Manufacturing - Lamination & Metalizing of Film - whether new product made

PJ/Case Laws/2012-13/1073

Manufacturing - Lamination & Metalizing of Film - whether new product made - burden to prove manufacturing

Case: METLEX (I) PVT. LTD. Versus COMMISSIONER OF C. EX., NEW DELHI

Citation: 2004 (165) ELT 129 (SC)

Issue:- Manufactured – Product can be said to be manufactured when a distinct and new product emerged from the manufacturing activity.

Lamination & Metalizing of film roll does not result in new product as the film remains a film only.

Burden of Proof is on the Revenue department to prove that activity is a manufacturing process resulting in a distinct and new product.

Brief Facts:- Appellants filed a Classification List showing the item as falling under Tariff item 3920.36 and 3920.38. They claimed benefit of Notification No. 53/88-CE dated 1st March, 1988. Period of dispute is from 1-3-1988 to 30-9-1989 and 1-10-1989 to January, 1990. In another appeal, period involved is 1987-88 and 1988-89.

Revenue issued Show Cause Notices to the appellant on the basis that their goods did not fall under Item 35 of the Notification but that they fell under Item 32.3 of the Notification.

In reply to the Show Cause Notice, amongst other contentions, the Appellants contended that merely by metallising/lacquering/laminating films no process of manufacture is undertaken so as to attract duty. Reliance was placed on Board Circular to this effect. Of course the circular relied upon was for an earlier period.

The Assistant Collector held that appellant’s goods fell under Item 32.3. The Assistant Collector brushed aside the argument that there was no manufacture by concluding that the circular relied upon was in respect of an earlier Tariff item. The Assistant Collector therefore avoided going into the question whether or not there was manufacture.

In appeal, the Collector (Appeals) held that the Appellants’ product fell under Item 35 of the said circular.

In further appeal, the Tribunal concluded that Appellants’ product cannot fall under Item 35 of the Circular and that it would fall under Item 32.3. The Tribunal has held that there was manufacture. The Tribunal has concluded that the Appellants had not led any evidence to prove that there was no manufacture and that in the tariff they are recognised as distinct items classifiable under different sub-headings.

Hence, appeals have been filed before the Supreme Court.

Appellant’s Contention:- In reply to the Show Cause Notice it was clearly contended that there was no manufacture. Once this contention was taken, it had to be dealt with by the Assistant Collector. It is settled law that if the Revenue claims that there is manufacture, then the burden of proving the fact is entirely on the Revenue. In this case even though the point was specifically taken, the Assistant Collector skirts the issue and does not decide the same. Thus, there is no evidence on record that manufacture has taken place.

Reasoning of Judgment:- The Supreme Court perused the Circular and observed that for the product to fall under Item No. 35, the product must be a “film” which has been produced out of the goods falling under Heading 39.01 to 39.15. It was noted that appellants purchased “film” on which duty has been paid and thereafter laminated or Metallised that film. Thus, presuming that a process of manufacture is undertaken, the product which the Appellants produce is not produced out of any goods falling under Item No. 39.01 to 39.15. Therefore, in view of the Court, the Assistant Collector and the Tribunal were right in concluding that the Appellants’ product could not fall under Item No. 35.

On the aspect that whether there can be said to be any manufacture, it was noted that the Appellants had filed the Classification List. But merely because a party mistakenly files a Classification List does not mean that he has to pay duty, if in law, he is not bound to pay duty. If there is no manufacture then the mere fact that a Classification List has been filed would not make them liable to pay duty.

The Supreme Court perused the judgment of the Bombay High Court in the case of Garware Plastics & Polyester Ltd. v. Union of India [1991 (52) E.L.T. 506 (Bom.) wherein it was held that the process of lacquering/metallising of polyester film does not amount to manufacture, there being no new distinct commercial commodity having a different identity or name. Thereafter, the Tribunal has in the case of Rexor India Ltd. v. Collector of C. Ex. [1991 (52) E.L.T. 392 (Tribunal) held the same. It was mentioned that a Special Leave Petition filed against this Judgment, by the Department, was dismissed on 17th August, 1995. The Tribunal again in the case of Chemicoat Ltd. v. Collector of C. Ex. [1992 (57) E.L.T. 128 (Tribunal) relied on the Bombay High Court Judgment and held that there was no manufacture. Special Leave Petition filed against this Judgment was also dismissed by this Court reported in 1997 (94) E.L.T. A151.

The Supreme Court further perused the judgment given in the case of Collector of Central Excise v. Technoweld Industries [2003 (155) E.L.T. 209 (S.C.) wherein it was held that there is no manufacture when wire of a thinner guage is drawn out of duty paid wire rods. It was held that the initial product was a wire rod and the ultimate product was also a wire. In this case it was also held that merely because there are two separate tariff entries does not mean that the product is excisable. It was held that the product becomes excisable only if there is manufacture.

Thereafter, in an unreported Judgment dated 10th February, 2004 in Civil Appeal No. 2113 of 1998 in the case of M/s. Tega India Ltd. v. Commissioner, Central Excise, Calcutta-II [2004 (164) E.L.T. 390 (S.C.)] this Court has held, on a consideration of a number of other decisions, that merely fixing rubber lining on paper, tanks and other such articles does not amount to manufacture.

In the present case, it was noted that Appellants purchase duty paid film. They merely laminate or metallise it. The product is a film to start with and remains a film after process of lamination or metallization. Thus, there is no new distinct product which has come into existence and it would have to be concluded that there is no manufacture.

It was however submitted that the case has proceeded on the admitted footing that there was a manufacture. It was submitted that the matter must be remitted back to decide whether there is manufacture. It was submitted that this aspect will have to be decided in terms of Note 12 to Chapter 39 and after looking at the process adopted by the Appellants. It was submitted that under the present Tariff there are separate sub-heading and thus after examining the process of the Appellants it may be possible to contend that a new and distinct product has come into existence.

The Supreme Court is unable to accept this submission. The question is whether an individual and distinct product has come into existence. It is settled law that the burden is on the department to prove that a new and distinct product has come into existence. The Appellants, in reply to the Show Cause Notice, took up the contention that there was no manufacture. If the Department still wanted to contend that manufacture had been undertaken, the Department had to prove it by cogent evidence. The Tribunal was clearly in error in seeking to cast the burden on the Appellants to show that there was no process of manufacture.

Thus this entry makes no distinction between ordinary films and film which is lacquered or metallised or laminated of course the sub-headings 3920.31 to 3920.38 classify as “Rigid plain, Flexible plain, Rigid lacquered, Flexible lacquered etc.” Note 12 only sets out what is “Flexible”. But we are not concerned with any dispute as to whether the Appellants’ product is Rigid or Flexible. It is an accepted position that the Appellants’ products are “Flexible lacquered film” and/or “Flexible metalized film”. As stated above, the product remains a “film”.

In the above view, the Supreme Court set aside the order of the Tribunal and held that no process of manufacture has taken place and therefore the Appellants are not liable to pay any duty on the product.

Decision:- Appeal allowed.

Comment:- This decision has other story also. When the Apex Court held that the process of lamination and lacquering does not amount to manufacture. The units which were duty were asked not to pay the duty in future and the manufacturers who have taken credit on such films asked to reverse the cenvat credit. Although it is settled law that the duty paid at the end of supplier cannot be changed at buyer’s end yet the field formation issues the show cause notices. This has created panic situation. The first adjudication authorities normally change the settled law on one pretext or another and decide the case against the assessee. Thus, it brought a lot of pressure on buyer of these goods. But later on the chapter note was introduced and these processes were termed as “manufacture”. Thereafter this problem was sorted out.

Comments

PJ/Case Laws/2012-13/1073

Post a Comment

Query