2023 (7) TMI 299 - AT - Central Excise

Violation of principles of natural justice - Process amounting to manufacture or not - activity undertaken by the appellant as calibration tests and upgradation/configuration of the appliances according to the requirements/specifications of the customers - Extended period of limitation. Violation of principles of natural justice - matter was heard by one Commissioner and the order was passed by another Commissioner without considering the submissions made by the appellant - HELD THAT - It is fact on record that the matter was heard by Dr. Sanjay Agarwal, the erstwhile Commissioner of Central Excise, Kolkata and the order has been passed by Shri Prashant Kumar, Commissioner of Central Excise, Kolkata V, which is in gross violation of principles of natural justice. Before passing the impugned order, Shri Prasant Kumar, Commissioner of Central Excise, Kolkata V, was required to hear the appellant on merit. It is also noticed that the appellant during the course of personal hearing and in the written submissions and the reply to the show-cause notice had relied upon certain case laws relying to the issue involved in hand, but the same has not been considered by the adjudicating authority while passing impugned order - thus, non-consideration of the judicial pronouncement submitted by the appellant is in gross violation of principles of natural justice - answered in favor of appellant. Activity of calibration tests and upgradation/configuration of the appliances - Whether the activity undertaken by the appellant amounts to manufacture of not? - HELD THAT - CBEC Circular No.454/20/99-CX dated 12.04.1999 clarified that the upgradation does not amounts to manufacture as it does not bring into existence new name, character and use - Further, in the case of UNION OF INDIA VERSUS DELHI CLOTH AND GENERAL MILLS CO. LTD. 1962 (10) TMI 1 - SUPREME COURT , the Hon ble Apex Court dealt the issue and held that manufacture means bringing existences new substance known to the market and not mere on some changes in the substance. The Hon ble Apex Court has held The definition of manufacture as in S. 2 (f) puts is beyond any possibility of controversy that if power is used for any of the numerous processes that are required to turn the raw material into a finished article known to the market the clause will be applicable; and an argument that power is not used in the whole process of manufacture using the word in its ordinary sense, will not be available. It is only with this limited purpose that the legislature, in our opinion, inserted this definition of the word manufacture in the definition section and not with a view to make the mere processing of goods as liable to excise duty. In the present case, the activity undertaken by the appellant as calibration tests and upgradation/configuration of the appliances according to the requirements/specifications of the customers, does not amount to manufacture as no new product came into existence and their character and use remain the same. Therefore, the activity undertaken by the appellant does not amount to manufacture. Accordingly, this issue is answered in favor of the appellant. Whether in the facts and circumstances of the case, the extended period of limitation is invokable or not? - HELD THAT - The appellant has taken registration as trader from 03.12.2001 and filing their Dealer s return regularly and thereafter, on 13.03.2009, the appellant took registration as manufacture of the same activity. Therefore, the process undertaken by the appellant was well-known to the Department on 13.03.2009 and also on the visit done on 11.12.2009 for examination of Books of Account and other activities undertaken by the appellant and the appellant was also submitting ER Returns to the Department. In that circumstances, the show-cause notice issued on 27.12.2010 by invoking extended period of limitation, is not sustainable - all the demand against the appellant is barred by limitation. Hence, this issue is also answered in favor of the appellant. Appeal allowed.

Summary

Issues Involved:

1. Violation of principles of natural justice.
2. Whether the activity undertaken by the appellant amounts to manufacture.
3. Applicability of the extended period of limitation.

Summary:

Issue 1: Violation of Principles of Natural Justice

The appellant contended that the order was passed in gross violation of the principles of natural justice as the matter was heard by one Commissioner, Dr. Sanjay Agarwal, but the order was passed by another Commissioner, Mr. Prashant Kumar, without considering the submissions made by the appellant. The Tribunal found that the matter was indeed heard by Dr. Sanjay Agarwal, and the order was passed by Mr. Prashant Kumar, which is a violation of principles of natural justice. The non-consideration of judicial pronouncements submitted by the appellant further supported this conclusion. Therefore, this issue was answered in favor of the appellant.

Issue 2: Whether the Activity Undertaken by the Appellant Amounts to Manufacture

The appellant was engaged in importing and acquiring products, performing calibration tests, and selling these products while passing on the CENVAT credit by issuing dealer's invoices. The appellant argued that these activities did not amount to manufacture as no new product emerged, and there was no change in the nomenclature, character, and use of the appliances. The Tribunal referred to CBEC Circular No.454/20/99-CX, which clarified that upgradation does not amount to manufacture. The Tribunal also cited various judgments, including Union of India vs. Delhi Cloth & General Mills Company Limited, which defined manufacture as bringing into existence a new substance known to the market. Based on these references, the Tribunal held that the appellant's activities did not amount to manufacture. This issue was also answered in favor of the appellant.

Issue 3: Applicability of the Extended Period of Limitation

The appellant had taken registration as a trader from 03.12.2001 and was filing Dealer's returns regularly. On 13.03.2009, the appellant took registration as a manufacturer for the same activities. The process undertaken by the appellant was well-known to the Department as of 13.03.2009, and the Department had examined the appellant's activities on 11.12.2009. The appellant was also submitting ER Returns. Given these circumstances, the Tribunal found that the show-cause notice issued on 27.12.2010 by invoking the extended period of limitation was not sustainable. Thus, this issue was answered in favor of the appellant.

Conclusion:

The Tribunal set aside the impugned order, finding no merit in it, and allowed the appeal with consequential relief, if any. The judgment was pronounced in open court on 04.07.2023.