2021 (10) TMI 1029 - HC - Central Excise

Activity amounting to manufacture or not - fixing of a lens in a spectacle frame - Remission of Excise Duty - activity of fixing of prescription lenses in spectacle frames - HELD THAT - A perusal of the show cause notice reveals that the activity carried out in the show rooms was the manufacture and clearance of spectacles carrying 'Titan Eye Brand. Though adverse inferences are sought to be drawn by the respondents on other grounds as well, such as violation of conditions contained in Notification 8/2003-CE dated 01.03.2003, this point has not been argued and both the parties before me have confined the scope of the arguments to (i) whether the respondents were right in law in having issued the impugned show cause notices inspite of binding judicial precedents to the opposite effect and (ii) whether the assembly of prescription lenses on to a spectacle frames is an activity that amounts to manufacture attracting levy of duty under the Act. The petitioners would specifically confirm that manufacture of the power lens i.e., the conversion of lens blanks into prescription lens is a taxable activity and that such activity takes place in the workplace/factory. They also confirm that the frames used are either imported or manufactured indigenously in a factory, subject to central excise duty. These two activities i.e. manufacture of the spectacle frames and prescription lenses are, admittedly excisable events and the petitioners are liable to remit duty in regard to the aforesaid two events, where applicable. The petitioners also engage in sale of ready-made eye-wear that is purchased by customers, off-the-shelf. Post manufacture of the spectacle frames and lenses, the goods are sent separately to the petitioners show rooms and what is undertaken in the show room is only an assembly of the prescription lenses and the spectacle frames wherein the lenses are merely mounted upon the frames, to result in a spectacle - The process of assembly is bound to involve some amount of refining and fine-tuning of the individual components and this, by itself, will not tantamount to manufacture. In fact, most establishments engaged in selling eye-wear provide a gamut of services in this area including, having an optician in their employ or on call, and infrastructure for the testing of vision. Thus, notwithstanding that a distinct commercial product is obtained upon assembly of a lens with a spectacle frame, this would not result in such assembly being equated to manufacture. The judgments in the cases of BHOLANATH SREEMANY VERSUS ADDITIONAL COMMISSIONER OF COMMERCIAL TAXES AND OTHERS 1978 (7) TMI 225 - CALCUTTA HIGH COURT and M/S AMAZON SELLER SERVICES PRIVATE LIMITED, BANGALORE VERSUS THE COMMISSIONER OF CENTRAL EXCISE, THANE-I 2016 (3) TMI 69 - AUTHORITY FOR ADVANCE RULINGS decide and reiterate the issue of whether the activity of assembly simpliciter including fitting and minor adjustments that are part and parcel of the process of assembly, constitute manufacture for the purposes of the Act, in favour of the assessee. The show cause notices, to this extent, and insofar as they purport to equate the process of assembly to manufacture, are quashed. Petition allowed.

Summary

Issues Involved:
1. Liability to remit excise duty on fixing prescription lenses in spectacle frames.
2. Issuance and validity of Show Cause Notices (SCNs).
3. Whether the assembly of prescription lenses onto spectacle frames constitutes 'manufacture' under the Central Excise Act, 1944.

Detailed Analysis:

1. Liability to Remit Excise Duty on Fixing Prescription Lenses in Spectacle Frames:
The core question was whether the activity of fixing prescription lenses into spectacle frames amounts to 'manufacture' under the Central Excise Act, 1944, which would make it liable for excise duty. The Court referenced the Supreme Court decision in Assistant Commercial Tax Officer Vs. Mehta Opticians, which held that fitting lenses into frames does not constitute manufacturing as no new commodity emerges from this process.

2. Issuance and Validity of Show Cause Notices (SCNs):
SCNs were issued to multiple stores, including Titan Eye+ and Premier Optical Pvt. Ltd., alleging liability for excise duty on the assembly of spectacles. The petitioner argued that these notices were issued without considering binding judicial precedents, specifically the Supreme Court's decision in Mehta Opticians. The Court noted that the issuance of SCNs without considering established legal principles constitutes a jurisdictional flaw, rendering the proceedings legally untenable.

3. Whether Assembly Constitutes 'Manufacture':
The Court examined whether assembling prescription lenses with spectacle frames constitutes 'manufacture.' It referred to the Calcutta High Court's decision in Bholanath Sreemany, which held that such assembly does not transform the components into a new and distinct article. The Court also considered the Authority for Advance Rulings' decision in Amazon Seller Services, which supported the view that fitting lenses into frames does not amount to manufacturing. The Court concluded that despite the sophisticated processes involved, the mere assembly of lenses and frames does not result in 'manufacture' under the Act.

Additional Considerations:
The Court also addressed the procedural aspects, noting the necessity for Revenue authorities to consider settled law before issuing SCNs, as emphasized in Hindustan Poles Corporation V. CCE. The Court underscored that the assembly of lenses and frames, even if involving skilled processes, does not equate to manufacturing a new product.

Conclusion:
The Court quashed the SCNs, holding that the assembly of prescription lenses into spectacle frames does not constitute 'manufacture' under the Central Excise Act, 1944. The writ petitions were allowed, and all connected miscellaneous petitions were closed without costs.