2004 (8) TMI 441 - AT - Central Excise

Classification - Jurisdiction - Territorial jurisdiction - Mouldings and skirtings - Use of power - Manufacture - Valuation - Penalty

Issues Involved:
1. Classification of the products as handicrafts.
2. Jurisdiction of the Commissioner of Central Excise, Delhi.
3. Liability of duty on mouldings and skirtings.
4. Duty on repair work versus manufacture.
5. Treatment of sale price as cum-duty price.
6. Imposition of penalties.

Issue-wise Detailed Analysis:

1. Classification of the Products as Handicrafts:
The primary issue was whether the products made by the appellants could be classified as handicrafts, which are exempt from Central Excise duty under Notification No. 76/86-C.E. The appellants argued that their wooden furniture and articles, which included ornamentation and in-lay work, qualified as handicrafts. They relied on the Supreme Court judgment in the case of Louis Shoppe, which laid down that for an item to be considered a handicraft, it must be predominantly made by hand and graced with visual appeal through ornamentation or in-lay work. However, the Tribunal found that the appellants failed to prove that the ornamentation was of a substantial nature. The Commissioner had already determined that the furniture did not meet the criteria for handicrafts, and the Tribunal upheld this finding, concluding that the products were wooden furniture liable to Central Excise duty.

2. Jurisdiction of the Commissioner of Central Excise, Delhi:
The appellants contended that the Commissioner of Central Excise, Delhi, lacked jurisdiction to demand duty for furniture manufactured at sites outside Delhi, specifically in Calicut and Cochin. The Tribunal acknowledged the general principle that duty cannot be demanded by a Commissioner outside their jurisdiction. However, the appellants failed to prove that the furniture was manufactured at the respective sites. The Tribunal agreed with the Commissioner's finding that the furniture was cleared from the appellants' factory within the jurisdiction of Delhi Commissionerate in SKD or CKD condition.

3. Liability of Duty on Mouldings and Skirtings:
The appellants claimed that mouldings and skirtings, which are classifiable under Heading 44.05, attracted nil duty as they were made manually without the aid of power. However, the Tribunal found that the initial process of cutting logs into sizes involved the use of power, making the products liable to duty. The Tribunal referenced the Supreme Court's decision in Standard Fireworks Industries, which held that the use of power in any part of the manufacturing process attracts duty.

4. Duty on Repair Work versus Manufacture:
The appellants argued that certain charges related to modification work, such as increasing the width of filing racks, did not constitute manufacture. The Tribunal agreed that the modification work did not amount to manufacture as no new product came into existence. However, they upheld the duty demand on a bill for making partitions and overheads, which the appellants did not contest.

5. Treatment of Sale Price as Cum-duty Price:
The appellants requested that if duty was payable, the sale price should be considered as cum-duty price, allowing for abatement. The Tribunal agreed, referencing the Larger Bench decision in Srichakra Tyres and the Supreme Court's ruling in Maruti Udyog Ltd., and remanded the matter to the Adjudicating Authority to re-compute the duty.

6. Imposition of Penalties:
The Tribunal considered whether penalties were justifiable. The appellants argued they were under a bona fide belief that their products were exempt. However, the Tribunal noted instances where the appellants collected duty from customers but did not remit it to the government. While penalties were deemed appropriate, the Tribunal found the imposed penalties excessive and reduced the penalty on the main appellant to Rs. 50,000. Penalties on the other appellants were set aside as the Revenue did not establish a case against them.

Conclusion:
The appeals were disposed of with the Tribunal upholding the duty demands on the grounds that the products were not handicrafts and were manufactured using power. The Tribunal also ordered a re-computation of duty considering the sale price as cum-duty price and reduced the penalties imposed.

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