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Ess Ess Metals & Electricals Vs. CCE, Delhi-II - (Customs, Excise and Service Tax Appellate Tribunal) (07 Jun 2017)

Demand cannot be sustained unless all relied documents have been furnished to Appellant to enable them to defend themselves



Appellant is engaged in manufacture of brass, zinc, nickel, tin and lead alloys falling under Tariff Subheading 74.03 of 1st schedule to Central Excise Tariff Act, 1985. Dispute pertains to the period 1st April, 1987 to 31st March, 1990. Show cause notice was issued for demand of Central Excise Duty amounting to Rs. 49,83,736/- along with a proposal for imposition of penalties under various rules as well as a proposal for confiscation of land, building, plant and machinery used in manufacture of excisable goods. Appellant was not discharging Central excise duty payable on goods viz. alloys of various nonferrous metals, by taking the view that, these metals as well as metal alloys remained classified in same tariff heading up to 13.5.1988 and hence, there can be no manufacture in conversion of metal into metal alloys. Revenue was of view that, conversion of non-ferrous metals into metal alloys would amount to manufacture in terms of Section 2(f) of Central Excise Act, 1944 both prior to 13th May, 1988 as well as for period subsequent thereto. Case was initially adjudicated by Commissioner in which Central excise duty demands stand confirmed. Impugned order stands passed by Commissioner in de novo proceedings in which duty demand as proposed in show cause notice stands confirmed along with penalty of Rs. 50 lakh under Rule 173Q.

Expression "manufacture" defined in Clause (f) of Section 2 of Act, includes any process incidental or ancillary to completion of a manufactured product; which is specified in relation to any goods in Section or Chapter notes of Schedule to Central Excise Tariff Act, 1985 as amounting to manufacture, and word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in production or manufacture of excisable, goods, but also any person who engages in their production or manufacture on his own account. It is thus clear that, "manufacture" includes any process under Section 2(f) of Act. As observed by this Court before more than four decades in Union of India & Another v. Delhi Cloth & General Mills Co. Ltd. & Ors., word "manufacture" is a verb which is generally understood to mean as "bringing into existence a new substance" and does not mean merely "to produce some change in a substance, however minor in consequence the change may be".

In Empire Industries Ltd. v. Union of India, it was held that taxable event under Excise Law is "manufacture". The moment there is transformation into a new commodity commercially distinct and separate commodity having its own character and name, whether be it the result of one process or several processes, "manufacture" takes place and liability to excise duty under Section 4 is attracted. In light of decision of Apex Court, there is no scope for argument that conversion of metal into alloys does not amount to manufacture. Central Excise duty is liable to be paid on finished product cleared from Appellant's factory.

It is a settled position of law that, demand cannot be sustained unless all relied upon documents have been furnished to Appellant to enable them to defend themselves fairly. Consequently, wherever relied upon documents have not been supplied to Appellant, demand of excise duty is liable to be set-aside. For this purpose, matter remanded to original adjudicating authority who will re-compute demand after excluding demands attributable to documents whose copies have not been made available to Appellant. On question of eligibility of Modvat credit, Apex Court's decision clearly lays down that, assessee will be entitled to Modvat benefits, if otherwise eligible. In de novo proceedings, adjudicating authority will extend benefit of Modvat credits subject to satisfaction of conditions to be fulfilled by Appellant in this regard. Appellant should be given an opportunity for putting forth their claim for Modvat credit supported by necessary documents. Similarly, benefit of SSI notification will also be allowed subject to fulfilling conditions specified therein. Charge of manufacture s upheld and matter remanded to adjudicating authority for re-quantification of demand.

Relevant : Union of India & Another v. Delhi Cloth & General Mills Co. Ltd. & Ors., MANU/SC/0245/1962: (1963) Supp (1) SCR 586 : AIR 1963 SC 791, Empire Industries Ltd. v. Union of India, MANU/SC/0186/1985: (1985) 3 SCC 314


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