Whether lamination of duty paid film amounts to manufacture?

PJ/CASE LAW/2015-16/2640

Case:-COMMISSIONER OF C. EX., DELHI-II VERSUS SHEETAL MERCANTILE (P) LTD.

Citation:- 2015 (315) E.L.T. 540 (Del.)

Brief Facts:- The facts of the case are that the respondent herein is a manufacturer of laminated/metalized printed packaging material. And, the appellant, inter alia, for the said reason raised demand of Rs. 67,96,891/- with interest and imposed a penalty of Rs. 3,40,000/- for the period July 2007 to February 2008.

Appellants Contention-The contention of the appellant is that the respondents were not engaged in manufacture and therefore could not have passed Cenvat credit on inputs to the purchasers of the printed laminated/metalized material. The aforesaid view/adjudication was purportedly based and relied on the decision of the Supreme Court in the case of Metlex (I) Pvt. Ltd. v. Commissioner of Central Excise, New Delhi - 2004 (165)E.L.T.129 (S.C.). However, the tribunal has distinguished the said judgment after referring to paragraphs 15 to 17 in the case of Metlex (I) Pvt. Ltd. (supra). The said paragraphs 15 to 17 read as under : -
“15. In this case the 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.
16. 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-headings 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.
17. We are 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.”

Respondents Contention:- No one appeared for the respondents.

Reasoning of Judgement:-The Tribunal distinguishing and elucidating upon the aforesaid decision observed as under :-
In para 15 of the judgment, the Supreme Court has observed that mere lamination or metallization of a film does not bring about a new distinct product as such said process cannot be termed as manufacture. In para 16 of the judgment, the Supreme Court has referred to the plea of the department urging for remand of the case back for decision whether or not there was manufacture. In para 17, the Supreme Court rejected the said plea of the department observing that if the department wanted to contend that the assessee has undertaken manufacture, the department was required to prove it by a cogent evidence and that the Tribunal was clearly in error in seeking to cast the burden on the assessee to show that there was no process of manufacture. From this observation, it is clear that the appeal of the assessee was allowed by the Supreme Court on facts because of the failure of the department to establish that the goods in question came into existence through a manufacturing process. That being the case in our considered view the judgment of Supreme Court in Metlex (I) Pvt. Ltd. cannot be applied universally de hors the facts. Whenever the question arises whether or not the product in question came into being from a process of manufacture the adjudicating authority is require to refer to the facts of the case to come to the conclusion as to whether the process amounted to manufacture or not. In the instant case the Commissioner (Appeals) has not cared to look into the process through which the finished goods were cleared by the manufacturing assessees emerge out of the process of manufacture.

Thereafter, the Tribunal has referred to the process of production adopted by the respondent. The respondent first print bare or metalized polyester film purchased from the market i.e. the inputs, (it is not disputed that the price paid includes excise duty). Thereafter, printed films were laminated either in two layers or three layers with the help of adhesive or another chemical. After referring to the process adopted by the respondent, the Tribunal has held that this would be covered by the definition of manufacture under Section 2(f) of the Central Excise Act, 1944. The Tribunal has relied upon the judgment of the Supreme Court in the case of Laminated Packings (P.) Ltd. v. CCE - 1990 (49)E.L.T.326 (S.C.).The process actually undertaken, as recorded by the Tribunal, is not disputed. In light of aforesaid background, facts found relating to the process undertaken and the reasoning adopted/referred to by the tribunal, tribunal do not think any substantial question of law arises for consideration. Perhaps the appellant should be satisfied with the reasoning. In these circumstances, we are not inclined to issue notice on the applications for condonation of delay and, accordingly, the said applications and appeal are dismissed.

Decision:- Appeal dismissed.

Comment:- The crux of the case is that according to sec 2(f) of Central Excise Act,1944 any process would be amounting to manufacture if totally new product emerges with distinct name, character and use. In the given case, the lamination or metallization of duty paid film does not changes the characteristics of the film and so the process of lamination on films does not amounts to manufacture.

Prepared By:- Neelam Jain

Comments

PJ/CASE LAW/2015-16/2640

Post a Comment

Query