2016 (4) TMI 602 - AT - Central Excise

Manufacture - application of processes of crushing, grinding, washing, grading etc. to Iron Ores - whether the processes of crushing, grinding, screening, grading etc. resulted into manufacture as defined under Sec2(f)(i) of CEA,1944 as no new commercial commodity came into existence as a result of such process? - Held that - It is relevant to adopt the meaning of concentration and Levy of royalty under the Mines and Minerals(Regulation and Development Act),1957 and the Rules made thereunder to arrive at the conclusion that processes resulted into manufacture and the resultant product is iron Ore concentrate and chargeable duty. On the contrary, it is safe and prudent to look into the meaning of the concentrate in the HSN than to Mines and Minerals(Regulation and Development Act),1957 and the Rules made thereunder in view of the principle laid down by the Hon ble Supreme Court in a catena of cases including in the case of Commissioner of Customs & Central Excise, Goa vs. Phill Corporation Ltd. (2008 (2) TMI 3 - Supreme Court of India) that for classification of the manufactured goods, HSN is a safe guide. Therefore, since the processes undertaken by the appellant on ores, and the resultant satisfies the meaning of concentrate as explained in the HSN, hence in our considered opinion, it should be considered as manufacture as per Sec.2(f)(ii) of CEA,1944 in view of the chapter note 2 of Chapter 26 of CETA,1985 and the resultant Iron Ore concentrate is dutiable. There is a significant difference between clause(i) and clause(ii) of the definition of manufacture laid down under sec.2(f) of CEA,1944. The processes which are considered not manufacture in the ordinary sense under clause (i), if mentioned in the relevant Section or chapters of CETA,1985 as amounting to manufacture, such processes will fall under the definition of manufacture . The broad and detail tariff entry has been introduced with effect from 2005-06 classifying ores having different Fe content assigning different sub-headings. Therefore, in absence of an increase in the Fe content by benefication or any other method, if there cannot be a manufacturing process, the chapter note 4 inserted with effect from 01.3. 2011 defeat the very purposes and becomes otiose. Such a situation, in our opinion, cannot be the intention of the legislature. Therefore, in our considered opinion application of processes of crushing, grinding, screening and washing and grading of iron ore, converts it into iron ore concentrates and accordingly in view of the chapter note 4 of chapter 26 becomes manufacture and leviable to Excise duty.

Summary

Issues Involved:
1. Whether the processes of crushing, grinding, screening, and washing of iron ore result in the manufacture of iron ore concentrates under Chapter Note 4 to Chapter 26 of CETA, 1985.
2. Eligibility of exemption under Notification No. 63/95-CE dated 16.03.1995.
3. Imposition of penalty under Section 11AC of CEA, 1944.

Issue-wise Detailed Analysis:

1. Manufacture of Iron Ore Concentrates:
The principal issue addressed was whether the processes of crushing, grinding, screening, and washing of iron ores result in the manufacture of iron ore concentrates under Chapter Note 4 to Chapter 26 of CETA, 1985, and are thus leviable to duty under tariff sub-heading 26011150 of CETA, 1985. The Tribunal analyzed the processes undertaken by the appellants and referred to various judgments, including Indian Rare Earth Ltd. and SAIL, which held that such processes do not amount to manufacture as no new commercial commodity with a distinct name, character, and use emerged. However, with the insertion of Chapter Note 4 to Chapter 26, a legal fiction was created, treating the conversion of ores into concentrates as manufacture. The Tribunal concluded that the processes of crushing, grinding, screening, and washing of iron ore convert it into iron ore concentrates, thus amounting to manufacture and making it leviable to excise duty.

2. Eligibility of Exemption under Notification No. 63/95-CE:
The appellants argued that the processes carried out within the mines should be exempt under Notification No. 63/95-CE dated 16.03.1995. The Tribunal noted that this issue was not raised before the adjudicating authority and thus remanded the matter to the adjudicating Commissioner to examine the eligibility for the exemption.

3. Imposition of Penalty:
The Tribunal found that since the issue involved an interpretation of law and the demands were for the normal period, the imposition of penalty under Section 11AC of CEA, 1944, was unjustified and unwarranted. Therefore, the penalties imposed on the appellants were set aside.

Conclusion:
The Tribunal held that the processes of crushing, grinding, screening, and washing of iron ore result in the manufacture of iron ore concentrates under Chapter Note 4 to Chapter 26 of CETA, 1985, and are dutiable. The eligibility for exemption under Notification No. 63/95-CE was to be examined by the adjudicating authority. The imposition of penalties was deemed unjustified and was set aside. The appeals were partly allowed, and the matters were remanded for further examination of the exemption eligibility.