2023 (7) TMI 1427 - AT - Central Excise

Process amounting to manufacture or not - processes like cutting to required size, drilling holes for facilitation of fitment of nuts and bolts and galvanizing - classification of goods - to be classified under Chapter 7216 or 7308 of the Central Excise Tariff Act, 1985? - period from October, 2003 to October, 2009 - HELD THAT - The appellant had taken Service Tax Registration during 2008 from Central Excise Department for payment of Service Tax on the same activity on which Central Excise duty was confirmed. The said registration certificate was issued following due process of law after verifying the activity in terms of Rule 5 of Service Tax Rules, 1994. Moreover the issue whether the activity of cutting, drilling holes and galvanization of angles, channels and flats of mild steel whether amounts to manufacture is considered settled and the said activity does not amount to manufacture. As per the impugned order, the proceedings were initiated based on the findings of the Tribunal in the case of MAHINDRA MAHINDRA LTD. VERSUS COMMISSIONER OF C. EX., AURANGABAD 2005 (7) TMI 396 - CESTAT, NEW DELHI . However thereafter, Hon ble High Courts as well as Hon ble Supreme court upheld that cutting, drilling galvanization of angles channels does not amount to manufacture. Subsequent Larger Bench of the Hon ble Tribunal has held cutting, drilling galvanization of angles channels for use in structures is not excisable to duty. The finding in the impugned orders are unsustainable - Appeal allowed.

Issues Involved:
1. Classification of goods under Chapter 7216 or 7308 of the Central Excise Tariff Act, 1985.
2. Whether the processes of cutting, drilling, and galvanizing amount to manufacture.
3. Applicability of excise duty and service tax on the activities performed.
4. Invocation of the extended period of limitation for demand.
5. Revenue neutrality and eligibility for CENVAT credit.
6. Previous legal precedents and their applicability to the current case.

Detailed Analysis:

1. Classification of Goods:
The primary issue in the appeal concerned the classification of goods, specifically whether they fall under Chapter 7216 or 7308 of the Central Excise Tariff Act, 1985. The appellant argued that the goods, which included 'angles, channels, and flats of mild steel,' should be classified under Chapter 7216, as the processes they underwent (cutting, drilling, and galvanizing) did not result in a new product. The respondent, however, contended that these goods should be classified under Chapter 7308, which pertains to structures and parts of structures of iron or steel.

2. Processes Amounting to Manufacture:
The appellant maintained that the activities of cutting, drilling holes, and galvanizing did not amount to manufacture because no new and different article emerged from these processes. They cited various legal precedents, including decisions from the Hon'ble High Courts and the Hon'ble Supreme Court, which supported their claim that such activities do not constitute manufacture. The appellant also highlighted that a Chapter note added in 2011 deemed galvanization as manufacture, but this was not applicable to the period in question.

3. Applicability of Excise Duty and Service Tax:
The appellant argued that the galvanization activity was covered under 'Business Auxiliary Services' as per Section 65(19) of the Finance Act, 1994, and they had been paying service tax accordingly. They asserted that since the respondent accepted the service tax payments and returns without objection, they could not simultaneously demand central excise duty on the same activity. The respondent, however, pointed to a Chapter Note introduced in 2002 that deemed galvanization as manufacture, thereby attracting excise duty.

4. Extended Period of Limitation:
The appellant challenged the invocation of the extended period of limitation, arguing that the department was aware of their activities as early as 2007 when their refund claim was allowed. They cited legal precedents to support their claim that mere omission to provide information does not constitute suppression, and thus, the extended period should not apply.

5. Revenue Neutrality and CENVAT Credit:
The appellant contended that the issue was revenue-neutral because they were eligible to discharge duty liability by utilizing CENVAT credit on raw materials. They also pointed out that they had already paid service tax on the same activity, which should be considered in assessing their duty liability.

6. Previous Legal Precedents:
The appellant referred to several legal decisions, including those from the Tribunal and the Hon'ble Supreme Court, which held that activities like cutting, drilling, and galvanizing do not amount to manufacture. They emphasized that these decisions should guide the current case, as they had been upheld by higher courts. The respondent, on the other hand, cited previous classification lists and argued that the appellant had earlier classified the goods under Chapter 7308.90, thus supporting their claim that the processes amounted to manufacture.

Conclusion:
The Tribunal concluded that the processes of cutting, drilling, and galvanizing of angles, channels, and flats of mild steel do not amount to manufacture. They noted that the appellant's activities had been deemed non-manufacturing by various higher judicial forums, including the Hon'ble Supreme Court. Consequently, the Tribunal found the impugned orders unsustainable and allowed the appeals filed by the appellant with consequential reliefs. The appeal filed by the Revenue was dismissed. The decision was pronounced in the open court on 28/07/2023.

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