similar ribbons in jumbo rolls are cut into required sizes and then re-wound on spools and the product that emerges is suitable for use as Typewriters/Telex ribbons on specific machines, therefore the facts are found to be identical in both the cases. We therefore respectfully apply the ratio of the Hon'ble Tribunal's decision in Dipen Textiles supra and find that the Typewriter/Telex ribbons on spool would have to pay duty as alleged in the Show cause notice. We also note that the said decision of Dipen Textiles supra was further followed by the Tribunal in the case of Electronics Mechanicals Industries as . The Tribunal in that case had also considered the decision in the case of Inarco Ltd. as wherein it was held that even a simple process may constitute manufacture if it brings into existence a new and different commodity. We find that such is the case here too.
39. Learned Advocate had further submitted that it is not factually correct to say that after cutting to required length the ribbon was wound on metallic spools and supplied in spool form only. He had submitted that the ribbon of required length had been supplied even without being wound on spool, i.e. not in spool form. We have carefully considered the records of the case and find that neither the show cause notice, nor the Order-in-Original, nor the reply thereto, nor the statement of Shri Jacob Ittycheriah reflect this as a factual position. In view of the fact that there is no evidence on record to support this and the Show cause notice proceeds only on the allegation that the ribbons were, after being cut to length, also produced on spools, therefore we are not in a position to accept this submission.
40. In his statement dated 19.10.1992 Shri D.L. Raghunathan in replying for the appellants with respect to ribbon rolls has stated the two sources of receipt thereof by the Madras Unit (As distinct from the appellants' own Factory at Mumbai) and that no excise Gate pass was received for such supplies as they were supplied under invoices only from the Depots of these manufacturers. In this connection, we also note that these facts were recorded after due consideration by the Learned Collector in the Order-in-Original impugned in Para 39 thereof wherein the Learned Commissioner while considering the issue relating to availability of MODVAT Credit by the Madras Unit on the duty paid on the Jumbo reels of ribbons at Mumbai had observed as follows:
The fourth issue relates to availing of MODVAT Credit of the duty paid on the inputs used in the manufacture of finished product. M/s. KIL have contended that the inputs/raw materials used have already suffered excise duty and if any duty is payable on the finished products, they should be allowed the MODVAT Credit and the proportionate amount on account of such credit should be deducted from the proposed demand. I have considered the above submissions. I would like to observe that M/s. KIL have not produced the required documentary evidence to prove that the entire quantity of inputs used have suffered duty.
To a query from the Bench, Learned Advocates submitted that it is possible that these manufacturers were operating under exemption available to SSI Units and therefore these goods would have discharged 'nil' duty. It was further submitted that since the goods were not directly received from the factory but from the Depots therefore any duty paying documents were not available. With respect to the appellants' claim for MODVAT Credit at Madras on duty paid on the Jumbo ribbon reels at their Mumbai Unit, we are therefore in complete agreement with the Learned Collector in the Order-in-Original that MODVAT Credit is not available to them for the following reasons:
(i) No duty paying documents were produced by the appellants in their reply to the show cause notice before the Learned Collector as noted by him and extracted above.
(ii) Even before us, the appellants in their appeal have not been able to produce any duty paying documents under which the goods were received by their Madras Unit.
41. In view of the above, their claim for MODVAT Credit on ribbons cannot be extended.
42. The only other issue which remains for consideration is whether the demand for duty with respect to the Typewriter/Telex ribbons is hit by any limitation under law. We find that the show cause notice alleges clandestine manufacture and removal under Rule 9(1) at Madras unit and therefore demands duty under Rule 9(2) albeit read with Section 11A proviso. Learned Advocate submits that the proviso is not attracted when Rule 9(2) is involved. We are unable to accept this submission. The proviso to Section 11A does not merely apply to cases where there has been a short levy or a non-levy by reason of fraud, collusion or any wilful mis-statement or suppression of facts, but also by reason of contravention of any of the provisions of this Act or of the Rules made thereunder with an intent to evade payment of duty. We find that in this case the appellants had manufactured such typewriters/Telex ribbons on spools but had taken no steps to either seek a clarification from the Department about its dutiability or to get themselves registered with the Department and follow the excise procedures. Therefore in the facts and circumstances of the case, there is a clear contravention of Rule 9(1) with an intent to evade. Under these circumstances, their contention that they harboured bona fide belief of the non-excisability in this case too cannot be accepted. The appellants in the scheme of things, if they harboured a genuine doubt regarding this process being manufactured or not, would have under normal prudence of business activities, either approach the Department in writing for a clarification or better still, applied for registration under Central Excise and then filed a Classification list claiming the goods to be non-dutiable. There is nothing on record to show that all these steps were taken even though they were fully aware of Central Excise procedures. Therefore we find that the demand is not hit by time bar. The case law cited by the Learned Advocate applies to situations where there is a short levy or non-levy due to suppression, etc. or not due to contravention of Rule 9(1) pertaining to clandestine removal.
43. In view of the aforesaid discussions, we confirm the Order-in-original to the extent that the duty demand for Rs. 42,77,308.03/- is confirmed. For this reason, the duty on the seized Typewriters/Telex ribbons of spool is also confirmed. Since the Order-in-Original has ordered a composite duty amount covering both such ribbons of spool as well as carbon paper of fullscape sizes, the Department shall re-compute the exact duty amount only on the seized ribbons on spool leaving out the duty amount on the seized carbon paper. At this stage Learned DR submits that the amount is already available on record as Rs. 54,335/-. If this is the amount on this issue, the same is confirmed.
44. As regards the imposition of penalties in the Order-in-Original impugned, it is but necessary to reconsider the same in view of our findings above with respect to the carbon paper and which covers the major quantum of the duty demand confirmed in the Order-in-Original impugned.
45. Taking all the facts and circumstances into consideration, we reduce the penalties to a total amount of Rs. 5,00,000/- (Rupees Five Lakhs only). The Order-in-Original impugned is modified to the above extent and the appeal succeeds partially with consequential relief as per law.
(Pronounced and dictated in the open Court).