2018 (6) TMI 434 - AT - Central Excise

Clandestine removal - process amounting to manufacture or not? - activity of redrawing of duty paid SS wire rods and copper/brass tubes/pipes - Revenue alleged that the process of drawing or redrawing amounts to manufacture in terms of Section note 10 to Section XV and Section note 2 to Chapter 74 - benefit of SSI Exemption - extended period of limitation. Whether the process undertaken by the appellant amounts to manufacture insofar as the final product manufactured by them is wire in coil or otherwise? - Held that - It is seen that to qualify as manufacturer in terms of section note, the final product in the shape of wire has to come into existence. In respect of goods of Chapter 74 and in terms of Chapter Note 2 to Chapter 74, the process of drawing or redrawing itself amount to manufacture - It is seen from the impugned order that the appellant had five redrawing machine, one weighing machine of small capacity, grinding machines, one lathe machine, small cutting machine and three drums for pickling - since there is no coiling machine, the question of making coils does not arise. SSI exemption - rejection on account of failure to file declaration - Whether the appellant is entitled to the benefit of small scale exemption in absence of a formal declaration under N/N. 8/2003? - Held that - n case of Notification No.8/2003, the filing of declaration is not a mandatory pre-requisite and is more of a procedural nature. Thus it is held that the benefit of small scale notification cannot be denied merely for the failure of the appellant to file the said declaration - benefit of SSI Exemption allowed. Validity of the LRs recovered from various transporters as evidence against the appellant - If the quantum allegedly received by the appellant on the strength of the LRs recovered from the transporters and other third parties is correct or otherwise? - Held that - It is seen that the addresses appearing in LR could not be verified as some of the addresses were non-existent or bogus - decided against appellant. If the value of goods declared by the appellant is correct or otherwise? - Held that - As per the statement of Shri Sabir Kadir Khan, manager of the said Services, the said Shri Sabir Kadir Khan also deposed that the said goods were cleared by the appellant without accounting for or making any supporting delivery challan - decided against appellant. Appeal disposed off.

Issues Involved:
1. Whether the process undertaken by the appellant amounts to manufacture.
2. Whether the appellant is entitled to the benefit of small-scale exemption in the absence of a formal declaration.
3. Validity of the LRs (Lorry Receipts) recovered from various transporters as evidence against the appellant.
4. Correctness of the value of goods declared by the appellant.

Issue-wise Detailed Analysis:

1. Whether the process undertaken by the appellant amounts to manufacture:
The appellant was engaged in redrawing duty-paid SS wire rods and copper/brass tubes/pipes. Revenue officers alleged that the process of drawing or redrawing amounts to manufacture as per Section Note 10 to Section XV and Section Note 2 to Chapter 74. The appellant argued that their final product was not "wire" as defined in Note 1(o) of Chapter 72, which specifies that only products in coil form can be considered as wire. The appellant claimed they did not possess coiling machinery, and thus, no wire in coil form was produced. The Tribunal found substantial force in the appellant's argument, noting the absence of evidence that the product cleared was in coil form. Consequently, the process of drawing/redrawing did not amount to manufacture.

2. Whether the appellant is entitled to the benefit of small-scale exemption in the absence of a formal declaration:
The small-scale exemption was denied because the appellant failed to file a declaration as required under Notification No. 36/2001-CE(NT). The appellant argued that filing the declaration was a procedural requirement and not a pre-requisite for claiming exemption under Notification No. 8/2003. The Tribunal agreed, distinguishing this case from the Eagle Flask Industries case, where filing a declaration was mandatory. Therefore, the benefit of the small-scale exemption could not be denied merely for the failure to file the declaration.

3. Validity of the LRs recovered from various transporters as evidence against the appellant:
The allegations of clandestine removal were based on statements of transporters and LRs recovered from them. The appellant contended that such third-party evidence could not be relied upon without corroboration from their records. The Tribunal noted that many addresses in the LRs were fictitious or non-existent, and no delivery challans accompanied the LRs, casting doubt on their reliability. The Tribunal concluded that the LRs, being uncorroborated third-party documents, could not be relied upon to support the charge of clandestine removal.

4. Correctness of the value of goods declared by the appellant:
The Revenue alleged that the appellant underdeclared the cost of raw materials and suppressed production to remain within the exemption limit. The Tribunal found that the evidence provided by the Revenue, such as statements from various parties and discrepancies in addresses, was insufficient to establish underdeclaration or suppression. Consequently, the Tribunal did not uphold the Revenue's allegations regarding the value of goods declared by the appellant.

Conclusion:
The Tribunal allowed the appeal, concluding that the process undertaken by the appellant did not amount to manufacture, the benefit of the small-scale exemption could not be denied due to procedural lapses, the LRs could not be relied upon as evidence of clandestine removal, and the allegations of underdeclaration of goods were not substantiated.

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