2009 (11) TMI 28 - AAR - Central Excise

Deemed Manufacture - Whether the activity of cutting specified varieties of cables received by the applicant into prescribed lengths, testing thereof and packaging amounts to manufacture in terms of clause (f) of section 2 of the Central Excise Act, 1944 read with note 6 of Section XVI of the First Schedule to the Central Excise Tariff Act, 1985 held that no the activity does not amount to be a manufacturing activity.

Issues Involved:
1. Whether the activity of cutting specified varieties of cables into prescribed lengths, testing, and packaging amounts to "manufacture" under the Central Excise Act, 1944.

Detailed Analysis:

Issue 1: Definition of "Manufacture"
The primary issue is whether the activities proposed by the applicant-cutting, testing, and packaging electrical cables-constitute "manufacture" under clause (f) of Section 2 of the Central Excise Act, 1944, read with Note 6 of Section XVI of the First Schedule to the Central Excise Tariff Act, 1985.

Applicant's Argument:
The applicant contends that converting "incomplete or unfinished cable (from running length) to complete or finished cable (cut into desired length)" amounts to "manufacture" as per Note 6 of Section XVI. They cite the Supreme Court's judgment in Kores India Ltd. vs. Commissioner of Central Excise, Chennai, where the conversion of jumbo rolls of typewriter/telex ribbons into standard lengths was deemed "manufacture."

Revenue's Argument:
The Commissioner of Central Excise initially agreed that the activity falls under Note 6 of Section XVI and amounts to manufacture. However, they later clarified that no material was provided to ascertain whether the cables in running length are incomplete/unfinished. During oral hearings, the Revenue stated that mere cutting, testing, and packing do not amount to manufacture.

Legal Framework:
Clause (f) of Section 2 of the Central Excise Act, 1944, defines "manufacture" to include processes incidental or ancillary to the completion of a manufactured product, specified processes in the Section or Chapter notes, and activities like packing or repacking that render the product marketable.

Analysis of Case Law:
Several judgments were considered to determine if the activities amount to manufacture:
1. SR Tissues Pvt. Ltd. Case: The Supreme Court held that slitting/cutting jumbo rolls of tissue paper into smaller sizes does not amount to manufacture as the product's characteristics remain unchanged.
2. Computer Graphics Pvt. Ltd. Case: The Madras High Court ruled that cutting jumbo rolls of graphic art films into sheets does not amount to manufacture.
3. Birla 3M Case: CESTAT Bangalore held that cutting abrasive sheets into smaller pads does not change the product's character and hence is not manufacture.
4. EPC Irrigation Ltd. Case: CESTAT Mumbai ruled that cutting pipes to required lengths does not amount to manufacture.
5. Bakelite Hylam Ltd. Case: The Supreme Court held that mere cutting or punching holes in industrial laminates does not amount to manufacture.
6. Kores India Ltd. Case: The Supreme Court held that converting jumbo rolls of typewriter/telex ribbons into spooled ribbons amounts to manufacture, but this case is distinguished due to the specific requirements of the typewriter ribbons.

Application of Note 6 to Section XVI:
Note 6 to Section XVI states that converting an incomplete or unfinished article into a complete or finished article amounts to manufacture. The applicant argued that cables in running length are incomplete/unfinished and need to be cut into standard lengths for sale. However, the judgment concluded that running length cables are not incomplete or unfinished as they can be further reduced by customers to suit specific needs. Thus, Note 6 does not apply.

Conclusion:
The Authority ruled that the activity of cutting, testing, and packaging electrical cables does not amount to "manufacture" under the Central Excise Law. The cables' character, use, and name remain unchanged, and they do not transform into a new commercial commodity. The ruling was pronounced on the 19th day of November, 2009.

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