Customs, Excise and Gold Tribunal - Delhi
Jaiprakash Industries Ltd. vs Commr. Of C. Ex. on 8 October, 1999
Equivalent citations: 1999(114)ELT415(TRI-DEL)
ORDER P.S. Bajaj, Member (J)
1. This order will dispose of two appeals, bearing Nos. E/1157/94-C and E/502/94-C
2. Appeal No. E/1157/94-C has been filed against the Order-in-Original dated 25-2-1994 passed by the Collector in pursuance of the show cause notice dated 3-5-1993 relating to the period April, 1990 to September, 1991 vide he raised demand of Rs. 12,05,187/- as excise duty on the crushed stone and imposed personal penalty of Rs.1,50,000/- on the appellants. The other appeal No. E/502/94-C has been filed against the order dated 19-11-1993 passed by the Collector (Appeals) upholding the Order-in-Original dated 14-6-1993 of Assistant Collector who raised duty demand of Rs. 17,565/-for the period October, 1991 to January, 1992 from the appellants and imposed penalty of Rs. 1000/-.
2. The facts giving rise to both these appeals may briefly be stated as under -
3. The appellants are engaged in the manufacture of crushed stones falling under sub-heading 2505 of the Schedule appended to the Central Excise Tariff Act and fabrication of steel shuttering plates, falling under sub-heading 7308.90 of the said Schedule, for the National Hydroelectric Power Corporation Limited. They and the National Hydroelectric Power Corporation, were served with two show cause notices one dated 3-5-1993 for the period April, 1990 to September, 1991 and the other for the period October, 1991 to January, 1992, vide which they were called upon to show cause as to why the Central Excise duty be not demanded and recovered from them for the periods mentioned therein under Rule 9(2) of the Rules read with Section 11-A of the Act by invoking the extended period of limitation as provided under the proviso to mat Section, for having suppressed the material facts from the knowledge of the Revenue and also not obtained the Central Excise Licence and observed other statutory formalities, as required under the Central Excise Law. They were further asked to show cause as to why penal action against them under Rules 9(2), 173-Q and 209 of the Rules be not taken. Similarly, the National Hydroelectric Corporation Ltd. was called upon to show cause as to why penal action be not taken against them under Rules 9(2), 73-Q and 209 of the Central Excise Rules.
4. The said Notices were contested by the appellants mainly on the ground that they were not manufacturing steel shuttering plates and crushing stones as the shuttering plates were being used as accessories items by purchasing the same from the market as commercial commodity and that the conversion of big stones into small stones/Bazari did not amount to 'manufacture' Under Section 2(f) of Central Excises Act. Therefore, they were neither liable to pay Central Excise duty nor penalty under any of the provisions of the Central Excises Act and the Rules framed thereunder.
5. Collector did not accept the plea of the appellants in toto. He only dropped the proceedings against them in respect of steel shuttering plates. Regarding crushing of the stones, Collector came to the conclusion that the appellants were engaged in the manufacture of the same under the Central Excises Act and as such they are liable to pay excise duty under Rule 9(2) read with Section 11-A of the Central Excises Act and directed them to make payment of Rs. 12,05,187.00 as excise duty for the period April, 1990 to Sept., 1991 and Rs. 1,50,000/- as penalty under Rule 173-Q through the impugned order dated 25-2-1994. The Assistant Collector vide order dated 14-6-1993 also raised demand of Rs. 17,565/- for the period October, 1991 to January, 1992 and imposed penalty of Rs. 1,000/- on them. The appellants challenged this order of the Assistant Collector in appeal but the Collector (Appeals) through the impugned order dated 19-11-1993 upheld the same and rejected the appeal of the appellants.
6. Feeling aggrieved by the above said impugned orders of the Collector, the appellants have come in appeal before this Tribunal. The learned Counsel for the appellants has questioned the validity of the impugned orders of the Collector on two grounds, namely:-
(i) The conversion of big stones into small stones by the appellants did not amount to 'manufacture' under the provision of Central Excise law;
(ii) The demand raised by the Revenue is time barred and the extended period of limitation cannot be invoked legally against the appellants.
7. In order to elaborate the first ground, the learned Counsel has contended that the activities of the appellants in crushing the bigger stones into small one did not amount to 'manufacture' as no new product or distinct substance can be said to have been produced by them, by so doing. Therefore, no Central Excise duty can be legally claimed from them. In support of the contention, the learned Counsel has placed reliance on the following cases:
(i) C.C.E., Bombay v. Kiran Spinning Mills reported in 1988 (34) E.L.T. 5 (S.C.).
(ii) C.C.E., Aurangabad v. Shree Vindhya Paper Mills reported in 1988 (35) E.L.T. 361 (T).
(iii) SAIL v. CCE reported in 1991 (54) E.L.T. 414.
(iv) State of Tamil Nadu v. O.P. Aliyar reported in 1992 (87) STC 339 (Mad.),
(v) Commissioner, Sales v. Mahalaxmi Stores reported in 1995 (97) STC 601 (Bom).
(vi) CCE Madras v. Coimbatore Pioneer Fertilizers Ltd. reported in 1997 (94) E.L.T. 6.
(vii) Hyderabad Industries Ltd. v. UOI reported in 1995 (78) E.L.T. 641 and
(viii) Larger Bench decision of the Apex Court in the case of Hyderabad Industries Ltd. v. Union of India, reported in 1999 (108) E.L.T. 321.
8. In order to appreciate this contention of the Counsel, it would be beneficial to refer to the definition of the expression "Manufacture" as given in Section 2(f) of the Central Excise Act. The said provision defines the expression 'manufacture' as under:
" 'Manufacture' includes any process :-
(i) incidental or ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture."
Chapter Note No. 2 of Chapter 25 of the said Schedule reads as under :-
"Heading Nos. 25.01, 25.03 and 25.05 cover only products which have been washed (even with chemical substances, eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened or concentrated by flotation, magnetic separation or other mechanical or physical process (except crystallisation) but not products that have been roasted, calcined or obtained by mixing."
From the conjoint reading of both these provisions, it is quite evident that the process of crushing and grinding etc. falls within the definition of "manufacture". In the case of U.O.I, v. Delhi Cloth & General Mills case 1977 (1) E.L.T. (J 199), the Hon'ble Apex Court has also observed that "manufacture" means to bring into existence any of the substance having distinct name and different character or use.
8. It cannot be disputed that entomolgical word "Manufacture" when properly construed, would cover the transformation which brings about fundamental change, a new substance is brought into existence or a new different article having distinct name, character, or use, results from the particular process or particular activity. In the instant case, undisputedly, the appellants are engaged in the production of small stones/bajjri from the bigger stones by crushing the same by mechanical process. The produced substance Bajjri has distinct name, use, character in the commercial market. Although both are normally used in the construction works, but for different purposes and at distinct stages of constructions. Where bajjri is required for completing the foundations, platforms in the course of construction works, the big stones will not serve the purpose and similarly, Bajjri cannot be a substitute for the stones where those are required to be used in the process of construction. Bajjri is a new substance which is produced by crushing the big stones. The original character of the stones as such when crushed and converted into Bajjri, ceases to exist, rather fundamental change in the character of the stones, takes place when those are crushed and converted into Bajjri by a mechanical process. Therefore, the plea of appellants that the conversion of big stones into Bajjri by mechanical process, does not amount to "manufacture' so as to attract; the provisions of Central Excise Act for payment of Central Excise duty, cannot be accepted. In this context reliance may also be placed on the case Hindustan Construction Co. Ltd. and Continental Construction Ltd. v. C.C.E. decided vide Final Order Nos. 421 to 425/99-C dated 25-5-1999, wherein the Double Member Bench of the Tribunal has held that crushing of boulders into small size stones amounts to 'manufacture'.
9. Law laid down in the case referred to above, relied upon by the learned Counsel for the appellants, is not attracted to the facts of the present cases. In the case of C.C.E. Bombay v. Kiran Spinning Mills (supra) the assessee was engaged in the cutting of man-made fabrics in running length to shorter length after doing some manual sorting and straightening and for that reason the Apex Court was pleased to observe that this activity of the assessee did not amount to manufacture' as the character and use of the man-made fabric remained the same and no change in substance or in character of the goods, was brought about by the process.
10. Similarly, in the case of CCE, Aurangabad v. Shree Vindhya Paper Mills (supra), the assessee obtained coated paper from the market and subjected it to clay coating again at the factory and for that reason it was observed that it did not amount to "manufacture' as no distinct or new substance was produced by them by adopting that process and as such they were not liable to pay excise duty.
11. In the case of SAIL v. CCE (supra) it has been held by the Tribunal that crushing of lime stone into lime fine does not amount to"manufacture' as lime fine is not known and recognised as a distinct commodity in the market. But the facts of the case in hand are entirely different. Here, the appellants are engaged in the conversion of big stones into small by mechanical process which results in changing the character and use of the stones altogether. They produce by mechanical process a new distinct, substance i.e. Bajjri which has independent recognised name as a commodity in the market.
12. In the case of State of Tamil Nadu v. O.P. Aliyar, (supra), the blue metal jelly was obtained by crushing stone boulders into small stones of varying sizes by the assessee and the said process was not held to be "manufacture' Under Section 77A(1)(b) of the Tamil Nadu General Sales Tax Act. That was not a case under the Central Excise Act. Similarly, the Commissioner of Sales Tax, Maharashtra (supra) was also a case under Bombay Sales Tax and not under Central Excises Act and taking the consideration the definition of "manufacture' as given in Section 2(17) of the Bombay Sales Tax Act, it was observed by the Bombay High Court that the process of crushing boulders to obtain stones of smaller sizes cannot be regarded as a process of "manufacture' under that Act. But the instant case, is under the Central Excises Act, wherein the definition of "manufacture' is quite different than the one given in Section 2(17) of the Bombay Sales Tax Act. Both the above referred cases had been discussed and considered by the Double Bench of the Tribunal, in the Hindustan Construction Co. Ltd. and Continental Construction Ltd. case referred to above and distinguished. The Tribunal in that case had held that the crushing of boulders into stones of smaller sizes, amounts to "manufacture' under the provisions of the Central Excises Act.
13. Similarly, law laid in the case of CCE v. Coimbatore Pioneer Fertilizers Ltd. (supra) is not of any help to the appellants in the instant case. In that case it has been only ruled that pulverisation of rock Phosphate did not amount to manufacture of excisable goods. In both the cases of Hyderabad Industries (supra), the question is as to whether the crushing of boulders into small stones/bajjri by mechanical process, amounts to "manufacture' or not, under the Central Excises Act, was not at all in issue. In the first case of Hyderabad Industries reported in 1995 (78) E.L.T. 641 (SC), the Apex Court has taken the view that Asbestos fibre separated from the rock in which it is embedded, by manual and mechanical means did not amount to "manufacture' of excisable goods as no distinct or separate substance was manufactured. In that very case, reported in 1999 (108) E.L.T. 321 (SC), the Larger Bench of the Apex Court, had approved the earlier decision by holding that the process of separation of the Asbestos fibres from the patent rock was not process of manufacture. But in the instant case, such is not the position. The appellants are engaged in the manufacturing activities and the process of crushing of big boulders into bajjri by them amounts to "manufacture' under the provisions of the Central Excise, as by this process, distinct/separate commodity known as Bajjri in market, is produced by them.
14. In the light of the discussions made above, the first ground put forth by the learned Counsel for the appellants assailing the impugned orders calling upon the appellants to pay Central Excise duty on the crushing stones under Rule 9(2) of the Central Excise Rules, fails.
15. This takes us to second ground :
16. The learned Counsel has very vehemently contended that the extended period of limitation could not be invoked by the Revenue, as all the officers of the Department were very much aware that the appellants were engaged in the crushing of bigger stones into bajjri and supplying the same to M/s. National Hydroelectric Power Corporation for its use in the construction of the projects and as such nothing was concealed by the appellants, from them. But in our view, this contention of the learned Counsel also deserves no credence and must to be rejected. There is nothing on the record to infer that the respondents knew that the appellants were engaged in the manufacture of Bajjri. There is also no evidence on the file to reveal that appellants ever informed about their this activity, to the Revenue Department. No knowledge of their activity can be attributed to the Revenue for the simple reasons that they were supplying the Bajjri to the NHPC, which is engaged in the construction of the projects in the country. Their bona fide also cannot be accepted as they had wrongly and knowingly denied that their activity amounted to "manufacture' under the Excise law. They were required to inform about their activity to the Department, before starting the crushing of big stones into Bajjri, by mechanical process. It is only after their information, if the Revenue had expressly or impliedly permitted them to continue with the same, without calling upon them to pay excise duty, they could plead estoppel, against them, for invoking the extended period of limitation. For having kept, the Revenue department, in dark by appellants themselves, they cannot legally prevent the Revenue from invoking the extended period of limitation, for raising the demand of excise duty beyond six months, as proviso to Section 11-A has been inserted in the statute by the Legislature, to meet such like situations where the assessees indulge in production of excisable goods without supplying information to the Excise department, in a clandestine manner.
17. Therefore, the second contention put into service by the learned Counsel also falls to the ground.
18. However, keeping in view the facts and circumstances of the case, and the controversy involved, we find that it is a fit case wherein the penalty imposed deserves to be reduced. Therefore, the penalty amount is accordingly reduced from Rs. 1,50,000/- to Rs. 1,00,000/- (Rupees one lakh only) while rest of the order in A. No. E/1157/94-C is sustained. In the second appeal No. E/502/94-C no interference in the matter of excise duty and penalty is called for.
18. In view of the discussion made, both the appeals of the appellants are ordered to be dismissed subject to the modification in the penalty amount in A. No. E/1157/94-C.