1994 (3) TMI 111 - HC - Central Excise

Summary

Issues Involved:
1. Jurisdiction and validity of summons issued by the Superintendent (Preventive) Central Excise.
2. Determination of whether the process of crushing limestone constitutes "manufacture" u/s 2(f) of the Central Excise Tariff Act, 1985.
3. Legality of the quantification of excise duty and imposition of penalty.

Summary:

1. Jurisdiction and Validity of Summons:
The petitioners challenged the summons issued by the Superintendent (Preventive) Central Excise, Indore, u/s 14 of the Central Excises and Salt Act, 1944, calling for documents related to the supply of limestone to Durgapur Steel Plant. The petitioners argued that they were not involved in manufacturing activities and thus, the authority had no jurisdiction. However, the respondents contended that the summons were valid as they were necessary for investigating potential excise duty evasion.

2. Definition of "Manufacture":
The core issue was whether the process of crushing limestone into chips constituted "manufacture" u/s 2(f) of the Central Excise Tariff Act, 1985. The petitioners argued that crushing limestone lumps into pieces did not amount to manufacturing as it did not change the inherent qualities of the limestone. Conversely, the respondents maintained that the crushed limestone chips were a different commercial commodity and thus, the process constituted "manufacture" as per Chapter Note 2 of Chapter 25 of the Act.

The court analyzed the definition of "manufacture" and Chapter Note 2 of Chapter 25, concluding that the process of crushing limestone did not equate to "manufacture" under the artificial definition provided by the Legislature. The court emphasized that the transformation must result in a new and distinct commodity, which was not the case here.

3. Quantification of Excise Duty and Imposition of Penalty:
The respondents quantified the excise duty for the period from November 1986 to March 1991 and imposed penalties under Rule 9(2) and Rule 173Q of the Central Excise Rules, 1944. The court examined the facts and the statement of the Law Officer of the petitioner company, which indicated a bona fide belief that the process of crushing did not amount to manufacture. The court noted that the law on whether crushing limestone constituted "manufacture" was not settled in Madhya Pradesh, leading to a bona fide doubt in the petitioners' minds.

The court held that the imposition of penalties was harsh and not justified, given the bona fide belief of the petitioners. The court cited precedents emphasizing that penalties should not be imposed for technical or venial breaches or when the breach flows from a bona fide belief.

Conclusion:
The petition was partly allowed. The orders quantifying excise duty were upheld, but the imposition of penalties was quashed. The court ordered the refund of the outstanding security amount to the petitioners.