2019 (4) TMI 1679 - AT - Central Excise

Process amounting to manufacture or not - Manganese ore is heated in a coal fired furnace till it becomes red hot; the material is quenched with water and taken out from the furnace for sun drying; it is pulverized to a fine powder and packed in bags for sale - extended period of limitation - HELD THAT - It appears that even the samples of the impugned product have not been drawn and tested to confirm whether the product would be eligible to be called MnO, so that it is eligible to be classified under chapter 28 of C. Ex. Tariff Act. It is seen that revenue had simply gone by the process undertaken by the Appellant in their factory and have come to the conclusion on the basis of Wikipedia. The allegation made by revenue is of serious nature and in such a case, a commensurate homework is expected to be done by the department to substantiate their allegation - Coming to a conclusion simply on the basis of the submission of the Appellant and holding that the water which is poured on hot Manganese Ore forms the complete new product, i.e. MnO classifiable under CETH 28209000, appears to be weak. Hon. Supreme Court in the case COMMISSIONER OF C. EX., LUCKNOW VERSUS WIMCO LTD. 2007 (10) TMI 3 - SUPREME COURT OF INDIA observed that merely because there is a tariff entry it does not become excisable unless manufacture is involved. Therefore in this case the department requires to prove that there is an act of manufacture and as a result of that a new product has come into existence. Therefore, the issue requires to go back to the adjudicating authority to go into the issue in the entirety and to come to a conclusion as to whether the process undertaken by the Appellants are not normal to metallurgy so as to exclude the impugned item from the scope of chapter 26 and also to ascertain whether as a result of such process a new product technically and commercially identifiable and usable product which is entirely different from the ore has emerged. If need be adjudicating authority shall obtain opinion of an expert in the field. Time Limitation - HELD THAT - Having clarified in with manner issuing a Supreme Court Notice dated 28.01.2010 alleging suppression of fact is not acceptable. The department sought to invoke extended period stating that the appellants suppressed the fact that they are adding an inert chemical i.e. H2O. This is a long drawn and spurious argument, hence not acceptable we hold that extendable period is not invocable in this case. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the processes undertaken by the appellants on the Manganese Ore amount to manufacture.
2. Whether the Show Cause Notice is time-barred.

Detailed Analysis:

Issue 1: Whether the processes undertaken by the appellants on the Manganese Ore amount to manufacture.

The appellants, engaged in processing Manganese Ore, argued that their activities, including heating the ore in a coal-fired furnace, quenching it with water, sun drying, pulverizing, and packing, do not amount to manufacture. They contended that these processes are typical physical or physico-chemical operations that do not alter the chemical composition of the ore, thus keeping it within Chapter 26 of the Central Excise Tariff Act (CETA), 1985. They cited HSN explanatory notes, which state that permissible operations should not alter the chemical composition of the basic compound, and referenced several case laws to support their position.

The Revenue, however, alleged that the addition of water and subsequent heating converted Manganese Dioxide (MnO2) into Manganese Oxide (MnO), thus changing its chemical structure and creating a new, distinct commodity classifiable under Chapter Heading 28209000. They argued that this process amounts to manufacture and cited Wikipedia for chemical reactions involved in producing MnO.

The Tribunal noted that the processes undertaken by the appellants, such as roasting and calcination, are normal to the metallurgical industry and do not necessarily alter the chemical composition of the ore. The Tribunal emphasized that the Revenue's reliance on Wikipedia was inadequate and that a technical expert's opinion should have been sought to substantiate the claim that a new product had emerged. The Tribunal concluded that the issue required further examination by the adjudicating authority to determine if the processes exclude the product from Chapter 26 and if a new, commercially identifiable product had emerged.

Issue 2: Whether the Show Cause Notice is time-barred.

The appellants argued that they had informed the department as early as September 2002 about their process of manufacturing Manganese Oxide, which involved heating and cooling without adding any chemicals. The department had clarified in October 2002 that Manganese Dioxide and Manganese Oxide were classifiable under heading 2602 of CETA and were exempt from duty. The appellants contended that the Show Cause Notice issued in January 2010, alleging suppression of facts, was not justified as they had disclosed all relevant information to the department.

The Tribunal agreed with the appellants, noting that the department's earlier clarification in 2002 contradicted the later allegation of suppression. The Tribunal held that the extended period for issuing the Show Cause Notice was not invocable in this case, as there was no deliberate suppression of facts by the appellants.

Conclusion:

The Tribunal allowed the appeal by remanding the case to the adjudicating authority to ascertain if the processes undertaken by the appellants take the product out of the scope of Chapter 26 of CETA, 1985. The demand, however, was restricted to the normal period only. The Tribunal emphasized the need for a technical expert's opinion to determine the nature of the product and the processes involved.