Custom, Excise & Service Tax Tribunal
Belapur vs Upm Kymmene India Pvt. Ltd on 28 January, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: E/85556/2013
[Arising out of Order-in-Original No. Belapur/41-42/Bel-II/R-II/ COMMR/KA/12-13 dated 25/10/2012 passed by the Commissioner of Central Excise, Belapur.]
For approval and signature:
Honble Shri P.K. Jain, Member (Technical)
Honble Shri Ramesh Nair, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Commissioner of Central Excise
Belapur
Appellant
Vs
UPM Kymmene India Pvt. Ltd.
Respondent
Appearance:
Shri V.K. Agarwal, Additional Commissioner (AR) for the appellant Shri D.B. Shroff, Sr. Advocate with Shri Mihir Mehta, Advocate for the respondent CORAM:
Honble Shri P.K. Jain, Member (Technical) Honble Shri Ramesh Nair, Member (Judicial) Date of hearing: 28/01/2015 Date of decision: 11/05/2015 ORDER NO: ____________________________ Per: P.K. Jain:
This is an appeal filed by Revenue.
2. Brief facts of the case are that the respondents are engaged in the process of cutting and slitting of imported self-adhesive film and self-adhesive paper. Respondents import these films and paper in jumbo rolls in the size of 1000mm / 1070mm /1530mm X 4000mm to 6000mm running meters. These imported jumbo rolls are slit into smaller rolls of specific dimension as per the requirement of the customer. During the slitting process dirt and oil is sucked out and static electricity is removed. The rolls after slitting are rewound using rewinding machine to obtain appropriate tension. These rewound rolls can thereafter be used for printing by the customers. Printed films/paper are affixed on bottles/containers of various items such as shampoo, etc. The respondent-assessee was paying excise duty on the slitted self-adhesive film and self-adhesive paper and was availing CENVAT credit of the duty paid on the inputs. Revenue is of the view that the said process does not amount to manufacture in terms of Section 2(f) of the Central Excise Act, 1944 and hence the final products are not dutiable and therefore, the respondent-assessee is not eligible to avail CENVAT credit on inputs and capital goods.
3. Accordingly a demand notice dated 04/10/2011 was issued proposing to recover the wrongly availed CENVAT credit amounting to ` 22,70,34,831/- during the period May 2007 to April 2011 under Rule 14 of CENVAT CREDIT Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944. It was also proposed to confiscate the goods on which the appellant has taken CENVAT credit which included paper, other inputs and capital goods under Rule 15(1) of the CENVAT Credit Rules. Interest was also proposed to be recovered under Rule 14 read with Section 11AB and penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was also proposed. Similar show cause notice dated 20/04/2012 was also issued for the subsequent period viz. May 2011 to December 2011. A penalty was also proposed on Shri Shailesh Nema, Director of the respondent-assessee. The case was adjudicated by the Commissioner wherein he dropped all the proceedings against the respondents. Revenue is in appeal against the said order passed by the Commissioner.
4. Learned Additional Commissioner (AR) appearing on behalf of the Revenue submitted that, in the process of slitting and cutting no new, distinct or different commodity comes into existence. The use of the goods also do not change. There is no section note or section note or note in the Central Excise Tariff Act defining the activity of cutting/slitting of self-adhesive film and self-adhesive paper as a process amounting to manufacture. The goods imported are in marketable condition and the activity carried out by the assessee did not further enhance the marketability of the processed goods and, therefore, the activity did not amount to manufacture under Section 2(f) of the Central Excise Act, 1944.
5. The learned AR relied upon the honble Supreme Court decision in the case of Commissioner of Central Excise, New Delhi vs. S.R. Tissues Pvt. Ltd. reported in 2005 (186) ELT 385 (SC). In the said decision honble Supreme Court has held that the process of slitting/cutting of jumbo rolls of plain tissue paper/aluminium foil into smaller size will not amount to manufacture. It was submitted that jumbo rolls as well as the slitted rolls fall under the same tariff item even in the 8 digit level. Since the activity does not amount to manufacture, CENVAT credit availed on the inputs and capital goods is inadmissible to the assessee. It was also submitted that at the time of registration, the assessee did not submit detailed manufacturing process and hence the vital fact about the exact manufacturing process was suppressed. It was submitted that in view of the said decision of the Honble Supreme Court, the show cause notice issued is correct and requires to be upheld. It was further submitted that the Commissioner has observed that the process involved in the present case is that jumbo rolls of the self-adhesive film and self-adhesive paper are loaded on slitting machine for slitting as per the customers requirement. These rolls undergo unwinding process under specific tension and the ends of the jumbo rolls are trimmed. The slitting is done after setting the cutting knives on the slitting machine. Before slitting, the dirt and dust particles on the paper/films are removed and during the process static electricity gets generated on the rolls. The static electricity generated is removed by a fixture in the slitting machine to enable printing on the rolls. The learned Additional Commissioner (AR) submitted all these process does not bring into existence a new commodity having distinct name, character and use. As per the criterion laid down by the Honble Supreme Court for the manufacture, these cannot be considered a amounting to manufacture. It was also submitted that the Commissioner has taken a view that as per Section 2(f) any process incidental to the completion of the manufacturing process would amount to manufacture but the Commissioner has incorrectly applied the provisions of clause 2(f) read with note 6 to Section XVI of the Central Excise Tariff Act, 1985 as the commodities under dispute in the present case, does not fall under Section XVI of the First Schedule to the Central Excise Tariff Act, 1985. It was submitted that the concept of process incidental to manufacture is with reference to manufacture and cannot be considered in isolation.
6. The learned AR further submitted that the Commissioners reliance on the honble Supreme Courts decision in Kores India Ltd. vs. Commissioner of Central Excise reported in 2004 (174) ELT 7 (SC) is mis-placed, as in the said case, the appellants were importing jumbo rolls and thereafter converting the same into typewriter ribbons. Typewriter ribbon is a different commodity having a specific width and specific length and is fixed in the typewriter. This is not the case in the present case as the slitting is done as per the requirement of the customer and therefore the reasoning in the Kores India Ltd. (supra) case is not applicable. It was also submitted that the Commissioner has erred in applying the decision of honble Supreme Court in the case of Brakes India Ltd. reported in 1998 (101) ELT 241 (SC) to hold that the impugned process amounting to manufacture. In the case of Brakes India Ltd. (supra) it has been held that drilling, trimming and chamfering of brake lining blanks purchased from the market amounts to manufacture as without such process brake lining cannot be used by automobile manufacturers. It has been further discussed that by adopting a particular process if transformation takes place, which makes the product to have a different character and use of its own, then such a process would amount to manufacture. In the present case, slitting self-adhesive film or self-adhesive paper before slitting and after slitting remains the same. The slitting is done only to satisfy the specific requirement of the customers. It was submitted that the decision of the honble Supreme Court in the case of S.R. Tissues Pvt. Ltd. (supra) is more appropriately applicable as in that case also the plain tissue paper in jumbo rolls were slitted into smaller sizes.
7. It was submitted that the CBEC Circular No. 33/89 dated 12/05/1989 while deciding the issue that cutting and slitting of duty paid imported jumbo rolls for x-ray films, industrial as well as medical, graphic art film and sensitized photographic film paper whether amounts to manufacture has considered the issue in respect of each type of films individually in view of different entries for the said product and the decision of the honble Supreme Court in the case of Empire Industries Ltd. vs. Union of India 1985 (20) ELT 179 which inter alia has held that whatever may be the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will part of manufacture. It was further submitted that after considering various factors the Board has clarified that cutting and slitting of jumbo rolls of sensitised photographic paper would not amount to manufacture. In addition, the judgment of this Tribunal in the case of Rajpurohit GMP India Ltd. vs. Commissioner of Central Excise 2003 (162) ELT 431 (Tri.-Mum); Honble Supreme Courts decision in the case of Printo India Graphics (P) Ltd. vs. Commissioner of Central Excise reported in 2012 (282) ELT A46 (SC) and similar case of Commissioner of Central Excise vs. Tarpaulin International 2010 (256) ELT 481 (SC) were also referred in support of the departments contention. Honble Supreme Court in the case of Commissioner of Central Excise vs. Osnar Chemical Pvt. Ltd. 2012 (276) ELT 162 (SC) was also referred.
8. It was submitted that keeping in view the catena of decisions, the order passed by the Commissioner is wrong and is required to be set aside.
9. The learned Senior counsel, on behalf of the respondent-assessee submitted photographs of the process undertaken by them. He submitted that such tapes are received in the size of 1 or 1.5 meter, then the blades on the machines are fitted as per the requirement of the customer. Thereafter the core is cut as per the customers requirement, labels are scanned, slitted paper is put on core, start up of proten machine, process stage, removal of static electricity, etc. The learned senior counsel submitted that the process is a very elaborate process and involves large number of steps and for that purposes they have installed number of machines. Keeping in view these facts, it cannot be said the process is a simple one. On the contrary, the process itself would indicate that it amounts to manufacture. The learned Senior Counsel further submitted that the Honble Supreme Courts judgment in the case of Kores India Ltd. (supra) is squarely applicable in their case as in the said case cutting of jumbo rolls of typewriter/telex rolls were considered as a process amounting to manufacture. The learned Sr. Counsel further submitted that the Honble Supreme Courts decision in the case of S.R. Tissue Pvt. Ltd. (supra) is per incuriam. In support of his contention he quoted the Honble Supreme Court judgment in the case of Swiss Timing Ltd. vs. Commonwealth Games 2010 Organising Committee (2014) 6 SCC 677. He quoted para 20 of the said judgment wherein the Supreme Court has taken the view that the judgment in N. Radhakrishan vs. Maestro Engineers (2010) 1 SCC 72 is per incuriam on two grounds. Firstly, the judgment in Hindustan Petroleum Corpn. Ltd. (2003) 6 SCC 503 though refer to, has not been distinguished but at the same time is not followed. The judgment in P. Anand Gajapathi (2000) 4 SCC 539 was not even brought to the notice of the Honble Court. The learned Sr. Counsel submitted that in the case of S.R. Tissues Pvt. Ltd. (supra) the honble Supreme Courts judgment in the case of Kores India Ltd. (supra) was not brought to the notice of the honble Supreme Court. Therefore, the judgment in the case of S.R. Tissues Pvt. Ltd. (supra) is to be considered per incuriam. The learned Sr. Counsel particularly quoted para 10 and 16 of the honble Supreme Courts judgment in the case of Kores India Ltd. (supra) and also the judgment of Brakes India Ltd. (supra) to support his contention. Another contention of the learned Sr. Counsel was that CENVAT credit availed by them has been utilised for the clearance of the slitted self-adhesive tapes and films and therefore, denial of CENVAT credit on the ground that the activity not amounting to manufacture is not correct in view of the judgment of the Honble High Court of Gujarat in the case of Commissioner of Central Excise vs. Creative Enterprises 2009 (235) ELT 785 (Guj.). The said judgment has been affirmed by the Honble Supreme Court as reported in 2009 (243) ELT A120 (SC). The learned Sr. Counsel also submitted that even the Honble Bombay High Court in the case of Commissioner of Central Excise vs. Ajinkya Enterprises 2013 (294) ELT 203 (Bom.) has taken similar view. It was also submitted that just because the input and final products are falling under the same heading it does not imply that the said activity will not amount to manufacture as held by this Tribunal in the case of Caprihans India Ltd. vs. Collector of Central Excise 1996 (85) ELT 315. In addition to the above mentioned judgments, certain other judgments were also referred to by the learned Sr. Counsel.
10. Another contention of the learned senior counsel was that extended period of limitation cannot be invoked as at the time of taking registration they have submitted the manufacturing process/flow chart. Thus, the Revenue was in the knowledge about their activity and hence extended period cannot be invoked.
11. We have carefully considered the rival submissions. The undisputed facts are that the appellants are importing self-adhesive films and self-adhesive papers in jumbo roll. These are slitted as per the requirement of the customers with the help of slitting machine and other ancillary machines. The slitted self-adhesive films and self-adhesive papers are used by the printing industry. After the printing, these self-adhesive films and self-adhesive papers are used by various manufacturers for pasting on the packages of their product, e.g., shampoo bottles, etc. It is undisputed fact that the input for the appellant is self-adhesive films and self-adhesive paper and the final product is also the same and are falling under the same Tariff entry. All that is being done is to reduce the width of such films. Number of machines used in the process is irrelevant to determining whether it amounts to manufacture.
12. We have gone through the judgment of Kores India Ld. (supra). In that case the jumbo rolls of 210 meters or more length fed into cutting and spooling machines wherein ribbons of standard length of 10 meters and 5 meters cut and wound/spooled into metal spoons and such spools blister packed and sealed with aluminium foil. It was categorically observed that the assessee produced ribbons in spools out of jumbo rolls and the resultant product is distinct, identifiable article having distinct name, function and use. The resultant product is also commercially distinct as understood in commercial parlance and has a separate market. Their function and use were also completely different and both products are not interchangeable. The ribbon in jumbo rolls cannot be used in a typewriter and similarly a person who requires 30 pieces of spool ribbon would not be satisfied if he is offered jumbo rolls of equal length. In fact the assessee has a separate unit, machinery and work force to manufacture in spool form. In view of the matter it was held that the process involved amounted to manufacture. Similarly, in the case of Brakes India Ltd. (supra) the honble Supreme Court has observed that by adopting a particular process if transformation takes place which makes the product have a different character and use of its own, then such a process would amount to manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944. In the present case, we do not find like the case of Kores India Ltd. or Brakes India Ltd. that the product manufactured has a different name, character or different use. It is just that the width of jumbo rolls is cut and slitted in such a way that it is suitable for a particular product and the printing industry. If there is a printing machine which can take up the jumbo rolls then such self-adhesive films and self-adhesive tapes can straightaway be printed. On the contrary, we are of the considered view that the facts in the present case are almost similar to that of S.R. Tissues Pvt. Ltd. (supra). In the said case the honble Supreme Court has observed as under:
14. Applying the above tests, we hold that no new product had emerged on winding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, therefore, there was no manufacture on first principles.
15. Similarly, there was no deemed manufacture under section 2(f) of the said Act. In order to make section 2(f) applicable, the process of cutting/slitting is required to be recognized by the legislature as a manufacture under the chapter note or the section note to chapter 48. For example, the cutting and slitting of thermal paper is deemed to be "manufacture" under note 13 to chapter 48. Similarly, note 3 to chapter 37 refers to cutting and slitting as amounting to manufacture in the case of photographic goods. However, slitting and cutting of toilet tissue paper on aluminium foil has not been treated as a manufacture by the legislature. In the circumstances, section 2(f) of the Act has no application.
16. In the case Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur reported in 2004 (174) ELT 145, this Court held that if a process is indicated in a tariff entry without specifying that the same amounts to manufacture then indication of such process is merely for identifying the product. For a deeming provision to come into play, it must be specifically stated that a particular process amounts to manufacture and in its absence, the commodity would not become excisable merely because a separate tariff item exists in respect of that commodity. In that matter, the question which arose for determination was - whether refining of edible vegetable oil, as a process, constituted "manufacture". It was held that the product even after refining continued to remain an edible vegetable oil. It was further held that neither in the section note nor in the chapter note, refining as a process was indicated as amounting to manufacture. In the circumstances, it was held that refining of edible vegetable oil did not amount to "manufacture". In our view, the ratio of the said judgment is squarely applicable to the facts of the present case. As stated above, the characteristics of the tissue paper in the jumbo roll are not different from the characteristics of the tissue paper in the toilet rolls, table napkins, facial tissues etc. Moreover, cutting/slitting of tissue paper is not indicated in the section note or in the chapter note as amounting to "manufacture" and, therefore, section 2(f) of the Act was also not applicable to the facts of this case.
17. In the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad reported in 1995 (76) ELT 241, this Court held that section 3 of the Act levies duty on all excisable goods mentioned in the schedule provided they are produced and manufactured. Therefore, where the goods are specified in the schedule, they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the assessee on whom duty is proposed to be levied. Consequently, it is always open to an assessee to prove that even though the goods in which he was carrying on his business were excisable as they are mentioned in the schedule, they could not be subjected to duty as they were not goods either because they were not manufactured or having been produced or manufactured, they were not marketed or capable of being marketed.
18. In the case of Union of India v. J.G. Glass Industries Ltd. reported in 1998 (97) ELT 5, this Court has succinctly drawn a distinction between manufacture vis-a-vis process and in the course of the judgment, it has been observed as follows:
16. On an analysis of the aforesaid rulings, a two-fold test emerges for deciding whether the process is that of "manufacture". First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process. In the present case, the plain bottles are themselves commercial commodities and can be sold and used as such. By the process of printing names or logos on the bottles, the basic character of the commodity does not change. They continue to be bottles. It cannot be said that but for the process of printing, the bottles will serve no purposes or are of no commercial use.
19. Applying the above tests to the facts of the present case, we hold that mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing. That, just because the raw-material and the finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw-material automatically constituted manufacture. In the present case, merely because tissue paper in the jumbo roll of the size exceeding 36 cms. fell in one entry and the toilet roll of a width not exceeding 36 cms. fell in a different entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture.
20. The above tests would also apply to cutting and slitting of jumbo rolls of aluminium foils (which item is the subject matter of some of the civil appeals herein).
21. Lastly, in the instant case, the commissioner as an adjudicating authority has held that there was a value addition of 180%. He found that jumbo rolls of tissue papers were purchased by the assessee @ Rs.30/- to 70/- per kg. and the final product i.e. the toilet tissue paper was sold by the assessee @ Rs.85/- to Rs.100/- per kg. and, therefore, there was a value addition of around 180% i.e. between the range of Rs.30/- to Rs.85/- per kg. This finding of the commissioner is erroneous. Under the excise law, value addition based on a process is certainly a relevant criteria to decide as to what constitutes manufacture. Such value addition should be on account of change in the nature or characteristics of the product. In the present case, as stated above, there is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Thus, value addition without any change in the name, character or end-use by mere cutting or slitting of jumbo rolls cannot constitute criteria to decide what is manufacture.
22. In the case of Decorative Laminates (India) Pvt. Ltd. v. Collector of Central Excise, Bangalore reported in 1996 (86) ELT 186, this Court held that the process of application of phenol resin on duty paid plywood under 100% heat amounts to manufacture and in that connection observed that value addition and separate use are also relevant factors which the Courts should consider in deciding the applicability of section 2(f) of the Act. Therefore, value addition based on price difference only without any change in the name, character or end-use is a dangerous criteria to be applied in judging what constitutes manufacture. Lastly, the end-use in both the entries 4803 & 4818.90 is the same, namely, for sanitary or household purposes. In the circumstances, value addition criteria as applied by the commissioner is erroneous.
13. In view of the above position, we have no hesitation in holding that the activity undertaken by the appellant will not amount to manufacture.
14. The learned Sr. Counsel has also submitted that the judgment of the Supreme Court in the case of S.R. Tissues Pvt. Ltd. is per incuriam as the case of Kores India Ltd. was not brought to the notice of the honble Supreme Court. We are not impressed with the said argument. Though it is true that the judgment of the Supreme Court in the case of Kores India Ltd. was not brought to the notice of the honble Supreme Court, however, the facts in the case of Kores India Ltd. (supra) and S.R. Tissues Pvt. Ltd. (supra) are different and therefore it cannot be said that the judgment of the honble Supreme Court in the case of S.R. Tissues Pvt. Ltd. case is per incuriam.
15. The learned Sr. Counsel has also submitted a number of case laws suggesting that since CENVAT credit has been utilised in the clearance of the final products which are now held to be non-dutiable, Revenue cannot seek to demand the credit so utillised. We are in agreement with the learned counsel that since the credit taken has been utilised for the clearance of their final product the same cannot be again demanded. However, it is not clear from the records whether the CENVAT credit taken for a particular quantity was utilised for the clearance of that quantity of the goods. During the hearing, the learned Sr. Counsel was asked whether they have paid any amount from PLA as normally any process would lead to value addition and the respondent should have paid something from PLA, on checking from the appellants representative, the learned Sr. Counsel has informed us that so far they have not paid any amount from PLA. In view of the said position, we are of the view that the appellant should furnish the details of the credit taken and credit utilised for clearance of the corresponding final products and in case input credit taken is more than the duty paid on the final product, then the differential CENVAT credit needs to be reversed or paid back. Similarly, credit availed on capital goods need to be reversed or paid back.
16. The learned Sr. Counsel has also submitted that extended period of limitation cannot be invoked as they had submitted at the time of registration the details of their activity. We are not impressed with such argument. In the application for registration certain information is required to be filled and the purpose is only to grant registration and the question whether the activity amounts to manufacture or not is not required to be examined. Similar is the position in respect of ER-3 or ER-7, etc. Assessment document is monthly return, which are also self assessed. In the said returns and in other documents this issue/ details were not mentioned and in view of this position, in our view there was suppression of facts and therefore, extended period of limitation is correctly invoked.
17. However, keeping in view the nature of dispute, we are of the view that this is not a fit case for confiscation of the goods under Rule 15(1) or imposition of penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944. Similarly, we are of the view that no penalty is required to be imposed on Shri Shailesh Nema, Director of the respondent-company under Rule 26 of the Central Excise Rules, 2002.
18. A number of other judgments are quoted by both sides. We have perused the said judgments and do not consider it necessary to discuss each one of these.
19. The appeal of the Revenue is allowed by way of remand in above terms.
(Pronounced in Court on 11/05/2015) (Ramesh Nair) Member (Judicial) (P.K. Jain) Member (Technical) */as 19