2010 (5) TMI 467 - AT - Central Excise

Appeal - whether the process of larger diameter to lesser diameter and lacquering same with enamel amounts to the manufacture or not If such an issue can be considered on the basis of the materials already on record, there can be no difficulty in allowing the appellants to raise the additional ground - application seeking to raise the additional ground is allowed. the fact remains that the charge against the appellants was that of clandestine removal of the goods. Undoubtedly, the burden in this regard primarily rested upon the department. It is also not in dispute that the department did discharge the burden by referring to the difference in the weight of the inputs and that of the final product. However, one cannot forget that the process of manufacturing involved drawing of the wire from thicker to thinner diameter and thereafter the process of lacquering with enamel. The technical opinion clearly revealed that such process involves atleast 6% of loss in weight. We do not find any material having been placed by the Department to dispute the correctness of the said technical opinion. - Matter remanded for limited purpose to adjudicating authority to decide the liability of the appellants bearing in mind the loss factor to be calculated based on whatever materials available on record.

Summary

Issues Involved:
1. Whether the process undertaken by the appellants amounts to "manufacture" under the Central Excise Act, 1944.
2. Whether the appellants can raise additional grounds in the appeal.
3. Evaluation of the quantification of duty liability and the allegation of clandestine removal of goods.

Detailed Analysis:

1. Whether the process undertaken by the appellants amounts to "manufacture" under the Central Excise Act, 1944:

The appellants contended that their process of drawing wires from wire rods and lacquering them with enamel does not amount to "manufacture" as per the Central Excise Act, 1944. They argued that the product remains essentially the same, merely reduced in gauge. They cited the Supreme Court's decision in *Technoweld Industries* and *Metlex (I) Pvt. Ltd.*, which held that such processes do not result in a new product with a distinct identity.

The respondent countered that the process described by the appellants, which includes heating and lacquering with enamel, results in a commercially different product. The Tribunal noted that the law requires a process to result in a new, distinct commercial commodity to be considered "manufacture." The Tribunal referred to *Union of India & Others v. J.G. Glass Industries Ltd. & Others* and *Empire Industries Ltd. & Others v. Union of India & Others*, emphasizing that a new product with a distinct identity and commercial value must emerge from the process.

The Tribunal concluded that the combined process of drawing wire and lacquering with enamel results in a distinct product suitable for commercial purposes, thus amounting to "manufacture" under the Act. Therefore, the appellants' challenge on this ground was not sustained.

2. Whether the appellants can raise additional grounds in the appeal:

The appellants sought to introduce an additional ground, arguing that their process does not amount to "manufacture." They cited the Supreme Court's decision in *Technoweld Industries*, which was delivered after the proceedings before the lower authorities. The respondent opposed this, citing *Metlex (I) Pvt. Ltd. v. Commissioner of C. Ex. New Delhi* and *Bharatbhai B. Gala v. Commissioner of C. Ex. Ahmedabad-I*, arguing that the process resulted in a commercially different product.

The Tribunal allowed the appellants to raise the additional ground, stating that the issue goes to the root of the matter and can be decided based on existing records without needing additional facts. Thus, the miscellaneous application to raise the additional ground was allowed.

3. Evaluation of the quantification of duty liability and the allegation of clandestine removal of goods:

The appellants contested the quantification of duty liability, arguing that the authorities ignored the loss of raw material during the manufacturing process. They cited technical literature indicating a 6% loss in weight during the process. The adjudicating authority and the Commissioner (Appeals) based their conclusions on the difference in weight between the raw material and the final product, without considering the loss factor or scrap generated during the process.

The Tribunal noted that the burden of proving clandestine removal rested on the department, which had relied on the weight difference. However, the technical opinion indicating a 6% loss in weight was not disputed by the department, nor was it considered by the authorities in their quantification. The Tribunal found that the authorities failed to account for the loss factor and scrap, which was recorded in the RG-I register.

The Tribunal remanded the matter to the adjudicating authority to reassess the duty liability, taking into account the loss factor and scrap. The adjudicating authority was directed to complete this exercise expeditiously and by 31-12-2010, after hearing both parties.

Conclusion:

The appeal was partly allowed, permitting the appellants to raise additional grounds and remanding the matter to the adjudicating authority for reassessment of duty liability, considering the loss factor and scrap. The Tribunal emphasized the need for a thorough evaluation of all relevant materials on record.