1984 (6) TMI 232 - AT - Central Excise

Issues Involved:
1. Whether cutting out 'Circles' from duty-paid 'Sheets' constitutes manufacture and attracts excise duty.
2. Applicability of Rule 56A for set-off of duty.
3. Time-barred nature of the show cause notice and adjudication proceedings.
4. Discretion exercised by the Collector in granting Rule 56A benefits.
5. Alleged discrimination in duty realization from the appellants alone.
6. Determination of the applicable rule for limitation (Rule 10 vs Rule 10A).
7. Correct valuation and rates of duty.

Issue-wise Detailed Analysis:

1. Manufacture and Excise Duty on Circles:
The appellants argued that cutting 'Circles' from duty-paid 'Sheets' does not constitute manufacture in the excise sense, as no new class of goods emerged. They relied on several precedents to support their claim that this would amount to double taxation. The respondent countered that cutting circles from sheets does constitute manufacture and the legislature intended to collect duty at the circle stage. The Tribunal, referencing the Supreme Court decision in Union of India v. Hindu undivided family business known as Ramlal Mansukrai, held that the conversion of duty-paid sheets into circles constitutes manufacture and such circles are dutiable unless exempted or set-off is allowed.

2. Applicability of Rule 56A:
The appellants claimed that they should be entitled to set-off under Rule 56A retrospectively. The Tribunal noted that the appellants did not fulfill all the conditions under Rule 56A (2B) and declined to interfere with the discretion exercised by the Collector, who found that the conditions for retrospective application were not met.

3. Time-barred Proceedings:
The appellants argued that the proceedings were time-barred under Section 40(2) of the Central Excises and Salt Act, 1944. The respondent contended that this bar related to legal proceedings in a court of law and was not applicable to departmental proceedings. The Tribunal, agreeing with the respondent, found that the limitation under Rule 10 read with Rule 173-J (one year) was applicable as the appellants were following the Self Removal Procedure. Consequently, the demand was limited to one year from the date of the show cause notice.

4. Discretion by the Collector:
The Tribunal held that it would not interfere with the discretion exercised by the Collector regarding the grant of Rule 56A benefits unless it was shown to be manifestly wrong or perverse. The Collector had found that the conditions for Rule 56A benefits were not met by the appellants.

5. Alleged Discrimination:
The appellants claimed discrimination as no duty was realized from other manufacturers of aluminium circles from duty-paid sheets. The Tribunal stated that it could not order non-realization of duty on this ground and suggested that the appellants could approach the Government under Section 11C(2) of the Act for redressal.

6. Applicable Rule for Limitation:
The Tribunal determined that Rule 10 read with Rule 173-J (one year limitation) was applicable rather than Rule 10A (no limitation), as the activities were conducted with full knowledge of the department and there was no penalty imposed. The demand was thus restricted to the period from 25-11-1975 to 24-11-1976.

7. Correct Valuation and Rates of Duty:
The Tribunal noted that the duty had to be re-worked based on the correct valuation and rates applicable for the period under consideration. The appellants could present their case to the Collector regarding the appropriate duty for the specified period.

Dissenting Judgment:
A dissenting opinion by a Member (Technical) argued that cutting circles from duty-paid sheets does not constitute manufacture and should not attract duty. The dissent emphasized the long-standing practice of not taxing intermediary products and the principle of avoiding double taxation. The dissenting opinion concluded that no duty was leviable on the circles cut from duty-paid sheets and allowed the appeal, setting aside the impugned order.

Conclusion:
The majority decision partially allowed the appeal by restricting the demand to one year from the date of the show cause notice and remanding the case for re-working the duty. The dissenting opinion, however, would have allowed the appeal entirely, holding that no duty was leviable on the circles.

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