2017 (1) TMI 541 - AT - Central Excise

Manufacture - process of tinting - CBEC Circular dated 3.10.96 - suppression of facts - extended period of limitation - Held that - The process of tinting of base paint is not a new process in the industry. CBEC has taken the view in 1996 that such process cannot be considered to be process of manufacture. However, this view merits revision amendment of Section 2(f). The appellant have entertained a bona fide view that process of tinting may not be liable to excise duty in the light of long standing practice in the industry and CBEC clarification. It is also to be noted that the demands in the present case have been made for the period immediately after the amendment of Section 2(f). As such, we are of the view that the allegation of suppression made against the appellant cannot be sustained. Consequently, there can be no demand of excise duty beyond the normal period of limitation sanctioned by the Section 11A - the demand beyond the normal period of limitation set aside - the original adjudicating authority directed to re-quantify the demand - penalty set aside - appeal allowed - matter on remand.

Summary

Issues:
1. Whether the process of tinting amounts to manufacture under the Central Excise Act.
2. Whether the appellant is liable to pay excise duty for the process of tinting carried out at their depot.
3. Whether the appellant can be penalized for the alleged suppression of facts.

Analysis:
1. The appellant, a manufacturer of paints, tinted duty paid goods at their depot to obtain desired shades. The department claimed this process amounted to manufacture, thus attracting excise duty. The appellant argued that tinting did not change the nature of the goods, citing a CBEC Circular from 1996. However, post-amendment to Section 2(f) of the Central Excise Act, the definition of manufacture now includes activities like repacking and labeling to make goods marketable. The tribunal held that tinting for marketability constituted manufacture, upholding the lower authorities' decision.

2. The tribunal noted that the appellant's tinting process aligned with the amended definition of manufacture, making the goods marketable to consumers. While the appellant contended that the goods were sold to dealers, not end-users, the tribunal emphasized that any treatment to enhance marketability qualified as manufacture. The tribunal differentiated a previous Supreme Court ruling on marketability, stating it did not apply to the current case. Consequently, the orders confirming excise duty demand were upheld.

3. Regarding the alleged suppression of facts, the tribunal considered the appellant's reliance on the industry practice and the 1996 CBEC Circular, which was later affected by the statutory amendment. Given the appellant's genuine belief in the non-liability of tinting for excise duty, the tribunal ruled out any penalty imposition. The tribunal also limited the excise duty demand within the statutory period of limitation, directing a re-quantification by the adjudicating authority. Ultimately, the appeal was disposed of without imposing any penalties.