Whether the activity carried out by the respondent-assessee amount to manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 and attract Section 35 L (b) of the Act?

PJ/CASE STUDY/ 2012-13/23

15 September 2012

CASE STUDY

Introduction:-

The appeal relating to rate of duty and valuation lies with Apex Court as per Section 35L (b) of Central Excise Act, 1944. It cannot be filed in High court. But we have come across a number of cases where the department files the appeal with the High Court. Whether the activity carried out by the manufacturer amounts to manufacture or not, involves determination of rate of duty of excise for the purpose of assessment. Hence the appeal would be positioned before the Supreme Court. This is the issue involved in this case study.

Commissioner of Central Excise & Customs, Ahmedabad-I v/s Mohan Sales Corporation
[Civil Application No. 497 of 2011; order dated: 28.08.2012]

Relevant Legal Provisions:

(1) Section 2(f) of Central Excise Act, 1944:-

    “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.

(2) SECTION35L Appeal to the Supreme Court:-An appeal shall lie to the Supreme Court from —

(a)   any judgment of the High Court delivered -
(i)    in an appeal made under section 35G; or
(ii)   on a reference made under section 35G by the Appellate Tribunal before the 1st day of July, 2003;
(iii)   on a reference made under section 35H,

in any case which, on its own motion or on an oral application made by or on behalf of the party aggrieved, immediately after passing of the judgment, the High Court certifies to be a fit one for appeal to the Supreme Court;  or

(b) any  order  passed before the establishment of the National Tax Tribunal  by  the  Appellate  Tribunal  relating,  among  other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.

Brief Facts:-

Ø M/s Mohan Sales Corporation, the respondent-assessee having factory situated behind Church, Ranipur Patia, Narol, Ahmedabad and office situated at 265, New Cloth Market, Raipur, Ahemdabad. It is engaged in the activity of cutting, stitching, eyeleting and packing of Tarpaulin.
Ø The Department carried out the search of the factory premises of the appellant on 22.11.2005 and detained the goods found at the factory. These goods were seized on 01.12.2005. Statements of Shri Narayan Prasad Mundra, Supervisor cum clerk Shri Pankaj Kumar Kanubhai Patel, casual worker Shri Daxesh bhai and other employees were recorded. Statement of proprietor Shri Hariprasad Baheti and various buyers were also recorded. The seized goods were released on execution of a Bond for Rs. 100500/- along with the cash security of Rs. 25125/-..
Ø The show cause notice was issued to the assessee regarding:
               i) confiscation of seized goods along with imposition of penalty, and
              ii) confirmation of the demand of Excise duty of Rs. 1414080/- + Education Cess of Rs. 28282/- and recover it along with interest and penalty thereon.
              iii) to impose penalty on the buyers of the goods removed by the assessee.
Ø Personal hearing was granted to the assessee. The learned adjudicating officer did not accept the submissions and passed the order to confiscate the seized goods, imposed penalty, confirmed the demand of Central Excise Duty and Education Cess along with interest and penalty and also imposed penalty on various persons as mentioned in the show cause notice.

Ø Aggrieved by the aforesaid Order in Original, the assessee filed the appeal before learned Commissioner (Appeal) along with Stay application.
Ø The Order in Appeal no. 75/2008(Ahd-I)CE/ID/Commr(A) dated 9.5.2008 was passed by Commissioner (Appeal). The order upheld the order passed by the adjudicating authority and retained the amount of duty demand, interest, penalty and confiscation of goods.

Ø Aggrieved by said order of the Commissioner (Appeals), the assessee filed an appeal before the Cestat. The Cestat decided the issue in favour of assessee on the ground that the process of cutting, stiching and eyeleting does not amount to manufacture. The CESTAT relied upon Apex Court decision in case of Commissioner of Central Excise, Chennai-II v/s Tarpaulin International [2010-TIOL-58-SC-CX]. The tribunal held that the process undertaken by appellant is identical to the process in Apex Court decision. It does not make difference that the process was undertaken on plastic fabrics or cotton fabrics. Hence the tribunal decided the appeal in favour of appellant.

Ø Aggrieving by the order of the Cestat the revenue filed the present appeal before Gujarat High court.

Issue: -

Following issue was made:-

Whether the activity carried out by the respondent-assessee amount to manufacture within the meaning of Section 2 (f) of the Central Excise Act, 1944 and attract Section 35 L (b) of the Act?

Assessee’s Contentions:-

The assesse raised the preliminary objection that this appeal will lie before Apex Court as per provision of Section 35 L(B) of the Central Excise Act. The main issue in this appeal is whether the activity undertaken by the respodent amount to manufacture within the meaning of Section 2(f) of Central Excise Act. This issue involves determination of rate of duty or value of duty on goods. This question can be raised before Apex Court and appeal does not lie before this court.

Order of the High Court:-

The Hon’ble High Court held that the present appeal has been raised on the issue that whether the Tribunal committed an error in holding that the process performed on HDPE laminated fabrics namely cutting to size, centre sealing, border sealing, eyeleting, packing, would amount to manufacture under Section 2(f) of the Central Excise Act, 1944. Therefore the appeal would lie before the Supreme Court and not before this court. The respondent placed reliance upon the decision of a Division Bench of this court in case of Commissioner of C. Ex., Hyderabad-IV v/s Shriram Refrigeration Industries [2009 (240) ELT 201]. From this decision, it is clear that appeal which raises question whether the activity carried out by the assessee would amount to manufacture or not, involves determination of a question relating to rate of duty of excise or value of goods for the purpose of assessment. Therefore appeal would lie before the Supreme Court. Hence appeal was dismissed with liberty to appellant revenue to file a proper appeal before the Supreme Court.

Decision of the High Court-

Revenue’s appeal disposed off.

Conclusion:-

This decision has clearly brought out the fact that when the issue involved in the matter is related to rate of duty or value of goods then the appeal lies with Apex Court and not with High Court. But we have seen that the department files appeal with High Court and then goes to Apex Court. When all the learned IRS officers dealing only with excise and customs matter are looking after the same, then why they file the appeal before wrong forum? It was mere wastage time and money of Government as well as of the assessee. They could not understand the same after so many decisions on this topic. There should be procedure for accountability of such officers.

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PJ/CASE STUDY/ 2012-13/23
15 September 2012

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