2016 (10) TMI 274 - HC - Central Excise

Manufacture - change in tariff heading after processing - activities for processing TMT coils into TMT bars/rods after de-coiling, straightening and cutting into size - Held that - no error has been committed by the Customs, Excise and Service Tax Appellate Tribunal - conversion of TMT coils into TMT bars and TMT rods is not manufacturing at all, even if, these two items are mentioned under different Sub-Headings of the Central Excise Tariff Act, 1985 - merely because there is value addition, it does not mean that manufacture has taken place. Whether the activities for processing TMT coils into TMT bars / rods after de-coiling, straightening and cutting into size amounts to manufacturing process - Held that - to ascertain as to whether the manufacturing process has taken place or not, a test is to be applied, whether change or series of changes take the commodity to a point where commercially it can no longer be regarded as the original commodity, but, instead is recognized as a new and distinct article that has emerged as a result of processes then a manufacture can be said to have taken place. This is the test to be applied for arriving at a conclusion whether the process applied upon the product amounts to manufacturing or not. It has been held by the Hon ble Delhi High Court in the case of Faridabad Iron & Steel Trader Association Vs. Union of India 2003 (11) TMI 107 - HIGH COURT OF DELHI that while examining justifiability of Excise Duty we must clearly comprehend that Excise Duty can be imposed on the manufacture of goods produced in India and that also on the bringing into existence a new substances known to the market. In view of the settled position of law crystallized by the various judgments, we have no difficulty in clearly arriving at the conclusion that mere cutting or slitting of steel sheets does not amount to manufacture because the identity of the product remains unchanged. The steel folded in coil remains steel even after cutting. No new, different and distinct article emerges having distinct name, character and use. Therefore, mere cutting and slitting would not amount to manufacture. We are also clearly of the view that merely because of change in tariff item, the good does not become excisable. Therefore, by following the same, the activities for processing TMT coils into TMT bars / rods after de-coiling, straightening and cutting into size does not amounts to manufacturing process. - Decided against the Revenue

Summary

Issues Involved:
1. Whether the activities for processing TMT coils into TMT bars/rods after de-coiling, straightening, and cutting into size are identical to the activity in the case of M/s Faridabad Iron & Steel Traders Association Vs. Union of India?
2. Whether the activities for processing TMT coils into TMT bars/rods after de-coiling, straightening, and cutting into size amounts to manufacturing process?

Issue-wise Detailed Analysis:

1. Identical Activities to Faridabad Iron & Steel Traders Association Case:
The appellant argued that the activities of processing TMT coils into TMT bars/rods are identical to the case of M/s Faridabad Iron & Steel Traders Association Vs. Union of India. The Tribunal held that the activities of de-coiling, straightening, and cutting TMT coils into bars/rods do not amount to manufacturing. The respondents contended that no new article is manufactured as TMT coils are merely de-coiled, straightened, and cut for easy transportation and use, retaining their original identity. The Tribunal agreed with the respondents, citing several Supreme Court decisions that mere cutting or slitting does not amount to manufacturing as no new, distinct, and commercially different article emerges.

2. Manufacturing Process:
The appellant claimed that converting TMT coils into TMT bars/rods involves a manufacturing process, resulting in a new, distinct, and marketable product. They argued that the process includes de-coiling, straightening, and cutting into sizes, which adds substantial value to the product, classifiable under different sub-headings of the Central Excise Tariff Act. The respondents countered that the process does not result in a new commercial product; TMT coils remain essentially the same after processing. The Tribunal, supported by multiple judicial precedents, concluded that the activities do not constitute manufacturing as the end product retains the essential characteristics of the raw material.

Definition and Concept of Manufacture:
Section 2(f) of the Central Excise Act, 1944, defines "manufacture" and includes processes incidental or ancillary to the completion of a manufactured product or specified in the section or Chapter notes of the Central Excise Tariff Act, 1985. The Tribunal referred to several Supreme Court judgments, emphasizing that for a process to amount to manufacturing, it must produce a new, distinct article with a different name, character, or use. The Tribunal found that the process applied to TMT coils does not result in a new and distinct article.

Value Addition:
The appellant argued that the value addition in TMT bars/rods indicates manufacturing. The Tribunal, however, held that value addition alone does not constitute manufacturing if the end product retains the original identity of the raw material. The Supreme Court has consistently ruled that mere value addition, without a change in the essential character of the product, does not amount to manufacturing.

Different Tariff Entries:
The appellant contended that different tariff entries for TMT coils and TMT bars/rods imply manufacturing. The Tribunal disagreed, stating that different tariff entries do not automatically mean manufacturing has occurred. The Supreme Court has ruled that classification under different tariff headings does not constitute manufacturing unless a new, distinct, and marketable product is produced.

Conclusion:
The Tribunal concluded that the activities of de-coiling, straightening, and cutting TMT coils into TMT bars/rods do not amount to manufacturing. The Tribunal's decision was based on the definition of manufacturing, judicial precedents, and the fact that the end product retains the essential characteristics of the raw material. The appeals were dismissed, affirming the Tribunal's decision.