1999 (3) TMI 574 - AT - Central Excise

Manufacture - Paper - Carbon paper - Excisability vis-a-vis manufacture - Classification of goods - Exemption - Modvat/ Cenvat - Demand - Limitation -Penalty - Quantum

Summary

Issues Involved:
1. Dutiability of carbon paper.
2. Dutiability of typewriter/telex ribbons.
3. Limitation period for duty demands.
4. Availability of Modvat credit.
5. Imposition of penalties.

Issue-wise Analysis:

1. Dutiability of Carbon Paper:
The appellants argued that the process of cutting larger carbon paper sheets into smaller sizes (fullscape) does not amount to manufacture under Central Excise law. They cited various case laws to support their claim that mere cutting and packing do not constitute manufacturing. The Tribunal agreed, noting that the carbon paper remains fundamentally the same product despite the reduction in size. The Tribunal emphasized that the mere change in dimensions does not create a new product with a distinct identity. Hence, the carbon paper in fullscape size does not attract excise duty under sub-heading 48.16.

2. Dutiability of Typewriter/Telex Ribbons:
The Tribunal found that the process of cutting jumbo reels of ribbons into smaller lengths and spooling them for specific typewriter models does amount to manufacture. This is because the jumbo reels are not marketable as typewriter/telex ribbons until they are cut and spooled. The Tribunal applied the ratio of the Dipen Textiles case, which held that converting jumbo reels into smaller, marketable units constitutes manufacturing. Therefore, the typewriter/telex ribbons on spools are dutiable under sub-heading 96.12.

3. Limitation Period for Duty Demands:
The appellants contended that the demands were time-barred as the show cause notice was issued after the normal period of six months. The Tribunal rejected this argument, noting that the appellants had not informed the department about their manufacturing activities, constituting a contravention of Rule 9(1) with an intent to evade duty. Thus, the extended period under Section 11A proviso was applicable, and the demands were not time-barred.

4. Availability of Modvat Credit:
The appellants claimed Modvat credit for the duty paid on inputs used in manufacturing. However, the Tribunal found that they failed to produce the necessary duty-paying documents for the jumbo reels received at their Madras unit. Consequently, the Tribunal agreed with the Collector's decision that Modvat credit was not available to the appellants.

5. Imposition of Penalties:
Considering the findings, the Tribunal decided to reduce the penalties imposed. The original penalty was Rs. 30 lakhs, but the Tribunal reduced it to Rs. 5 lakhs, taking into account that the major portion of the duty demand related to carbon paper, which was not dutiable.

Conclusion:
The Tribunal partially allowed the appeal, confirming the duty demand on typewriter/telex ribbons and denying the Modvat credit claim. The penalties were reduced, and the appeal succeeded partially with consequential relief as per law.