whether recoating of rubber on metal rollers, grinding and polishing them amount to a manufacturing process or not?

PJ/Case Laws/2012-13/1252

Case:-COLLECTOR OF CENTRAL EXCISE, BARODA Versus LATHIA INDUSTRIAL SUPPLIES CO. PVT. LTD

Citation:- 1985 (22) E.L.T. 837 (Tribunal)

Brief Facts:- Respondent(LATHIA INDUSTRIAL SUPPLIES CO. PVT. LTD) manufacture Rubber ebonite rolls, Rubber Blankets for C.C.S.P. Unit., Evaset Rubber Sleeve, Expander Rubber Sleeve, Rubber lining and Industrial moulded rubber articles, all of them falling under T.I. 68 CET.
Besides manufacturing these goods, the respondents also undertake the job work of recoating of rubber rolls, rubber lining of chemical vessels and grinding and polishing of rolls. They had paid duty on the job work alleged to have been done by them during the period 9-4-1981 to 15-5-1981 and 5th March 1980 to 5th August 1980 as per Notification No. 119/75-C.E. Later on they filed two refund claims for Rs. 71,469.52 and Rs. 12,915.12 on the grounds that they wrongly paid duty on recoating of rolls and re-rubber lining of tanks and vessels. According to them, recoating or re-rubber lining is a process of re-conditioning of used rolls and does not involve any manufacturing activity. Grinding and polishing is done just to smoothen the surface of rubber.
Both the refund claims have rejected vide two separate Order-In-Originals. The respondents i.e., M/s. Lathia Industrial Supplies Co. Pvt. Ltd. had challenged both these orders by filing an appeal before the Collector of Central Excise, Bombay.
The Collector of Central Excise (Appeals), Bombay by his Order-in-Appeal that recoating or re-rubberlining would not amount to manufacture and no duty is payable for the same. He, however, held that the refund claim prior to the period 3-4-1980 is barred by time.
Not satisfied with the said order passed by the Collector (Appeals), Bombay, the Government of India in exercise of the powers vested in it under Section 36(2) of the Central Excises and Salt Act, 1944, issued a show cause notice asking the respondents M/s. Lathia Industrial Supplies Co. Pvt. Ltd. as to why the order passed by the Collector of Central Excise (Appeals) should not be set aside as it was not propers, legal and correct i.e. the process of coating/lining of rubber layers after grinding and polishing which involves a series of operations would be a process of manufacture resulting in the production of new goods.
The proceedings which were pending before the Govt. of India, transferred to this Tribunal under section 35P(2) of the Central Excises and Salt Act, 1944, treated as an appeal.

Appellant’s Contention:-A manufacturing process has been carried out by the respondents by recoating/ re-rubberising the old and used rollers and grinding and polishing them. This process clearly falls within the definition of ‘manufacture’ as mentioned in section 2(f) of the Central Excises and Salt Act, 1944. The Appellate Collector has gone wrong while holding it to be not a manufacturing process.
The Invoices submitted by the respondents with refund claim show that the duty has been paid on the process of recoating of rolls with rubber compound. Rubber compound as per specifications required is prepared by the respondents themselves. Rubber compound is rolled on the rolls after removing the earlier coat remnant. This rolled rubber on the rolls is strapped with canvas ribbon and placed for vulcanization at desired temperature. After vulcanization the process of manufacture is complete. The essence of manufacture is the change of object into another for the purpose of making it marketable. In this what is received is a metal roll and what is being manufactured is a rubber roll. Both are different and distinct goods.

Respondent’s Contention:-The repairing, reconditioning, servicing etc. does not amount to manufacture. Recoating and rubberlining process carried out on old and used rolls does not amount to manufacture. In order to be ‘manufacture’ the important fact must be that on completion of the process the resultant product was manufactured. Merely because some processes were applied ‘and some changes were brought about on the original material, it cannot be said that the manufactured product is liable to excise duty.
There is no transformation under a distinct character or use. The goods remain the same and have the same characteristics as before. Galvanising is nothing but the iron sheet article is coated with zinc to prevent its oxidisation and improve its utility and does not constitute manufacture. Subsequent processing of goods does not amount to manufacture of excisable goods as they were originally manufactured except that they were processed. In a case reported in 1979 E.L.T. J 593, it was held that retreating of tyres was not excisable. In another case reported in 1977 E.L.T. J 67, it was held that mere application of gum on one side paper does not convert the paper into a new commodity. In an another case wherein it was held that dipping stainless steel scraps in sulphuric acid and rolling them to remove unevenness did not make the new strips. A case reported in 1977 E.L.T. J 81 that reconditioning of old bearings was not manufacture. It is a process similar to repairing. On the basis of this law as laid down by the various Hon’ble High Courts, the process did not result in manufacture. It was mere repair to the old and used roller and re-lining of tanks, vessels and pipes. There was no transformation and no new and different article emerged out of the process having a distinctive name, character or use.
He also cited a decision given by the Special Bench of this Tribunal titled Saran Engineering Co. Ltd., Bihar v. C.C.E. reported in 1984 (4) ETR 382 in support of his contention that the process of repairs, replacement and overhaul is done to impart additional life and strength. Liability to duty under Item 68 arises only when goods are manufactured in a factory. According to him servicing, repairing or remaking of goods which are already in use without involving manufacture of new article would not constitute manufacture for the purposes of Item 68.
In the case of rubber rolls no new article emerges out and it continues to be the same. According to him, when the roll is sent for recoating or reconditioning it goes as rubber roll and it remain as rubber roll. Manufacture must bring into existence an entirely new article. The article should be new and different article and it must emerge having a distinctive name, character or use. In the case of rubber rolls received for recoating neither new article comes out nor any different article emerges out as in the case of tyres which remains as tyres. It comes as tyres and it goes as tyres even after retreating. According to him, reconditioning of bolts, reconditioning of metal containers and roller bearings are not considered under the purview of Excise Act as manufacturing. The Collector (Appeals) has correctly appreciated the facts and law while holding that recoating or re-rubberlining, does not bring into existence goods of different taxable description and as such it would not amount to manufacture and no duty is payable for the same. The review show cause notice is based on wrong and incorrect facts and therefore, it be set aside and the appeal be rejected.

Reasoning of Judgement:-For manufacturing rubber rollers, process of rubber coating is most essential. Without this process no rubber roller comes into existence. It is a process of manufacture of Rubber Rollers. Without coating of rubber on blank roller, it cannot be used as a rubber roller nor we can call a blank roller as a Rubber Roller. Both these products are distinct and different articles. The process of rubber coating on metal roller cannot be said to be repairing of the old rolled, which is the same the process of rubber coating on blank roller. Even otherwise, in the case of P.C. Cheriyan v. Mst. Barfi Devi (1979 E,L.T. J593) the Hon’ble Supreme Court observed in para 11 at page 596 that in the Excise Act, the term ‘manufacture’ has been given an extended meaning by including in it ‘repairs’ also. ‘Manufacture’ includes any process incidental or ancillary to the completion of a manufactured product. Whether a ‘process’ is a manufacturing process or not, the Hon’ble Supreme Court laid down that the broad test for determining is whether it brings out a complete transformation for the old components so as to produce a commercially different article or commodity. The essence of manufacture is change of one object to another for the purpose of making it marketable. For the purpose of ascertaining whether it is a different article or not, one has to consider whether the thing made has a distinctive identity for commercial purposes.
In this case, rubber coating of the old and used roller is scraped out from the roller. Then a Chemical Bond i.e. adhesive material is applied on the roller. It is allowed to dry for some time. A second coat of bonding solution is applied. The coated roller is then placed in a chamber vessel for vulcanising. After vulcanising, the roller is subjected to grinding and polishing and after this process Rubber Roller comes into existence which is commercially a different article and hence it is a process of manufacture as laid down in section 2(f) of the Central Excises and Salt Act, 1944. The decisions cited by the appellants do not advance the case of the appellants in the present circumstances of the case. In the case of P.C. Cheriyan v. Mst. Barfi Devi (supra), on which the respondents put much reliance, the Hon’ble Supreme Court observed that in the Excise Act the term ‘manufacture’ has been given an extended meaning by including in it repairs also. The retreading of old tyres was not found to be a manufacturing process but it was on account of the fact that after retreading there was not a complete transformation of the old component so as to produce a commercially different article. The tyre remains a tyre after retreading. In this case after rubber coating on the metal roll a different article comes into existence which is commercially known Rubber Roller and hence it is a process of ‘manufacture’ as laid down in section 2(f) of the Central Excises and Salt Act, 1944. The various decisions cited the respondents that reconditioning, remaking, reprocessing does not amount to manufacture are not applicable in the present case.

Decision:- Appeal Allowed.

Comments

PJ/Case Laws/2012-13/1252

Post a Comment

Query