Customs, Excise and Gold Tribunal - Delhi
Lustre Print Media Ltd. vs Collector Of Central Excise on 17 February, 2000
Equivalent citations: 2000ECR84(TRI.-DELHI), 2000(119)ELT662(TRI-DEL)
ORDER P.G. Chacko, Member (J)
1. The appellants were engaged in the manufacture of Pan Masala during the period of dispute, in the erstwhile name of Govan Brothers (Rampur) Ltd., By show cause notice dated 31-8-1989, the Department asked them to show cause why an amount of Rs. 6,136.73 should not be demanded and recovered as Central Excise duty, under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises and Salt Act, 1944, on the clearances of Zardayukt Pan Masala and Saada Meetha Pan Masala under gate passes dated 25/27-2-1989 effected without payment of duty. The Department, in the said show cause notice, alleged that the goods were cleared to parties other than those from whom the same were received and therefore the benefits of Rule 173H of Central Excise Rules were not available to them. It was further alleged that the goods were fresh goods cleared "in the garb of goods alleged to have been received under D-3s under Rule 173H with intent to evade payment of duty. The appellants replied to the show cause notice submitting inter alia as follows : -
(i) The show-cause notice was based on mere suspicion and misapprehension, no evidence having been cited in support of the Department's allegations.
(ii) Rule 173H did not stipulate that the goods, received for being refined, reconditioned, repaired or subjected to similar process in the factory; must be cleared after such processing to the same parties from whom they were received.
(iii) Pan Masala was a mixture of several ingredients, of which betel nut constituted the principal ingredient accounting for more than 80 per cent of the mixture. The other main ingredients were catechu and lime, which were mixed with betel nut and flavoured with a flavouring agent. Some of their customers complained about the quality of the product and returned the goods for reprocessing. The appellants carried out the reprocessing by rubbing the mixture manually and then passing it through a sieve. During this process of sieving, the betel nut remained on the top of the sieve while the other (finer) ingredients passed through the mesh. The betel nut was then deflavoured by washing and drying. It was then mixed with catechu and lime and the resulting mixture was packed and cleared (under Rule 173H) without payment of duty. Such a reprocessing did not amount to "manufacture" within the meaning of this term under Section 2(f) of the Central Excises and Salt Act.
(iv) After amendment of Rule 173H, Government had clarified that the reprocessing would not amount to 'manufacture' if the goods were subsequently cleared, after rectification of defect, in the same form in which they were brought in the factory. In view of such clarification by Government, the benefit of Rule 173H could not be denied.
(v) The Tribunal had considered the above clarification of Rule 173H in the case of Shriram Refrigeration Industries Ltd. v. Collector of Central Excise, Hyderabad -1986 (26) E.L.T. 353 (T). According to the ratio of this decision of the Tribunal, the appellant's process was a process of repair or rectification of defect and was not 'manufacture'
2. Department issued similar show cause notice dated 1-12-1989 asking the appellants to show cause why an amount of Rs. 9,135.00 should not be demanded and recovered on the clearances made of Zardayukt Pan Masala and Sada Meetha Pan Masala under GP1 dated 31-5-1989 without payment of duty. This show cause notice alleged that the goods brought under D-3 to the appellants' factory were put to process which amounted to "re-made" of goods as per their own letter dated 11-10-1989 containing the details of reprocessing. The show cause notice pointed out that the word "re-made" had been omitted from Rule 173H by Notification No. 5/89(NT) dated 22-2-1989. Seven more similar show-cause notices were also subsequently issued by the Department covering various periods between June, 1989 and February, 1990. The total amount of Central Excise duty sought to be recovered from the appellants by way of all the above show cause notices was Rs. 3,07,024.07. The jurisdictional Assistant Collector of Central Excise, who adjudicated the matter, confirmed this demand of duty under Section 11A of the Central Excises and Salt Act, 1944. The appeal filed by the party against the Assistant Collector's order of adjudication was rejected by the Collector (Appeals) as per order dated 30-9-1993. The present appeal of the assessee is against this order of the Commissioner (Appeals).
3. We have carefully examined the impugned order and connected records of the case. We have also heard Shri Vivek Bhagat, Advocate for the appellants and S/Shri A.K. Prasad, SDR and R.S. Sangia, JDR for the Respondent/Revenue.
4. During the period of dispute (February, 1989 to February, 1990) the appellants had received certain quantities of pan masala returned by the buyers for the purpose of reprocessing. Soon after receipt of such goods, the appellants filed D-3 declarations under Rule 173H of the Central Excise Rules. They reprocessed the goods and cleared the same without payment of duty. The Department wanted to levy duty on such clearances of reprocessed pan masala, alleging that the reprocessing amounted to 'manufacture' under Chapter Note 3 in Chapter 21 of the Schedule to the Central Excise Tariff Act read with Section 2(f) of the Central Excises and Salt Act. The appellants justified the clearances of the reprocessed pan masala without payment of duty, contending that the reprocessing did not amount to 'manufacture' but was only a process of repair or rectification of defect. They explained the manner in which the reprocessing was undertaken by them; to the Department by way of their reply to show cause notice vide para 1 (iii) supra. As regards clearance of the goods so reprocessed, it was explained that where original clearance had been in tins the goods covered by such original clearance were, after reprocessing, cleared in the same tins. Where original clearance had been in cartons, corresponding 'reprocessed' clearance was in cartons of the same specifications, the original cartons not being reusable on account of being damaged during recovery of their contents for reprocessing.
5. It is the above process which is treated by the Department as having amounted to 'manufacture' in terms of Chapter Note 3 of Chapter 21 of the Central Excise Tariff. The appellants' case in the memorandum of the appeal is that the above reprocessing of the returned pan masala did not amount to 'manufacture' inasmuch as the process started with pan masala and ended up with pan masala and therefore did not involve any material change worthy of attracting the definition of 'manufacture' under Section 2(f) of the Central Excises and Salt Act. Relying on the decisions of the Honourable Supreme Court in the cases of (i) Union of India v. Delhi Cloth and General Mills Co. Ltd. and Ors. 1977 (1) E.L.T. (J 199) (Tribunal), (ii) Collector of Central Excise v. Jayanth Oil Mills Pvt. Ltd. 1989 (40) E.L.T. 287 (S.C) and (iii) Collector of Central Excise, Mumbai v. Kiran Spinning Mills 1988 (34) E.L.T. 5 (S.C.), the ld. Counsel for the appellants has submitted that no 'manufacture' as contemplated under Section 2(f) ibid was involved in the reprocessing of pan masala inasmuch as no new .substance had emerged out of such reprocessing wherein what had taken place was the reconditioning of pan masala of poor flavour into that of better flavour. He has emphasised the fact that the same betel nuts, catechu and lime as had been used in the manufacture of the original pan masala were used in the reprocessed pan masala as well. This fact, according to him, has not been rebutted by the Department with any evidence. The only addition in the reprocessed pan masala was a fresh quantity of flavouring agent, which was done to improve the quality of the product with a view to making it more acceptable to the market. Such addition of a minor ingredient at the time of reprocessing cannot be considered to have brought into existence any new substance having different name, character or use from that of the original product. The ld. Counsel has, therefore, submitted that the above reprocessing of pan masala was only a process of reconditioning or repair or rectification of defect, which did not amount to manufacture. He has, further, submitted that no labeling or relabelling or repacking as contemplated under Chapter Note 3 ibid was done by the appellants during the reprocessing of pan masala as above. The ld. Advocate has, therefore, contended that Chapter Note 3 ibid cannot be pressed into service to make the above reprocessing a case of 'manufacture' for the purpose levy of Central Excise duty. In support of this submission, he has also spelt out the distinction between "repair" and "manufacture" by relying on the decision of the Tribunal in the case of Shriram Refrigeration Industries Ltd. (supra)
6. One of the allegations the Department had raised in their show cause notice was that the appellants, upon receipt of pan masala from the buyers, had cleared the same after reprocessing to other customers and therefore the benefits of Rule 173H were not available to them. The appellants have answered this allegation by submitting that Rule 173H as it stood at the relevant time did not stipulate that the goods received back from customers for refining, reconditioning etc., should be cleared after such processing to the same customers. The ld. Counsel has, in this connection, relied on the decision of the Tribunal in the case of Antifriction Bearings Corporation Limited v. Collector of Central Excise, Pune 1997 (93) E.L.T. 638 (T).
7. The ld. SDR has submitted that, if the reliance placed by the appellant's Counsel on the provisions of Rule 173H is accepted, it would render Rule 173L redundant. According to the ld. DR, the appellants ought to have resorted to the provisions of Rule 173L in the facts and circumstances of the case.
8. The ld. DR has, further, invited our attention to Notification No. 5/89 dated 22-2-1989, whereby the word "remaking" in Clause (b) of Sub-rule (1) of Rule 173H was omitted. The DR has submitted that, during the period of dispute. Rule 173H (1)(b) did not contain the word "remaking" and therefore the reprocessing of pan masala by the appellants did not attract the provisions of Rule 173H(1) of the Central Excise Rules and consequently the clearance of the reprocessed pan masala cannot be treated to be one made under Rule 173H. The ld. DR has, further, submitted that the reprocessed goods ought to have been cleared only on payment of duty inasmuch as such reprocessing amounted to 'manufacture' according to him. He has accordingly prayed for rejection of the appeal.
9. On a careful consideration of the facts of the case, we have noted that the goods for reprocessing were received by the appellants, undisputedly, under D-3 declaration filed under Rule 173H of the Central Excise Rules. We have further noted that the method of reprocessing as stated by the appellants has not been disputed by the Department. The appellants have consistently pleaded before the lower authorities that they had reused (for reprocessing) the same quantities of betel nuts, catechu and lime as had been used originally for preparing the pan masala. But the authorities have not accepted such plea. Such non-acceptance is, however, not supported by any evidence on record as rightly pointed out by the ld. Counsel. The above plea of the appellants appears to be quite consistent with the method of reprocessing as explained by them and the same merits acceptance in the absence of evidence to the contrary. We are also inclined to accept the reliance placed by the appellants on the Apex Court's rulings in the cases cited supra for holding that no new substance was brought into existence by the mere addition of a fresh quantity of flavouring agents to the pan masala during its reprocessing and therefore the reprocessing did not amount to manufacture under Section 2(f) of the Act. There is no warrant for treating the process as amounting to 'manufacture' in terms of Chapter Note 3 of Chapter 21 [CETA] either inasmuch as hardly any evidence is forthcoming from the Department's side to rebut the appellants' plea that they had not carried out any "labeling or re-labeling of containers and re-packing from bulk packs to retail packs or any other treatment to render the product marketable to the consumer".
10. We have already found that all the main ingredients viz., betelnut, catechu and lime of the pan masala brought into the appellants' factory under Rule 173H have remained as such (both qualitatively and quantitatively) in the reprocessed pan masala and that the reprocessing was nothing but de-flavouring followed by re-flavouring of the same mixture. The defect of poor flavour was rectified by the reflavouring. The pan masala remained the same. No new commercially distinct and different product emerged from the reprocessing. The reprocessed product was cleared in the same form as that of the original product and was not commercially different from the latter. Therefore, the process undergone by the pan masala brought to the factory under Rule 173H was only repair or rectification of defect and not "manufacture". This view is well supported by the Tribunal's decision in the case of Shriram Refrigeration Industries. The omission of the work "re-making" from Clause (b) of Rule 173H(1) during the period of dispute is of no consequence in this context.
11. With regard to the contention of the ld. DR that the benefits of Rule 173H would not be available to the appellants inasmuch as the reprocessed product was cleared to parties other than those from whom the goods were originally received for reprocessing, we find that the Tribunal's decision in the case of Antifriction Bearings Corporation Ltd., (supra) is the answer to the Revenue's plea. Moreover the Tribunal in that case followed the earlier decision of the Tribunal in the case of Shriram Refrigeration Industries Ltd., (supra) and held that the provisions of Rule 173H could be applicable even if the original identity of the repaired goods was lost provided commercially distinct article was not brought into existence. The Tribunal further held that it was the choice of the assessee either to follow the procedure under Rule 173H or the procedure under Rule 173L of the Central Excise Rules. We observe that in the light of the Tribunal's decision in the case of Antifriction Bearings Corporation (supra) the contention of the ld. DR based on Rule 173L cannot be sustained, nor can we accept his plea that the reprocessed product should be cleared only to those persons from whom the rejected goods had been received under Rule 173H inasmuch as there was no such stipulation under Rule 173H and no prohibition in law against clearance of the reprocessed goods to parties other than those from whom the goods for reprocessing were received under Rule 173H. Further, for the reasons already recorded, we find that the orders of both the lower authorities are perverse and also opposed to the law as settled by the Tribunal and Courts.
12. In the light of the above discussion and findings we have to hold that the orders of the lower authorities cannot be sustained. Accordingly, we set aside the orders of both the lower authorities and allow the present appeal.