2015 (3) TMI 784 - SC - Central Excise

Demand of differential duty - clearance of goods after processing but as such - reversal of credit - activity is amount to manufacture or not - purchase of bumpers, grills, etc., on which the process of Electro Deposition anti-rust so that the shelf life of the said bumpers, grills, etc., would be generally increased) - Held that - Appellants purchase inputs, avail MODVAT Credit of duty paid thereon subject them to the process of E.D. Coating and remove the same on payment of duty equivalent to the amount of MODVAT Credit availed by them initially at the time of receipt of the inputs. It is thus apparent that the inputs are removed from the factory after undertaking the process of E.D. Coating. In view of this the ratio of the decision of the Larger Bench in the case of Commissioner of Central Excise, Vadodra v. Aisa Brown Boveri Ltd., 2000 (120) ELT 228 is not applicable as the facts are different in as much as the inputs were cleared as such in the said matter. It has been emphasized by the learned counsel for the appellants that words as such were not mentioned in Rule 57-F at the relevant time. In our view the absence of these words does not make any difference as Rule 57-F of the Central Excise Rules deals with the Manner of Utilization of Inputs and the Credit . It is clear that bumpers and grills are most certainly of commercial use in themselves whether the process of ED coating is applied or not. Importantly, this Court laid down that value addition without any change in name, character or end use of goods cannot possibly constitute criteria to decide as to what is manufacture. - Court would be adding words to Rule 57F(1) to the effect that value additions made to inputs covered by sub-rule (ii) would also suffer duty even if there is no manufacture. Second, sub-rule (3) and (3A) apply to an entirely different factual scenario, as has been conceded by learned counsel for Revenue, and it is only after all the conditions under the said sub-rules are met that duty attributable to inputs contained in partially processed inputs would then become dutiable - Impugned order set aside - Decided in favour of assessee.

Issues Involved:
1. Whether the process of Electro Deposition (ED) coating constitutes "manufacture" under Central Excise law.
2. Whether duty is payable on the value addition resulting from the ED coating process.
3. Interpretation of Rule 57F of the Central Excise Rules, 1944, regarding the removal of inputs after partial processing.
4. Applicability of Rule 57F(3) and Rule 57F(3A) to the case.

Detailed Analysis:

Issue 1: Whether the process of Electro Deposition (ED) coating constitutes "manufacture" under Central Excise law.

The appellant argued that the process of ED coating applied to bumpers, grills, etc., did not result in "manufacture" as it did not bring into being a new marketable commodity. The bumpers and grills remained the same even after the ED coating. The court referred to the Union of India v. Delhi Cloth and General Mills Co. Ltd. judgment, which distinguished between manufacture and processing, stating that only such processing that results in a transformation, where a new and different article emerges having a distinct name, character, or use, can be considered as manufacture. The court concluded that ED coating, which merely increased the shelf life and provided anti-rust treatment, did not convert bumpers and grills into a new commodity known to the market.

Issue 2: Whether duty is payable on the value addition resulting from the ED coating process.

The respondent argued that the value addition due to the ED coating process should be subject to duty. However, the court held that value addition without any change in name, character, or end-use of goods does not constitute manufacture. The court cited the S.R. Tissues Pvt. Ltd. case, which stated that value addition based on price difference alone, without any change in the nature or characteristics of the product, cannot be a criterion to decide what constitutes manufacture. Therefore, the court concluded that the inputs (bumpers, grills, etc.) remained the same inputs even after ED coating, and duty should only be paid on the amount of credit availed in respect of such inputs under Rule 57A.

Issue 3: Interpretation of Rule 57F of the Central Excise Rules, 1944, regarding the removal of inputs after partial processing.

The court examined the provisions of Rule 57F as it existed in three different periods. It noted that the rule allowed inputs on which credit had been taken to be used in the manufacture of final products or removed for home consumption or export under bond. The proviso to Rule 57F(1) and subsequently Sub-rule (3) of Rule 57F provided that where the inputs are removed for home consumption on payment of duty, such duty of excise shall be the amount of credit that has been availed in respect of such inputs. The court found that the rule applied to the inputs as such, and mere reversal of the MODVAT Credit availed in respect of those inputs would not be payment of appropriate amount of duty. The duty of excise had to be discharged on the intrinsic value of the goods.

Issue 4: Applicability of Rule 57F(3) and Rule 57F(3A) to the case.

The respondent argued that Rule 57F(3) and Rule 57F(3A) indicated that value addition to an input would be liable to duty. However, the court held that these sub-rules applied to an entirely different factual scenario and that it would be inappropriate to add words to Rule 57F(1) to imply that value additions made to inputs would suffer duty even if there is no manufacture. The court emphasized that sub-rules (3) and (3A) apply only after all the conditions under the said sub-rules are met.

Conclusion:

The court allowed the appeal, set aside the judgment of CEGAT, and annulled the demand made in the show cause notice as reduced by the Commissioner. The penalty imposed on the appellant was already set aside by CEGAT's order, which the court upheld. The appeal was disposed of in these terms.

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