Activity when will amount to manufacture & finished product exigible to duty

PJ/Case Laws/2012-13/1048

Case: TANSI ENGINEERING WORKS Versus COMMISSIONER OF C. EX., COIMBATORE

Citation: 1996 (88) E.L.T. 407 (Tribunal)

Issue:- Whether a product is of “manufactured” and whether the process adopted is a process which amounts to “manufacture” under Section 2(f) of the Act is a matter which has to be decided on its merits and not merely from the circumstances that a particular expression or name finds a place in the Tariff entry.

Whether Angles and channels which are cut and punched give rise to a new commodity which is exigible to excide duty?

Brief Facts:- Appellant is a State Government undertaking engaged in fabrication of tower components, transformers, structural materials and steel structures for building construction, as per contract entered into with Tamil Nadu Electricity Board and others. They had been purchasing angles and channels from the market and subjecting the same to straightening, cutting and punching before supplying the same to their customers. Such supplies have been made without paying Central Excise duty.

Revenue issued Show Cause Notice to the appellant in respect of period 28-2-1986 to 14-2-1988 informing that the products referred to above are subject to excise duty as they fall under Heading 7308.90 and requiring the appellant to show cause why duty on the value of the products so cleared should not be demanded. Appellant replied that angles and channels when cut and punched do not cease to be angles and channels and do not become a new commodity as known in the market and as such the appellant was not “manufacturing” these products and therefore, there was no duty liability.

The Additional Collector confirmed the demand to adjust the part payment made by the appellant.

This order is challenged before the Tribunal.

Appellant’s Contention:- Appellant placed reliance on number of earlier decisions of the Tribunal and contended that the main finding that the appellant has “manufactured” angles and channels is unsustainable and the products not having been “manufactured” within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 are not dutiable.

Respondent’s Contention:- Revenue supported the impugned order by contending that cutting and punching of holes would change the nature and character of the angles and channels and would therefore amount to “manufacture”.

Reasoning of Judgment:- The Tribunal noted that there are a large number of decisions of the Tribunal dealing with similar activity, viz. cutting and punching of angles and channels. In all those cases, these products were being made for the purpose of use in towers or other structures. The decisions are:

CCE v. Dodsal Pvt. Ltd -1987 (28) E.L.T. 352
Pratap Steel Rolling v. CCE -1990 (48) E.L.T. 539
R.S. Steel Works v. CCE - 1993 (64) E.L.T. 469
Dodsal Mfg. Pvt. Ltd. v. CCE - 1993 (67) E.L.T. 138

It was noted that the consistent view taken by the Tribunal in these decisions, some of which related to periods prior to the enactment of the Act [No.] 5/86, amending the definition of “manufacture” in Section 2(f) of the Act and others to periods subsequent to the amendment. The consistent view taken is that activity such as cutting and punching of holes in angles and channels for use in transmission towers and structures would not amount to “manufacture” within the meaning of Section 2(f) of the Act.

It was noted that Revenue placed reliance on the entry in Heading 73.08 in the Schedule to the Central Excise Tariff Act, as the same existed in 1988. Their contention was that angles are specifically included in the above tariff and channels would attract the description “shapes”, and would at any rate attract the expression “and the like” and therefore the appellant/who has brought into existence angles and channels for use in structures of iron and steel must be held to have manufactured by the same.

It is only when a new commodity is brought into existence, which is movable, saleable and marketable, can it be said that it is a product of “manufacturing” activity. Going by the definition, the consistent view taken by the Tribunal has been that subjecting angles and channels to cutting and punching would not amount to “manufacture”. Of course conversion of steel materials into angles and channels may amount to “manufacture”. The question is not whether such conversion amounts to “manufacture”; the question is whether subjecting such angles and channels to process which can be described as cutting and punching amounts to “manufacture”. The clear and consistent view of the Tribunal has been in the negative.

In the circumstances, the Tribunal relied on observation of Supreme Court in Paragraph 6 of the judgment in case of Moti Laminates Pvt. Ltd., v. Collector of Central Excise, Ahmedabad, 1995 (76) E.L.T. 241 (S.C.) that reference to a particular item in the Tariff Schedule is not decisive and it is always open to the assessee to prove that the particular item, inspite of being mentioned in the schedule would not be subject to duty either because it is not goods or it is not manufactured or it is not capable of being marketed.

The Legislature evidently realised that it would not be possible to provide an exhaustive list of various products. As and when contingency arises, there should be a methodology for easily declaring that a particular process amounted to manufacture, even though going by the normal meaning of the expression “manufacture” the process may fall short or may not amount to “manufacture”. Therefore, the Legislature adopted the device of incorporating Clause (ii) of Section 2(f) whereby as and when contingency arises, the Legislature could specify in a Section or Chapter Note of the Tariff Schedule in relation to a particular goods that certain process amounts to “manufacture”. In other words, the amendment to the definition empowers the Parliament to enlarge the scope of “manufacture” by roping in processes which may or may not strictly amount to manufacture or processes in regard to which there could be genuine doubt whether it amount to manufacture or not, by the simple device of specifying the particular process in the Section or Chapter Note of the Tariff Schedule, with reference to particular goods as amounting to manufacture. The language used in the amendment is cautious and circumspect. It requires specification not of goods but of process. It requires specification of process as amounting to manufacture. It also further requires that the specification must be in relation to any goods.

It is in the light of the meaning and content of the amendment to the definition, as explained above, that one has to examine the language use in the Tariff Entry 73.08 since there is no relevant Chapter Note/Section Note. The Tribunal perused the Heading 73.08 which refers to structures and parts of structures. It contains exclusive clause as well as illustrative clause. Several kinds of parts and structures are brought into the heading by a device of illustration. There is also an added description like angles, shapes, sections and the like of iron. There is no controversy that the original angles and channels which are purchased by the appellant for cutting and punching for use in transmission towers would attract the tariff heading. The question is whether the same duty paid angles and channels become dutiable again merely because of the appellant subjecting the same to cutting and punching. The process adopted by the appellant is the process of cutting and the process of punching. Neither the Section, neither the Chapter nor the description “specify” these process as “amounting to manufacture”. Therefore, it follows that the Legislature has not utilised Clause (ii) of Section 2(f) of the act, by making specification in the Tariff Act that this particular process amounts to “manufacture”. In these circumstances, the Tribunal followed the decisions referred to above and held that the processes adopted by the appellant do not amount to “manufacture” and the products resulting from these processes are not excisable.

Decision:- Appeal allowed

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PJ/Case Laws/2012-13/1048

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