Customs, Excise and Gold Tribunal - Delhi
M. Basheer Ahammed vs Collector Of Central Excise on 26 March, 1990
Equivalent citations: 1990(27)ECC271, 1991ECR507(TRI.-DELHI), 1990(48)ELT591(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. This appeal arises out of and is directed against the Order-in-original No. 6/84 (C.No. V/59/15/1/83 Cx. Adj.) dated 10-4-1984 passed by the Additional Collector of Central Excise, Cochin.
2. The facts of the case, in brief, are that the appellant was charged for having contravened the provisions of Central Excises and Salt Act, 1944 and of the Central Excise Rules inasmuch as he had engaged in the sound recording of Cassettes and sold the same without a central excise licence. Accordingly, show cause notice dated 26-4-1983 was issued requiring him to pay the central excise duty on the removal of sound recorded cassettes for the period from July, 82 to November, 1982. Penalties were also initiated charging that he has removed the goods without payment of duty with wilful intent to evade payment of central excise duty, failed to file classification/price list and for not maintaining proper books of account as required under the provisions of Central Excise Act and Rules. This show cause notice was duly answered by the appellant and mainly contended before the Adjudicating authority that (i) neither he was aware of the new Tariff entry 59A which necessitated the payment of excise duty on recorded cassettes as no publicity was given, nor was liable to pay duty on such recorded cassettes in view of the exemption upto Rs. 5 lakhs under Notification No. 83/83. (ii) There was no intention in evading the payment of duty and he should have been allowed to pay duty under Rule 56A in view of the fact that recording itself is on unrecorded cassettes produced in India which is subjected to duty and they have no plan to manufacture cassettes for recording, (iii) Mere recording on cassettes was not a manufacturing activity as no new product has come into existence and intention of the Legislature would be to levy duty in respect of those manufacturers who manufacture these tapes as well as have the recording thereon, (iv) Non-Magnetic tapes have suffered duty already and the exemption available to Item 68 goods used in the manufacture should be available to him. The Additional Collector of Central Excise, Cochin who adjudicated the proceedings negatived all the contentions of the appellant except in accepting the quantum based on evidence and passed an order modifying the demand. In addition to duty he imposed penalty of Rs. 500/- under Rule 9(2), Rs. 100/- under Rule 52A(5), Rs. 50/- under Rule 226 and Rs. 500/- under Rule 173Q of the Central Excise Rules, 1944. Being aggrieved by this order the appellant has come before us by way of this appeal.
3. We have heard Dr. S. Narayanan, learned Advocate for the appellant and Smt. Vijay Zutshi, learned S.D.R. for the respondent.
4. Dr. S. Narayanan, learned counsel for the appellant, submitted that mere sound recording on cassette tapes cannot be considered to be a manufacturing activity as no new commodity will come into existence by such process, recording sound on blank magnetic or cassette tapes is not one such process included within the definition of manufacture under Section 2(f) of Central Excises & Salt Act. The goods which are not only excisable goods under Section 2(d) but also the goods which are manufactured, are the goods liable to excise duty under charging Section 3 of the Act. He argued that mere sound recording on cassette tapes will not bring any new substance and every change of an article cannot be construed as manufacture. He strongly relied upon the decision of Union of India and Ors. v. Delhi Cloth & Gen. Mills Co. Ltd. and Ors., wherein it was held that a manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. Dr. Narayanan said that irrespective of the fact that language used in explaining the excisable goods under Tariff Item No. 59, such goods are not taxable unless they are manufactured. Neither the process of recording is a manufacture nor there any evidence is adduced by the Department in proving the manufacturing activity. In this connection he strongly relied upon the observations and reasoning given by the Judicial Member in his dissenting order in case of Prabhat Associates v. Collector of Central Excise [1985 (22) ELT 465], wherein he held that recording sound on duty paid magnetic or cassette tapes is not manufacture and the 'excisable goods' in item 59 of the Schedule are not taxable while defining manufacture and interpreting language under item 59. Dr. S. Narayanan argued that language used in item No. 59 of the Schedule has to be understood in the background of Budget Speech delivered by Finance Minister for the Year 1982-83 and he drew our attention to the Budget Speech wherein Finance Minister while proposing 25% ad valorem on cassette records and such other goods, exempted recordings which are not for commercial purposes. He said that the intention of introduction of this new Tariff and as per the language used in the Tariff is to levy duty in respect of those manufacturers who manufacture these tapes as well as have the recording thereon but not on the process of mere recording on blank cassettes which have already suffered duty. To understand the intention and real meaning of the Legislation the Speech made by the mover of Bill is relevant and he cited the decision in the case of K.P. Varghese v. I.T.O. [1981 (131) I.T.R. Page 597 (S.C.)]. Further he argued that in view of the ambiguity or capable of more meaning than one, Court has to adopt the interpretation which favours the assessee, as observed by the Supreme Court in cases of Controller of Estate Duty v. V.R. Kanakasabai and Ors [1973 (89) I.T.R. Page 251 (S.C.)], and Commissioner of Income Tax, West Bengal v. Vegetable Products Ltd., [1973 (88) I.T.R. - Page 192 (S.C.)]. He argued that in view of the strict construction of taxing statute and in the absence of concept of manufacturing recording on duty paid cassette tapes cannot be considered as excisable goods subjected to tax under charging Section 3 of the Act.
5. Smt. Zutshi, for the Department, while countering the arguments, submitted that there is no ambiguity either in the language used in the tariff item No. 59 or in the definition of manufacture under Section 2(f) of the Act. She said that the process of recording of sound is a manufacturing activity and as per the wordings "whether recorded or not" used in item No. 59 under heading and in view of the specific insertion 'Sound recorded cassette tapes' in 59(4) these are excisable and liable to duty and well within the competence of charging Section 3 of the Act. She argued that when once the legislature has specifically included the item in the first Schedule, its validity cannot be questioned on the ground that it did not involve any process amounting to manufacture, relying upon decision in case of Hyderabad Asbestos Cement Products Ltd. and Anr. v. Union of India and Ors. [1980 ELT 735]. She said that Government has got a wide latitude of discretion in the matter of granting exemption and classifying the item under fiscal statute, the Courts are not concerned with the Policy underlying a taxing statute but strictly concerned in interpreting the statute as it is without resorting to principles of equity as enunciated in the case of Indian Organic Chemicals Ltd. v. Union of India [1980 (6) ELT 521]. She further said that the Budget Speech delivered by Finance Minister on the floor of the Parliament is also helpful to the revenue as he said that 'recordings which are not for commercial purposes will be exempted'. But in the instant case the sound recording on cassettes for selling on commercial basis and hence exemption is not applicable. She contended that in the absence of any ambiguity or confusion either in the activity of the appellant or in interpreting the statute the decisions cited by the appellant's counsel (supra) are not applicable to the facts of this case. She argued that decision cited by the appellant's counsel in the case of Prabhat Associates v. Collector of Central Excise [1985 (22) ELT 465] is more favourable to the Department. As per the majority decision it was held that sound recording on cassettes is a manufacturing activity and liable to duty as excisable goods. She stated that though name continues to be the same but in view of change in characteristic and use of the article it is altogether different commodity and ratio of the decision in the case of Delhi Cloth & Gen. Mills Ltd., and Ors (Supra) is not applicable.
6. In rejoinder, Dr. S. Narayanan submitted that ambiguity is not ruled out in the language used in the Tariff Item No. 59 and in view of the sound reasoning given by the Judicial Member in the case of Prabhat Associates v. Collector of Central Excise (Supra) recording of sound on duty paid magnetic or cassette tapes cannot be considered as 'manufacture'.
7. We have given our anxious consideration to the arguments advanced on both the sides and perused the records. It is evident from the records that appellant has not produced sound recorded cassette tapes as such but he has recorded sound on duty paid blank cassette tapes and same were supplied by him. The crux of the problem in this case is whether sound recording on cassette tapes amounts to a manufacture and as such they are liable to excise duty. Accordingly, the following issues arise out of this dispute :-
(i) Is mere recording of sound on duty paid magnetic or cassette tapes a "manufacture" in terms of the provisions of the Act, the Schedule or otherwise?
(ii) Have the appellants manufactured "excisable goods" [defined in Section 2(d) of the Act to mean goods specified in the Schedule as being subject to a duty of excise] and rendered themselves liable to pay the duty demanded or fines levied?
First we shall analyse the term 'manufacture' under Central Excises and Salt Act. Section 2(f) of the Central Excises and Salt Act, 1944 contains a definition of the word 'manufacture'. But, actually this section does not define the word 'manufacture' or 'manufacturer' but only lays down an inclusive definition. Therefore, the word 'manufacture' for the purpose of Central Excise has to be construed in its natural and plain meaning, but it shall also include any process incidental or ancillary to the completion of a manufactured product. The original definition of 'manufacture' had been enlarged from time to time, so as to include within its ambit various specified processes in relation originally to tobacco and salt but ultimately to deal nine items at present. But for these amendments with an intention of Legislation in enlarging the meaning and scope of manufacture, the processes adverted to therein and brought within the inclusive definition thereof would not have, by themselves, constituted manufacture. Recording sound on blank magnetic or cassette tapes is not one such process included within the ambit of the definition of manufacture. Accordingly, recording sound on duty paid cassette tapes by itself is not a manufacture by virtue of the inclusive definition thereof.
8. Next, we shall analyse the term 'excisable goods' and description of the articles under item 59 of the Central Excise Tariff. Excisable goods defined under Section 2(d) of the Central Excises and Salt Act as 'excisable goods' means goods specified in the first Schedule as being subject to a duty of excise and includes salt.
Relevant extracts of item No. 59 is reproduced below :-
"59. ARTICLES OF A KIND USED FOR SOUND OR SOUND AND IMAGE RECORDING, WHETHER RECORDED OR NOT, NAMELY :-
(1). Magnetic tapes of width not exceeding 6.5 millimetres for sound recording, whether in spools or in reels or in any other form or packing, but excluding cassette tapes. (2). Sound recorded magnetic tapes of width not exceeding 6.5 millimetres, whether in spools or in reels or in any other form or packing but excluding sound recorded cassette tapes. (3). Cassette tapes for sound recording.
(4). Sound recorded cassette tapes."
The term manufacture either in the Tariff entry or in any notification has to be interpreted on the basis of its definition in the parent Statute. What was not in the main definition of term 'Manufacture' cannot be substituted or enlarged either in the Tariff Entry or in the Notification. Even after going through the tariff entry it does not give clear picture whether it intends to treat recording sound on blank cassette tapes as manufacturing activity. The term manufacture of articles described in Item 59 - "articles of a kind used for sound...recording" - is complete with the manufacture of the magnetic or cassette tapes [Item 59(1) and (3)]. Nothing more is required to render them fit for use for sound recording. Accordingly the expression whether recorded or not occurring in Item 59, makes it clear that the manufacture of the articles in question is complete without recording. It is not therefore as if recording the blank tape or cassette is a process incidental or ancillary to the completion of manufacture of excisable goods in Item 59 of the Schedule. The expression whether recorded of not occuring in Item 59 of the Schedule emphasises that they are excisable goods and signifies that they are dutiable on manufacture irrespective of the fact that they are blank or already recorded. At best it divides "excisable goods" into two varieties - namely articles and recorded articles of a kind used for sound recording. Hence it cannot, however, be understood to have manifested a legislative intent to treat the process of recording, by itself, to be a separate act of manufacture, unless the definition of manufacture is also amended accordingly. The rationale of the categorisation is not far to seek, if it is noted that each of the categories is brought to duty at the identical rate ad valorem and it is not inconceivable that the manufacturer of tapes may also proceed to record sound on them and clear them as sound recorded magnetic or cassette tapes. In such a case, the value of the manufactured blank tapes is enhanced corresponding to the value of the matter recorded. The quantum of duty should also necessarily vary with the added value of the magnetic or cassette tapes. Hence an inference cannot be drawn from separate categorisation that recording sound on duty paid tapes is 'manufacture'.
9. On second issue we are concerned with the excisable goods in the present case and the object of levy in terms of Item 59 of the Schedule. The intention and object of the Central Excises and Salt Act is clear that only on the manufacture of the 'excisable goods' in the Schedule that the levy, in terms of Section 3 of the Act, is attracted.
10. The articles classified under Item 59 of the Schedule are that 'articles of a kind used for sound and image recording and amongst them, sound recorded magnetic or cassette tapes. Admittedly, in the present case, the appellant was not manufacturing cither sound recorded magnetic tapes [Item 59(2) of Schedule] or sound recorded cassette tapes [Item 59(4) of the Schedule] as such. In other words he was not manufacturing any articles of a kind used for sound or sound image recording (Blank or recorded cassettes). What he was doing was recording sound on duty paid cassette tapes either purchased by him from the market or supplied to him by the customers.
11. Next, the argument advanced by the Departmental Representative that once an article is named or described in the Schedule automatically it is chargeable to duty cannot be accepted because that intention of the Legislature to levy duty on the goods specified as excisable goods in the Schedule provided that they are manufactured. The term manufacture as understood in the sense that a new product should come into existence having a distinct name, character and use in the market. Mere application of a process does next bring about transformation of an original product into a new product and such a process cannot be equated to manufacture. In the present case the products viz., cassette tapes used for sound recording will not lose its identity and in fact the same cassette tapes can be used number of times for recording and re-recording and it is not the intention of the legislature in levying duty each time when single tape is re-recorded.
12. In the case of Prabhat Associates and Ors v. Collector of Central Excise, Bangalore, though the appeals were rejected by the majority on a number of issues, we feel this particular issue, viz., 'Recording of sound on duty paid magnetic or cassette tapes is a manufacture or not' has not been considered in the order delivered by the majority, but this issue was conclusively considered by the Judicial Member in his dissenting order and we fully concur with his findings and reasons for the reasons stated above.
13. In the view we have taken, we hold that appellant is not liable to pay any duty or fine for not having manufactured the excisable goods in Item 59 of the Schedule and recording sound on duty paid magnetic cassette tapes is not manufacture.
14. In the result we set aside the impugned order and accordingly, appeal is allowed.