Whether punching, welding, trimming, drilling amounts to manufacture?

PJ/CASE LAW/2016-17/3147

Case:- JYOTI STRUCTURES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NASHIK

Citation:- 2016 (333) E.L.T. 443 (TRI. - MUMBAI)

Brief Facts:-Brief facts of the case are that the appellant is engaged in the activity of erection of transmission line towers. The parts of transmission towers are assembled, piece by piece, and comprise of structural steel angles, channels etc. The transmission tower is erected using nuts, bolts, washer, springs, etc. The appellant filed a classification List No. 54/86-87, dated 1-3-1986 claiming that the activities like punching, drilling of holes, welding, trimming and galvanizing carried out on duty paid angles, beams and channels etc. did not amount to manufacture. The classification list was approved ex parte by the Assistant Commissioner levying excise duty on the goods mentioned in the classification list. Consequently, the refund claims filed by the appellant were also rejected vide order dated 8-7-1987 as time barred.
Thereafter the appellant filed a writ petition before the Hon’ble High Court against the impugned order and against the rejection of the refund claims. The Hon’ble High Court quashed the earlier order passed by the Assistant Commissioner and remanded the case back to the adjudicating authority for deciding the case on merits within six months from the date of the order, i.e. 18-11-2003.
The adjudicating authority thereafter passed an order dated 31-5-2004 confirming that the process undertaken by the appellant amounted to manufacture and attracted duty under sub-heading 7308.90. The appellant filed appeal before the learned Commissioner (Appeals) who upheld the order of the adjudicating authority. Aggrieved by the said order, the appellant is before Tribunal by way of this appeal.

Appellant Contentions:- The learned counsel for the appellant submitted that the impugned order passed by the Commissioner (Appeals) is in gross violation of natural justice and passed without considering the submissions made by the appellant and the same was passed after six months from the date of the order of the Hon’ble High Court and thus contrary to the specific directions of the Hon’ble High Court. He further submitted that the processing of bought out items by punching, drilling holes etc. will not result in manufacture of new item and impart a new character, identity or use to it. In support of this submission, the appellant cited the following judgments : -
(i)        DCST v. Pio Food Packers reported in 1980 (6)E.L.T.343 (S.C.);
(ii)       Gujarat Steel Tubes Ltd. v. State of Kerala reported in 1989 (23) ECR 161 (SC) = 1989 (42)E.L.T.513 (S.C.);
(iii)      Sterling Foods v. State of Karnataka reported in 1986 (26)E.L.T.3 (S.C.);
(iv)      Chowgule & Co. Pvt. Ltd. v. UOI reported in 1993 (67)E.L.T.34 (S.C.);
(v)       CCE v. Crescent Chemical Equipment reported in 1990 (48)E.L.T.458 (T);
(vi)      Tungabhadra Industries Ltd. v. CTO reported in AIR 1961 (SC) 412;
(vii)     CCE v. Jayant Oil Mills reported in 1989 (40)E.L.T.287 (S.C.).
He also submitted that the finding of the Commissioner (Appeals) is contrary to and repugnant with the provisions of Section 2(f) of the Central Excise Act, 1944.

Respondent Contentions:-On the other hand, the learned AR reiterated the findings of the Commissioner (Appeals) and submitted that a particular process amounts to manufacture or not depends upon the facts of each case. He also submitted that the goods in question are parts of transmission tower, poles, welded masts etc. and other structural fabrication which undergo processes like cutting of material to the required length, punching/drilling of holes and level cutting of edges as per design and drawings and galvanizing to prevent rusting. These parts are the parts used in the transmission towers and not attached to earth and cannot be considered as immovable property. He also submitted that the processes carried out by the appellant amount to manufacture as defined in Section 2(f) of the Central Excise Act, 1944. In support of his submissions, he relied upon the following decisions : -
(i)        CCE, Jaipur-I v. Telemats India Ltd. reported in 2011 (273)E.L.T.520 (Tri.-Del.);
(ii)       Mahindra & Mahindra Ltd. v. CCE, Aurangabad, Chandigarh, Kanpur & Chennai reported in 2005 (190)E.L.T.301 (Tri.-LB).

Reasoning of Judgment:- We have heard the parties and perused the records. The submission of the learned counsel for the appellant is two fold. Firstly, he submitted that the order of the adjudicating authority, dated 31-5-2004 is passed beyond the specific time limit granted by the Hon’ble High Court and therefore the same is unsustainable in law. Though there is delay of about 13 days in passing the order by the adjudicating authority, but that does not make the order illegal. Therefore, we reject this argument of the learned counsel.
The other argument of the learned counsel for the appellant is that there is no change in the form of bought out items by mere punching, drilling, galvanizing etc. and they retain their identity as such. This activity cannot be termed as manufacture and, therefore, no duty is chargeable on such items. Here it is pertinent to mention the definition of ‘manufacture’, which is reproduced herein below : -
“2(f) ”manufacture” includes any process, -
(i)         incidental or ancillary to the completion of a manufactured product;
(ii)        which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii)       which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account.”
Further, we find that the appellant received the duty paid products viz. angles, MS plates, channels etc. The process undertaken by them amounts only to cutting, punching of holes and galvanization and this process does not amount to manufacture, as this process does not transform the subject goods into a new and different product with a distinct name, character and use. Further, the learned counsel for the appellant submitted that the appellant’s case is squarely covered by the decision of the Tribunal in the case of CCE, Hyderabad v. Deepak Galvanising & Engg. Indus. P. Ltd. reported in 2008 (228)E.L.T.40 (Tri.-Bang.) = 2009 (16)S.T.R.533 (Tribunal), wherein the Tribunal, after considering the number of judgments as mentioned therein, has observed in Para 4 of the judgment as under : -
“On a very careful consideration of the issue, we find that the respondents received duty paid MS angles, rods, channels, plates, etc. and the activity carried out by them amounts merely to drilling of holes and cutting them and these are sent to the various parties for manufacture of towers. In our view, the process undertaken by the respondents do not amount to manufacture as the MS rods, plates, angles, etc. remain the same even after the process have been carried out. Therefore, there is no new manufacturing process involved. In our view the impugned order of the Commissioner (Appeals) is legal and proper. There is no merit in the Revenue’s appeals and the same are rejected.”
The learned counsel further submitted that the Revenue filed appeal against the decision of the Tribunal in the case of Deepak Galvanising & Engg. Indus. P. Ltd. (supra) before the Hon’ble Andhra Pradesh High Court and the Hon’ble High Court dismissed the appeal of the Revenue as reported in 2015 (315) E.L.T. A90 (A.P.). Further, galvanization does not bring a new commodity into existence as held by the Apex Court in the case of Gujarat Steel Tubes Ltd. v. State of Kerala reported in 1989 (42)E.L.T.513 (S.C.).
Further, it is pertinent to mention that the adjudicating authority in his finding has observed that the sum total of the processes carried out by the appellant results into excisable commodities attracting excise duty under sub-heading 7308.90 of the Schedule to the Central Excise Tariff Act, 1985 and incidentally, the classification under the Harmonized System of Nomenclature also corresponds to the sub-heading 7308.90 of the Schedule to the CETA, 1985, which also has persuasive value. The learned counsel for the appellant submitted that the above conclusion of the adjudicating authority is not legally correct in view of the large number of decisions viz. CCE v. SAE (India) Ltd. reported in 1996 (84) E.L.T. A48 (S.C.), Standard Industrial Engg. Co. v. CCE reported in 1988 (38)E.L.T.196and Pawar Construction Co. v. CCE, Chandigarh reported in 2002 (146)E.L.T.367 (Tri.-Del.), wherein a consistent view has been taken that prior to 1-3-1988 being the date on which the Tariff Item 7308 was brought into effect, the process of converting bare angle into prepared angle will not amount to manufacture. The instant case relates to a period prior to 1-3-1988. Further, merely because specific entry was included viz. Heading 73.08 that ipso facto does not mean that the process amounts to manufacture. The Revenue has to further prove that the process undertaken amounts to manufacture and also that the resultant products are marketable. Therefore, keeping in view all the facts and circumstances, we are of the considered view that the process undertaken by the appellant, viz. punching, welding, trimming, drilling of holes, level cutting of edges and galvanizing do not amount to manufacture.
Further, it is pertinent to mention that while remanding the matter back to the adjudicating authority, the Hon’ble High Court observed in Para 7 of the judgment that the adjudicating authority shall decide the excisability of the goods and if it is held that the activity carried out by the petitioner is not a manufacturing activity and the petitioner is entitled to refund of the duty paid during 1st March, 1986 to 31st December, 1986, then the refund claim of the petitioner shall be disposed of as per the provisions of Section 11B of the Central Excise Act. The adjudicating authority did not decide the question of refund as it has held the process as manufacture and liable to duty.
Since we have held that the processes undertaken by the appellant do not amount to manufacture, therefore, we allow the appeal of the appellant and remand the matter back to the adjudicating authority to decide the refund claim of the appellant as per the directions of the Hon’ble High Court under Section 11B of the Central Excise Act, 1944.
The appeal of the appellant is allowed by way of remand.

Decision:- Appeal is allowed by way of remand.

Comment:-The gist of the case is that the processing operations like punching, welding, trimming, drilling of holes, level cutting of edges and galvanizing undertaken by the appellant do not amount to manufacture as defined in section 2(f) of the Central Excise Act, 1944.

Prepared by:- Mahesh Parmar

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PJ/CASE LAW/2016-17/3147

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