2012 (1) TMI 156 - AT - Central Excise

Summary

Issues involved:
The issues involved in the judgment include availing small-scale exemption, non-inclusion of certain items in exemption limit, duty payment, manufacturing process, dilution of raw materials, dutiable products, penalty imposition, and re-quantification of clearances.

Small-Scale Exemption and Duty Payment:
During the specified period, the appellants availed small-scale exemption but did not include the clearance figures of 'Tasopal-30', 'Tasopal-100', and 'Carewet-(o)' in the exemption limit calculation nor paid duty on these items. The department contended that duty should have been paid on these items and their value included in the exemption limit, leading to a demand for differential duty and penal action. The lower appellate authority held that the products were manufactured and dutiable, not merely a result of dilution.

Manufacturing Process and Dilution Argument:
The advocate for the appellants argued that the items were produced by diluting the principal raw material NP 100 and thus not involving manufacturing. Referring to legal precedents, the advocate contended that dilution does not constitute manufacturing of a new product. However, the department supported the view that the items were manufactured as they were sold under separate names in the market.

Judgment and Re-Quantification:
After considering both sides, it was found that 'Tasopal-30' and 'Carewet (o)' involved additional ingredients beyond NP 100, making them distinct products. 'Tasopal-100', on the other hand, was considered a result of mere dilution and not a manufactured product. The clearances of 'Tasopal-30' and 'Carewet (o)' were deemed dutiable, requiring re-quantification of duty demand and penalty imposition. The matter was remanded for reworking the duty demand and penalty under the relevant rules.

Penalty Imposition and Remand:
While penalty under Section 11AC could not be imposed for the relevant period, a penalty under Rule 173Q of the erstwhile Central Excise Rules, 1944 could be considered. The impugned order was set aside, and the matter was remanded to the original authority for re-quantification, providing the appellants with a hearing opportunity before passing a fresh order.

Conclusion:
The appeals were allowed by way of a limited remand, emphasizing the need for re-quantification based on the findings regarding the manufacturing process and dutiability of the items in question.