Custom, Excise & Service Tax Tribunal
Ador Welding Ltd vs Daman on 20 December, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH : AHMEDABAD
REGIONAL BENCH - COURT NO. 3
EXCISE Appeal No. 10604 OF 2021-DB
[Arising out of Order-in-Original/Appeal No DMN-EXCUS-000-COM-054-055-20-21 Dated
31.12.2020 passed by Commissioner of Central Excise, Daman]
Ador Welding Limited .... Appellant
S. No. 59/11/1, Tarang Road, Masat Silvassa, Silvassa
(Dadar Nagar Haveli) 396230
VERSUS
Commissioner of Central Excise & ST, Daman .... Respondent
Central GST and Central Excise, Daman
Commissionerate, GST Bhavan, RCP Road Compound
Vapi-396191
APPEARANCE :
Shri Chirag Sethi, Advocate for the Appellant
Shri Tara Prakash, Deputy Commissioner (AR) for the Respondent
CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)
HON'BLE MR. RAJU, MEMBER (TECHNICAL)
DATE OF HEARING : 07.11.2023
DATE OF DECISION: 20.12.2023
FINAL ORDER NO. 12774/2023
RAMESH NAIR :
1. The present Appeal challenges Order-in-Original dated 31.12.2020
passed by the Respondent herein.
2. The Appellant, is engaged in the manufacture of welding electrodes,
copper coated wire, saw flux, flux cored wire falling under Chapter sub-
heading 83111000 and 83112000 of Central Excise Tariff Act, 1985
(hereinafter referred to as „CETA‟). The Appellant manufactures Flux cored
wire out of inputs that are procured locally and then clear the finished goods
on payment of excise duty after availing cenvat credit of the duty paid on
inputs.
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3. The Appellant also used to import unlayered flux cored wire (imported
goods) and after undertaking certain processes in their factory, cleared the
complete layered flux cored wires in domestic market on payment of
appropriate Excise Duty. The Appellant had paid Countervailing Duty („CVD‟)
and additional Special Excise Duty on the imported Flux cored wires and
availed CENVAT credit of these duties which were then utilised while paying
duty on removal of finished goods. The present dispute relates to availment
of aforesaid credit. It is the case of the Department that process under taken
on the aforesaid unlayered flux cored wire does not amount to manufacture.
4. A search operation was carried out on 28.10.2016 at the factory
premises of the Appellant during which the officers formed a view that the
process undertaken on the unlayered flux cored wire did not amount to
manufacture since the goods imported and subsequently cleared by the
Appellant were classified under the same tariff heading. The Department
therefore alleged that the Appellant had wrongly availed CENVAT credit of
duty paid on imported goods. To record the search proceedings a
panchnama was drawn at the factory premises of the Appellant and
statements were recorded of the Appellant‟s official namely Mr Pradip Sahu,
Mr Umesh Patel, Mr Pankaj Kokil and Mr Jagannath Mukherji.
5. Thereafter, the Department issued show cause notice bearing F. NO.
IV/09-01/HPIU-III/2016-17 dated 08.05.2017 (SCN) to the Appellant based
on aforesaid allegation denying the CENAVT credit amounting to Rs.
11,80,73,629/- (Rupees Eleven Crore Eighty Lakhs Seventy-Three Thousand
Six Hundred and Twenty Nine only) availed by the Appellant during the
period from 01.04.2012 to 31.03.2017. The show cause notice alleged that
the Appellant has availed CENVAT credit in violation of Rule 3 of CENVAT
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Credit Rules, 2004, in as much as the activity carried out on the imported
Flux Cored Wire, did not amount to manufacture. On perusing the copy of
the SCN it is noticed that no dispute was raised on whether any activity was
carried out in the factory of the Appellant.
6. The Appellant replied to the said show cause notice vide letter dated
01.07.2017. However, the adjudicating authority without considering the
submissions confirmed the entire demand which was raised in the show
cause notice vide O.I.O. No. DMN-EXCUS-000-COM-006-17-18 dated
26.09.2017.
7. Being aggrieved by the order of the Respondent, the Appellant filed an
appeal before this Tribunal on various ground mentioned therein. This
Tribunal vide order No. A/10661/2017 dated 02.04.2019 set aside the
aforesaid order and remanded back the matter to adjudicating authority for
fresh consideration of various submissions made by the counsel for the
Appellant in Appeal filed before this Tribunal.
8. In the meantime, the Appellant received a Statement of Demand
(SOD) F. No. V(Ch.83)3-21/DEM/ADJ/ADC-JC/DMN/18-19 dated 30.01.2019
for the period April 2017-June 2017 for same issue.
9. After the remand order, the Department conducted Panchnama dated
05.06.2020 at the factory premises, wherein Mr Shinde the then plant head
was asked if during the period in dispute i.e., 2012-2017 any drawing
process was undertaken on the aforesaid imported goods. Mr Shinde during
the recording of Panchnama has purportedly deposed that although they
have necessary equipment for drawing/re-drawing of wires, but the same
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was never used on the imported goods. It is the case of the Appellant that
Mr. Shinde was not working for the Appellant‟s Silvassa plant during the
period in dispute and was only appointed as plant head on 20.5.2018.
Documentary proof in relation to the same has been provided at the time of
hearing. Another interesting aspect that needs to be recorded is that
statement of Mr. Shinde, which forms part of the Panchnama, was not
recorded under Section 14 of the Central Excise Act, and the same obviously
is not a part of the SCN or the statement of demand, as the Panchnama was
recorded after the issuance of the said two documents and after the remand
order of this Tribunal.
10. Pursuant to the remand order, the adjudicating authority passed the
Order-in-Original No. DMN-EXCUS-000-COM-054-055-20-21 dated
31.12.2020 („Impugned Order‟) wherein the Respondent rejected the
contention that process undertaken on the imported goods amounts to
manufacture, however allowed the adjustment of duty paid against the
demand of CENVAT credit. The Respondent while passing the impugned
order has observed that the Appellant failed to produce any evidence that
semi layered goods were converted to complete layer and further the
Appellant has not produced any evidence to show that goods imported as
such were not marketable. The Impugned order has been passed against the
Appellants on both merits and limitation.
11. In effect, vide the impugned order, the Respondent has reduced the
original demand of Rs. 11,80,73,629/- to Rs. 3,32,63,568/- after adjusting
Excise Duty paid on the finished goods at the time of clearance of goods
amounting to Rs. 8,48,10,061/-. Similarly for the period April 2017-June
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2017, the demand has been reduced to Rs. 77,92,584/-. Aggrieved by the
Impugned order of the Respondent, the Appellant filed the present appeal.
12. Shri Chirag Shetty, learned counsel appearing on behalf of the
appellant made detailed submission during the hearing in support of their
prayer to set aside the Impugned order which is recorded below in brief:
impugned order is bad in law and contrary to Note 10 of Section
XV of CETA wherein it has been clarified that process of drawing or
redrawing wire amounts to manufacture.
The Impugned order is beyond the scope of show cause notice to
the extent it holds that there was no change in layering carried out by
the Appellant inasmuch as the same was never the case of the
department in the show cause notice and statement of Demand.
Panchnama dated 05.06.2020 recorded post issuance of show
cause notice/statement of demand and conclusion of first round of
litigation cannot be relied upon, as department cannot be allowed to
improve upon its case contended in show cause notice dated
08.05.2017 and statement of demand dated 30.01.2019.
The Impugned Order is beyond the scope of the remand
proceedings wherein the Hon‟ble Tribunal vide Order dated 02.04.2019
had categorically directed the adjudicating authority to consider the
matter afresh after looking into the provisions of Note 10 to Section XV
of CETA. The Impugned Order being passed beyond the scope of
remand order is required to be quashed and set aside.
having accepted the duty amount while clearance of the final
product, the department has conceded that the activity carried out by
the Appellant in their factory amounted to manufacture and on this
sole ground, demand for credit cannot sustain.
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the actions of the Respondent to provide for a set off of Central
excise duty paid on the final clearance against the Cenvat credit
demand is without any basis and beyond the Central Excise Act, 1944
inasmuch as once the duty was paid and the goods were assessed at
the time of clearance, there was no question of department
challenging as to whether the activity amounted to manufacture. Once
the activity was accepted as manufacture, credit could not be denied.
That statement of Mr Shinde cannot be relied for following
reasons: a) The statement is beyond the scope of show cause notice
dated 08.05.2017 and statement of demand dated 30.01.2019, as the
said statement has not been recorded during investigation which led to
issuance of the aforesaid show cause notices b) Mr. Shinde was not
the employee of the Appellant during the period in dispute; c) the
statement was not recorded under Section 14 of the Central Excise
Act,1944 but as a part of panchnama which is not permissible under
law. For a statement to have evidentiary value the same should be
recorded under section 14 of Central excise Act,1944 ; d) statement
was contrary to chartered engineer certificate dated 07.11.2017 who is
an expert in the field. It is settled law that in case of conflict between
the documentary evidence and oral evidence then the weightage
needs to be given to documentary evidence. Hence, the chartered
engineer certificate will prevail over the statement of Mr Shinde.
That demand is barred by the limitation as the ingredients to
invoke extended period of limitation is absent more so when the
premises of the Appellant was audited by the very same department
from time to time.
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13. Various literatures have been relied upon before us ranging from Page
Nos. 185 to 233 of Appeal Memorandum on importance of having proper
cast and Helix. The said list is reproduced below:
a. Research Papers on "Welding Research - A Mathematical Model
of Wire Feeding Mechanism in GMAW" by T.M. Padilla, T.P. Quinn, D.R.
Munoz, R.A.L. Rorrer, appearing in Welding Journal - May 2003.
b. ASME BPVC.IIC.-2017 - ASME Boiler and Pressure Vessel Code -
An International Code - Part-C-Specification for Welding Rods,
Electrodes and Filler Metals.
c. National Standard Customer Service - Premium Welding Wire
Technical Bulletin on "Wire Cast & Helix"
d. A technical note on "Cast & Helix" by Washington Alloy Co., a
leading manufacturer of welding wires
e. The Fabricator - march 2009 by VivekVaidy, ED Cooper on study
analysis on wire feed practices, test variables, etc.
f. A Note on what is FCAW and advantages of FCAW
g. Certificate dates 8.3.2019 from Dr. V Balasubramanuan,
Professor & Director of Centre for Materials Joining & research
(CEMAJOR), Department of Manufacturing Engineering, Annamalai
University
h. Certificate dated 13.3.2019 from the Project Director-NMR-241,
Naval Material Research Laboratory, Ambernath
i. Indian railways standard specification for classification, testing
and acceptance criteria of filler wires for MIG/MAG welding (with and
without gas shielding) issued by Govt. of India, Ministry of Railways
(Railway Board)
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j. Purchase orders placed by the customers and rejection of flux
cored wires for not conforming to the specifications and
correspondences
k. A list of parties/customers who use the final product (flux cored
wire layered) of Ador and the types of industry in which it is used; the
reason why imported flux cored wires, as such, cannot be used by
customers/industry
l. A Flow Chart showing the process of manufacture of Flux Cored
Wires along with photographs of the machines/processes, from the
point of receipt of imported flux cored wired till to the point of dispatch
of final product (flux cored wire layered)
m. A note on what is meant by "positional welding"
Compilation of provisions of law and case laws (Page 1 to 170) was
submitted by the Appellant during the hearing.
14. The Shri Tara Prakash, learned Deputy Commissioner (AR) at the time
of hearing has reiterated the findings of the Impugned Order. He also
placed reliance on the judgment in the case of CCE, Chandigarh vs. North
India Pre-stressers reported at 2013 (290) ELT 680 (Tri. Del.).
15. We have heard both sides at length. We have perused the copies of
documents available on record including the SCN, Statement of demand,
impugned order and also the submissions made by the Appellants both in
Appeal memorandum and Written submissions filed by them post hearing on
09.11.2023.
16. The following questions for our consideration:
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(i) Whether the activity of converting unlayered semi finished flux
cored wire 400-700mm into layered flux cored wire 800-
100mmamounts to manufacture?
(ii) Whether Cenvat credit can be denied once the duty has been
paid and collected on the final product?
(iii) Having collected the duty on final product, can the department
be permitted to argue that activity did not amount to
manufacture?
(iv) Whether the Respondent has passed the Impugned Order
beyond the scope of show cause notice dated 08.05.2017 and
statement of demand dated 30.01.2019?
(v) Whether the Respondent has followed the direction given by this
Tribunal in Remand order or has gone beyond the same?
(vi) Whether the department is permitted to introduce new evidence
or investigate the matter post issuance ofshow cause
notice/after first round of litigation?
(vii) Whether the extended period of limitation is invokable in the
facts of the present case?
17. Before looking at the above questions facts which are undisputed are
recorded below:
- As recorded in the SCN, the Appellant had imported semi layered flux
cored wire. The said semi layered flux cored wire had cast of 400-
700 mm and helix of 21 mm;
- After the carrying out the disputed process by the Appellant at their
factory premises, the cast of the said product changed to 800-1000
mm. Further there is change of helix to 0 mm alongwith layer i.e.,
fully layered.
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- Duty was paid on the final product and the same was collected by
the Department without any demur.
- In the show cause notice and statement of demand, the charge
against the Appellant was that activity performed by them on the
imported input did not amount to manufacture. There was no
allegation in the show cause notice or the statement of demand to
the effect that no activity of drawing was carried out by the Appellant
in their factory
- Mr Shinde‟s statement, which is a part of the Panchnama, was not
relied upon in the show cause notices inasmuch as the same was
recorded post first round of litigation before this Tribunal;
- Mr. Shinde was not in employment with the Company during the
period of dispute;
18. As recorded above, this is the second round of litigation. In first round
vide order dated 02.04.2019, this Tribunal had remanded the matter back to
the adjudicating authority with specific directions recorded in following
Paragraph 4 of the order:-
"Heard both the sides and perused the records. We find that very vital law point that Note
10 of Section XV of Central Excise Tariff provides that the activity of drawing from wire to
wire rods in respect of product falling under Section XV which includes Chapter 83 of the
impugned goods amounts to manufacture, has not been considered by the lower
authority. According to the submission of the Ld. Counsel, there are other documents and
literature which have established that the activity amounts to manufacture which has not
been produced and also not considered by the lower authority. In this position we are of
the view that the matter needs to be considered afresh."
19. It is clear from the above the adjudicating authority was expected to
decide the case afresh after looking into the provisions of Central Excise
Tariff more particularly Note 10 of Section XV. We note that the adjudicating
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authority instead of deciding the case on the basis of allegations made in the
SCN, has gone ahead and carried out a Panchnama in the factory of the
Appellant. Apart from the above, during the recording of the Panchnama,
Statement of one Mr. Ajay Shinde who introduced himself as the Plant head
has been recorded as a part of the Panchnama. It is important to record that
his statement has not been recorded under Section 14 of the Central Excise
Act but is made as a part of the Panchnama. Also, no question was asked to
the said Mr. Shinde on whether he was part of the company during the
period of dispute. Whether the department can be permitted to better their
case after the issuance of SCN and beyond the allegations made in the SCN
is a question that needs to be looked into. However before dealing with the
same, the issue as to whether the disputed process carried out by the
Appellant on imported inputs amounts to manufacture will have to be
decided.
20. Keeping the moot issue in mind it is important to record the
manufacturing process carried out by the Appellant as explained in detail by
an independent Chartered Engineer in his certificate dated 7.11.2017.The
said certificate is annexed at Page 231 of the Appeal memorandum. The
relevant portion of the said Certificate viz. Manufacturing process and the
Conclusion is reproduced hereinbelow:
Manufacturing process:
The basic raw material imported towards manufacture is semi finished
flux cored wire in case (diameter of one circle when un-winded from
packed condition) of 400-700mm and semi layered condition which
cannot be marketed as is condition/size in India. The application
demand that for appropriate feeding of wire the case ranging from
800-100mm is preferred and the winding of the wire on the spool to
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be uniformly layered. In order to meet this end product requirement,
the raw materials are first unpacked and coil it on to a bobbin.
The bobbin thus formed in the first process is then mounted on the
pay-off of the re=spooling machine and is passed through specially
designed horizontal and vertical killing rollers wherein the required
pressure is given to the wire.
When passed through these killing rollers the shape and dimension of
the coil deformed resulting in the desired cast ranges between 800-
1000mm to meet the finished goods market specification and is
transferred on to another bobbin. During this process of final spooling
the layering of the said product from semi layered to complete layered
condition is also achieved to meet India market specifications and
finish.
The finished product thus formed repacked in new boxes containing
the address of Silvassa plant as manufacturer with the MRP, batch
number and other details affixed on the box packing. The resultant
product manufactured from out of the imported raw material after
dure mechanical process being converted to final finished product as
per requirement and specification which ensures optimum feedability
while welding with the required mechanical properties which are most
essential for welding required by the end customers in India.
The flow chart of production mechanical operation process is as per
Annexure-1.
Details of the Machinery used for mechanical processes.
1. Forming and Flux Filing - Forming Mill - Make: MTM, Italy
2. Pre Drawing - 3+1 Block Wire Drawing Machine - Make: WWM,
Italy
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3. Stem Winder Machine - Made in India
4. Re-drawing - 8 Block Wire Drawing Machine - Make: WWM, Italy
5. Winding on DIN800 Bobbin - Make: WWM, Italy
6. Unwinding Machine - Make: WWM, Italy
7. Layer Winding and Cast & Helix Control - Make: WWM, Italy
Industries Catered:
The final end product namely Flux Cored Arc Welding Wires are widely
used for various industries namely Pipeline, Oil & Gas, Ship Building,
Railways, Construction and Infrastructure, Nuclear Energy, Power,
Automotive & Defence Sector in welding application. The catalogue on
this continuous welding consumables (Wires and Fluxes) being
manufactured along with their product name and AWS code is
attached as per Annexure 2.
Flux Cored Wire Advantages:
The Flux Cored Wire (FCW) many advantages, including excellent weld
metal quality, high deposition rates, ease of operation, and an
immediate means of cost reduction without a major investment in
specialised equipment.
Conclusion:
Based on the above observation brought out from the processes
carried out during the entire manufacturing process and from the
detailed study it is to be stated that the applicant‟s imported raw
material of semi finished Flux cored Wire is undergoing various
mechanical operation namely pre-drawing, stem winding, re-drawing,
winding and un-winding and layer winding towards manufacture of flux
cored arc wielding consumables in coils of appropriate weight and
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thickness. The process of method and control for quality production
operates on proven techniques which are well established in the
welding industries. The quality of the above processed wire is
consistent which meets all industrial standards and specification
required to the customer.
21. From the above report, we note that change of cast, helix and layering
of „Flux Cored Wire‟ is achieved by undertaking various mechanical
operations like redrawing, stem winding, re-drawing, winding & un-winding
and layer winding etc. For our benefit the Photographs of the process
undertaken by the Appellant were shown to us during the hearing and we
note that the said Photographs provide a stepwise representation of the
above opinion.
22. The department in show cause notice dated 08.05.2017 has made
allegations in para 2.13 and 2.14 as per which the activity carried out by the
Appellant in their factory does not amount to manufacture.
23. On going through the SCN we note that the case of the department
against the Assessee was that the activity carried out by them did not
amount to manufacture inasmuch as the flux cored wire remains flux cored
wire only. In short, the process of drawing has not been disputed in the
SCN. Issue of whether an activity or process amounts to manufacture has
been discussed time and again by various courts including the Hon‟ble
Supreme Court. It is a settled law that for any process to be considered as
manufacture it must satisfy the test given under Section 2 (f) of Central
Excise Act, 1944 (CEA, 1944). The said definition states as under:
(f) "manufacture" includes any process,-
i. incidental or ancillary to the completion of a manufactured product;
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ii. which is specified in relation to any goods in the Section or Chapter notes of the
Fourth Schedule as amounting to manufacture; or
iii. which, in relation to the goods specified in Third Schedule involves packing or re-
packing of such goods in a unit container or labeling or re-labeling of containers
including the declaration or alteration of retail sale price on it or adoption of any
other treatment on the goods to render the product marketable to the consumer,
and the word "manufacturer" shall be construed accordingly and shall include not
only a person who employs hired labour in the production or manufacture of excisable
goods, but also any person who engages in their production or manufacture on his
own account;
24. While 2(f)(i) provides that any activity incidental or ancillary to the
completion of a manufactured product will be treated as Manufacture, sub
clause (ii) of Section 2 (f) of the CEA, 1944, is a deeming fiction as per
which any activity specified in relation to any goods in the Section or
Chapter notes of the Fourth Schedule as amounting to manufacture will be
deemed to be treated as manufacture.
25. Undisputedly the final product cleared by the Appellant viz. Flux Cored
Wire falls under Chapter 83112000 of the Central Excise Tariff Act. Section
XV deals with Base Metals and Articles of Base Metals Falling under Chapter
72 to chapter 83.Note (10) to Section XV read as under:
"10. In relation to the products of this Section, the process of drawing or re-drawing a
rod, wire or any other similar article, into wire shall amount to 'manufacture'."
26. It is clear from the aforesaid that the activity of drawing or re-drawing
a rod, wire or any other similar article into wire amounts to manufacture. In
the present case as reproduced by us above, semi-finished flux cored wire in
case of 400-700mm is passed through vertical killing rollers to achieve the
shape and dimension of the coil having desired cast range between 800-
1000mm. The said wire is thereafter layered to meet the Indian
requirements post which the same are packed. Even going by the language
of show cause notice, the department has not disputed that the activity of
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drawing/re-drawing of wire was carried out by the Appellant. Given the same
we have no hesitation in holding that keeping in mind Note 10 to Section XV,
the activity carried out by the Appellant amounts to manufacture.
27. Having held the above we may add that the department in SCN dated
08.05.2017 has proceeded on incorrect basis. Para 2.9 to 2.9.2 deals with
definition of term manufacture. In Para 2.9.2 the department has recorded
that the process carried out by the assessee on Flux Cored Wire has not
been defined as „amounting to manufacture‟ in notes to Section XV. The said
statement in Para 2.9.2 is clearly incorrect and contrary to Note 10
reproduced above as the show cause notice does not dispute that process of
drawing/re-drawing of wires was carried out at the Appellants unit. In any
event expert evidence in the form of report of chartered engineer, provides
detailed analysis of the process carried out by the Appellant which we have
no reason to dispute as no contrary document has been produced before us
either in the impugned order or by the department at the time of hearing.
The Adjudicating authority in his order at para 35.4 has tried to discard the
above certificate by stating that the chartered engineer has not stated that
the manufacturing process involves „activity of drawing from wire or wire
rods in respect of product falling under Section XV which includes Chapter 83
of the impugned goods‟ the adjudicating authority has further relied upon
the meaning of term „drawing‟ from Wikipedia. We find the aforesaid
approach of the Adjudicating authority is strange if not erroneous.
28. In our view the adjudicating authority is not an expert to challenge an
expert opinion. If he desired to do so he ought have, challenged the same by
countering it with another expert opinion. He also could have cross
examined the chartered engineer to satisfy his doubts or question the
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correctness of the report, which was given after thorough examination of
process carried out by the Appellants. The said view has been settled by the
Hon‟ble Supreme Court in Commissioner v/s International Tobacco Co Ltd
reported in 2008 (231) E.L.T 207 (S.C). Further Reliance placed on
Wikipedia itself is erroneous in view of law settled by Hon‟ble Supreme Court
in Ponds India reported in 2008 (227) E.L.T. 497 (SC). In fact in our view,
not relying on Chapter Note 10 of Section XV shows that the said certificate
has been issued with independent application of mind and has been provided
strictly basis the manufacturing activity carried out by the Appellant. The
chartered engineer in our view has nothing to do with the Central Tariff Act
and is not an expert to decide classification, valuation or any issues under
Central Excise Act.
29. In view of the above doubting the veracity of the chartered engineer
certificate basis personal opinion of the adjudicating authority or by looking
into definitions provided in Wikipedia cannot be accepted and is hereby
rejected.
30. Having held the above, we note that the said issue is no longer res
integra and settled by Board circular issued in File no. 201/51/2004-CX-6
dated 26.07.2006 wherein it has been clarified as under:
"4.1 Rule 16 of the Central Excise Rules, 2002 has been retrospectively amended to
declare "wire drawing units" as assessees for the period 29.05.2003 to 08.07.2004,
hereinafter referred to as the said period.
4.2 The process of drawing of wire from "wire rod" was held as not amounting to
'manufacture' by the Supreme Court in the case of M/s Technoweld Industries [2003-
(155)-ELT-0209-SC]. Therefore, the benefit of availment of credit of duty on inputs by the
"wire drawing units" was withdrawn on 29.5.2003 by a circular issued by the Board.
However, certain wire drawing units continued to pay a sum representing duty, and
continued to pass on the credit of amount paid as duty to the ultimate buyer of
drawn wire for further manufacture. By an amendment in the Budget 2004, Note 10 was
inserted in Section XV of the Central Excise Tariff Act, 1985 to declare the said process as
amounting to 'manufacture'. However, as the said Section Note was effective from
9.7.2004, it did not resolve the problem for the said period.
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4.3 Accordingly, Show Cause Notices were issued to wire drawing units for recovery of
Cenvat Credit availed on inputs on the grounds that the process of wire drawing did not
amount to manufacture for the said period. Show Cause Notices were also issued to the
downstream buyers of "drawn wires" who availed Cenvat Credit of amount paid as duty
on drawn wire, on the ground that the sum paid on clearance of "drawn wire"
by wire drawing unit did not represent central excise duty. Such wire drawing units could
also not claim the refund of amount paid as duty on drawn wire, on the ground of unjust
enrichment. In this regard, Board's letter dated 3rd January 2005 issued vide F. No.
139/3/2004-CX.4 may also be referred to.
4.4 The retrospective amendment in Rule 16 is aimed at facilitating "wire drawing units",
which had paid a sum equal to the duty leviable on "drawn wire" after availing the credit
of duty paid on inputs for the said period. It is aimed at regularizing availment of credits
at two stages and payment of an amount representing duty at one stage. The purpose of
the amendment is to regularize credit taken at the input stage (on wire-rod), credit
taken by the downstream user of "drawn wire" and the amount paid as central excise
duty on clearance of drawn wire. In other words, wire drawing units, which had paid a
sum equal to duty leviable on drawn wire, would be eligible to avail the credit of duty
paid on inputs and utilize the same for payment of duty on drawn wire for the period of
amendment. The sum paid by the wire drawing unit in such cases will be treated as duty
and shall be allowed as credit to the buyer of drawn wire, in terms of the amendment.
This amendment would not create any additional liability on any wire drawing unit
which did not pay duty on drawn wire during the period of amendment.
........
It can be seen from the above reproduced Circular that in para 4.4 the Board has specifically stated that the amendment has regularized the credit taken at the input stage (wire rods) and the credit taken by the downstream user who draws the wire"
31. Para 4.2 of the above circular clarifies beyond doubt that Note 10 which was inserted in Section XV of the Central Excise Tariff Act, 1985 w.e.f9.7.2004, was with an intention to declare the said process of drawing/redrawing as amounting to 'manufacture'. Para 4.4 further clarifies that the retrospective amendment in Rule 16 is aimed at facilitating "wire drawing units", which had paid a sum equal to the duty leviable on "drawn wire" after availing the credit of duty paid on inputs for the said period. In view of the above, we are of the considered view that the activity carried out by the Appellant amounts to manufacture in terms of Section 2f(ii) of the Central Excise Act.19
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32. Further, to test the present case with the provisions of Section 2(f)(i) of Central Excise Act as per which any process incidental or ancillary to the completion of manufactured product would amount to manufacture, the appellant made detailed submissions.
33. In the present case we note that imported Flux Cored Wire after processing undergoes a change insofar as the cast, helix and layering is concerned. The said fact is not in dispute. The relevant extract of one such document viz., certificate dated 08.03.2019 provided by V. Balasubramanium, Professor and Director at Department of manufacturing, Engineering, Annamalai University, is reproduced as below:
"In welding cast and helix of wire are important parameters applicable to GMAW welding with solid, metal cored and flux cored wired, which are packed in spools and drums. The cast and helix of welding filler wire have an effect on feedability, weld accuracy, arc wander, consumable life and contact current pickup. What is cast and helix?
Cast: Cast is the diameter of the circle formed by a length of the wire thrown loosely on the floor. Cast normally checked before it enters the wire feed system.
Helix is the pitch of a single strand of weld wire measured as the distance one end of a strand of wire laying on a flat surface rises off that surface. Helix is normally checked before it enters the wire feed system.
How cast and helix affect welding?
Because welding wires arc mechanically formed or drawn, they contain a natural spring-back characterized by cast and helix. Cast and helix 20 Appeal No. E/10604 of 2021-DB cause the wire to rub on the inside of the contact tube. The slight bend in electrode wire ensures positive electrical contact between the contact tube and filler wire.
Improper wire cast and helix reduces weld quality and adds to direct labour and factory overhead costs."
34. From the above prima-facie it appears to us that the aforesaid activity/process is undertaken by the Appellant as proper cast, helix and layering are important for weld accuracy and improper wire cast and helix reduces weld quality and adds to direct labour and factory overhead costs. The said process independently also enhances the performance of the Final product manufactured by the Appellant and therefore even if it is assumed that the allegation made by the department that the input in its imported form is a fully manufactured product is accepted to be true, even then the process undertaken by the Appellant on the imported goods being incidental to the completion of the manufactured goods and would amount to manufacture in terms of Section 2(f)(i) of the CEA, 1944. The process carried out by the Appellant enhances the performance of the product as has been clarified by Mr. Balasubramanium. The Adjudicating authority has completely misunderstood the reliance placed by the Appellant on the said opinion and has wrongly displaced the same on the ground that the same has no bearing on facts of the present case.
35. Further, it is the case of the Appellant that the said product when imported is not marketable due to the cast size being in the range of 400 - 700 mm. After carrying out the aforesaid process the cast size increases to above 800mm. The same is not in dispute and has been shown to us vide the Photographs as well.
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36. It is the case of the Appellant that the quality of the above processed wire is consistent with all industrial standards and specification required by the customers. Copies of correspondence with the customers have been submitted along with the Appeal Memorandum at annexure O, wherein various customers had rejected the goods due to cast size being less than 800 mm. In the present case as mentioned above, the cast of imported goods when imported is in the range of 400-700 mm and the same after processing is more than 800 mm. Accordingly a plausible view can be taken that the imported goods as such are not marketable and above process undertaken by the Appellant is important to make the final product marketable as the Customers require the cast of the product above 800 mm. Given the above we find merits in the submissions of the Appellant that the activity carried out by them is important to make the product marketable and the same can be treated as an activity which is incidental or ancillary to the completion of manufactured product. In view of the above, the process undertaken by the Appellant in our view will prima facie amount to Manufacture under clause (i) of Section 2(f) of the Central Excise Act. However, since we have given conclusive findings with reference to manufacturing specified under Section 2(f) ((ii) of Central Excise Act, on that basis the activities including mainly drawing-redrawing statutorily amounts to manufacture. We refrain from giving conclusive findings with reference to the claim of the appellant under Section 2(f)(i) of the Central Excise Act, 1944. Hence this issue is left open.
37. Further the reasoning adopted by the department in SCN that since both inputs and final product fall under the same chapter, the activity does not amount manufacture is also flawed and contrary to law settled by 22 Appeal No. E/10604 of 2021-DB Hon‟ble Supreme Court in Laminated Packings (P) Ltd. Versus Collector Of C. Ex. [1990 (49) E.L.T. 326 (S.C.)]wherein the Hon‟ble Supreme Court has held that duty paid kraft paper and the resultant laminated kraft paper belonging to the same Tariff Entry is not relevant because both of them are different identifiable goods known as such in the market. The Hon‟ble Court further in Para 5 and 6 has held that if duty has been paid on the kraft paper then the benefit or credit for the duty paid would be available to the manufacturer under Rule 56A of the Central Excise Rules, 1944.
38. While we have held the above, it will be important to deal with another important issue i.e. whether it was open for the adjudicating authority to introduce a new document after the issuance of SCN and first stage of remand.
39. In the first round of litigation, vide order dated 02.04.2019 the case was remanded back for fresh adjudicating by this Tribunal with a specific direction that the vital argument on applicability of Note 10 to Section XV of CETA has not been considered.
40. The Respondent in compliance with the directions of this Hon‟ble Tribunal listed the matter for fresh hearing. However, we note the Respondent instead of deciding the matter basis the documents placed before him, has relied solely upon Panchnama dated 05.06.2020 wherein statement of Mr Shinde was recorded who stated that no process as mentioned by the Appellant of drawing was carried out in their factory premises.
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41. The said Action on the part of the Respondent is clearly beyond the scope of remand order and cannot be upheld. It appears to us, that on finding that the SCN is issued contrary to Note 10 to Section XV, the Respondent decided to change the narrative of the allegations by introducing a new document in the form of Panchnama much after the close of Investigation and even after the first round of Litigation had concluded. In the said Panchnama the department has made out a totally new case i.e. no process was carried out in the factory of the Appellant and to prove the same statement of Mr. Shinde has been relied upon who admittedly started working as Plant Head with the Appellant organisation much after the period of dispute viz. 20.05.2018. The said action of introducing a new document and changing the case post issuance of the SCN cannot be permitted on more than one count. Firstly the said action is totally contrary to the law settled by Hon‟ble Supreme Court in Commr. C. Ex., Nagpur v. Ballarpur Industries Limited [2007 (215) ELT 489 (SC)] and Commissioner of Customs v/s Toyo Engineering India Ltd 2006 (8) TMI wherein it is held that show cause notice is the foundation of the matter and department cannot be permitted to argue beyond the allegations contained in the show cause notice. As has been noted by us above original show cause notice and statement of demand was issued only on the ground that the process carried out by the Appellant did not amount to manufacture. The impugned order on the other hand relies upon the Panchnama which was drawn after the first round of litigation. The said document to start with could not have been relied upon. If the department is permitted to improve upon or change its case after issuance of a show cause notice, the same will lead to every matter getting into an endless litigation loop. The same can never be the intention of the legislature.
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42. Apart from the above, we find merits in the submission of the Appellant that the department has tried to circumvent the provisions of Section 11A which permits issuance of show cause notice for a maximum period of 5 years from the date of issuance of Notice in case of fraud suppression or wilful mis-statement. Show cause notice dated 08.05.2017 was issued demanding cenvat credit for the period 2012-2017 by invoking extended period of limitation of 5 years. The Respondent by placing reliance on the Panchnama dated 05.06.2020 has totally introduced a new case and if the said document is admitted as evidence the period for which demand was sought to be confirmed will go much beyond the statutory period of 5 years. The same is beyond the provisions of Central Excise Act and we therefore hold that the Respondent had no jurisdiction to change the case made out in original show cause notice by introducing a new document post issuance of the same.
43. Having held the above, we are of the view that the said Panchnama cannot be relied upon in any event. Admittedly the same records statement of Mr. Shinde who joined as Plant head post period of dispute. The said argument of the Appellant has not been disputed by the department. The department therefore could not have relied upon a version of a person who was not working with Appellant during the period of dispute. Also recording of statement under a Panchnama is not within the provisions of Law. Under Central Excise Act, Statement can be recorded under Section 14, which has not been done as far as Mr. Shinde is concerned. The Panchnama therefore is faulty on the face of it and cannot be relied upon. Given the above, apart from deciding the issue in favour of the Appellant, we are constrained to hold the impugned order being beyond the show cause notice and remand order passed by this Tribunal deserves to be quashed and set aside. 25
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44. On issue of Limitation, we note that the show cause notice dated 08.05.2017 proposes to deny CENVAT credit taken during the period from 01.04.2012 to 31.03.2017. It is clear that majority demand is traversing beyond the normal period of limitation. It is the case of the Appellant that extended period of limitation cannot be invoked in the present case.
45. As mentioned in the Appeal Memorandum, the Appellant were regularly audited by the Department and were filing returns from time to time. The audit objections are part of the appeal memorandum at Annexures AI to AK as well. We have gone through the first audit report at Page 275 of the Appeal which is dated 06.06.2012, from the said objections we note that the department had raised objections on availment of Cenvat credit on various issues but there was no dispute on the issue of manufacture. There was no dispute raised on availment of credit on imported inputs as the main activity did not amount to manufacture. The same shows that all facts were well within the knowledge of the revenue and therefore question of invoking extended period of limitation in the present case does not arise. Even the other two audit reports are dated 29.04.2013 and 10.04.2014 and the period for which audit was conducted overlaps with the period of dispute in the present case. Accordingly, the department cannot allege fraud and suppression in the present case as all facts were within their knowledge. Hon‟ble Supreme Court in following cases have held that extended period cannot be invoked if facts were within the knowledge of the department Pushpam Pharmaceutical v Collector of C. Ex., Bombay - 1995 (78) ELT 401 (SC) and Nestle India v Commissioner of Central Excise, Chandigarh [2009 (235) ELT 577 (SC).
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46. Further to the above, the issue in the present case relates to Manufacture and the bonafides of the Appellant can be seen from their act of paying duty on the Final product. Accordingly, we hold that the demand of cenvat credit is not sustainable both on merits and limitations. We accordingly quash and set aside the impugned order for reasons provided above. Since we have decided the matter on the merit and limitation as above, we are giving our findings on various other grounds raised by the appellant, which are kept open.
47. We accordingly allow the appeal filed by the Appellant with Consequential reliefs.
(Pronounced in the open court on 20.12.2023) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) KL