2024 (2) TMI 1479 - AT - Central Excise

Process amounting to manufacture or not - strapping together of tyres , tubes and flaps , referred to as TTF , at the premises of another for despatch of this particular combination of goods to dealers for catering to replacement market for bus/lorry operators - HELD THAT - In the light of duty having been discharged on the declared retail selling price, and at rate, for each of the three that came to be aggregated and the uncontroverted claim that price of aggregate is sum of the price of the three disaggregated products, it is cause to wonder at the statutory consequence advanced by the initiation of impugned proceedings. No less bemusing is the resistance of the appellant but, then, an assessee is not commercially created for discharge of duty liability and its business model, to the extent of not being illegal, is entirely beyond intrusion of agencies of the State and their cause for apprehension, but for the proximate detriment, does not require justification or explanation. Not so is the taxing agency and the absence of review, contemplated in section of Central Excise Act, 1944, for evaluation of the impugned order as legal and proper has not attempted to rectify this inadequacy in the adjudicated demand. There is no dispute on the classification adopted by the appellant upon clearance of the goods from the factory of manufacture or on the value adopted for assessment. And yet there is a differential duty demand which must, necessarily, be predicated on either, or both, of rate of duty and value. That incongruence should suffice for discard of the impugned order but in circumstances of objection from the assessee and marketability aspect set forth by the respondent, to adjudicate the validity of the contrary claims. The hologram affixing proposition too presupposes lack of marketability in the absence of hologram. It also takes the scope of excisability beyond the stage of manufacture to brand acceptability. It is all too clear that not only is central excise law not about branding but is about manufacture - The expression in section 2(f) of Central Excise Act, 1944 is marketable and not more marketable and, thereby, puts that proposition to rest. The submission on this aspect is not acceptable. The convenience of aggregation notwithstanding, it is not the case of the respondents that tyres , tubes and flaps are never sold except after aggregation. It may be that the replacement market may have been replete with such aggregated presentation. That there is industry practice of such aggregation does not render sale as separate pieces to be against the law or contrary to conventions of sales. On facts alone, the proceedings do not sustain. It is not necessary to delve into the interpretation canvassed on behalf of the appellants. Accordingly, the impugned order is set aside to allow the appeals - appeal allowed.

Summary

Issues Involved:

1. Classification and liability of the 'TTF kit' under the Central Excise Act, 1944.
2. Whether the activity of assembling tyres, tubes, and flaps constitutes 'manufacture' as per section 2(f) of the Central Excise Act, 1944.
3. The applicability of valuation provisions under the Central Excise Act, 1944.
4. The role and responsibilities of logistics service providers in the context of deemed manufacture.
5. The concept of 'deemed manufacture' and its implications on duty liability.

Detailed Analysis:

1. Classification and Liability of the 'TTF Kit':

The primary issue revolves around the classification of the 'TTF kit', which comprises tyres, tubes, and flaps, under the Central Excise Act, 1944. The adjudicating authority concluded that the combination of these components into a 'TTF kit' resulted in a unique product that was liable for excise duty. The classification adopted was based on the main component, the tyre, under Chapter Head 4011, as per the Central Excise Tariff Act, 1985. The Tribunal found this classification to be flawed, as the assembly did not result in a new product but rather a convenient packaging for marketability.

2. Whether the Activity Constitutes 'Manufacture':

The Tribunal examined whether the activity of assembling tyres, tubes, and flaps constituted 'manufacture' under section 2(f) of the Central Excise Act, 1944. The adjudicating authority had deemed the activity as 'manufacture', citing the assembly, strapping, and affixing of holograms as treatments rendering the product marketable. However, the Tribunal found that these activities did not transform the goods into a new product, as they were already marketable individually. The Tribunal emphasized that 'deemed manufacture' requires a significant transformation, which was not present in this case.

3. Applicability of Valuation Provisions:

The valuation of the 'TTF kit' was another contentious issue. The adjudicating authority applied section 4A of the Central Excise Act, 1944, which pertains to goods with declared retail sale prices. However, the Tribunal noted that the weight of the TTF kit exceeded the limits set by the Legal Metrology (Packaged Commodities) Rules, 2011, thereby excluding it from these provisions. The Tribunal criticized the valuation approach as based on assumptions rather than concrete evidence, leading to an unjustified excise duty demand.

4. Role of Logistics Service Providers:

The Tribunal scrutinized the role of logistics service providers, such as DHL, in the assembly process. The adjudicating authority had held that the logistics service providers were not the manufacturers, as the kitting activity was not explicitly mentioned in their agreements. The Tribunal agreed, noting that the premises were hired for warehousing, and the logistics providers acted merely as service providers. The Tribunal found no basis to hold them liable for excise duty, as the appellant, MIPL, retained control over the assembly process.

5. Concept of 'Deemed Manufacture':

The Tribunal delved into the concept of 'deemed manufacture', which is a legal fiction intended to tax goods that have not changed form but are treated as manufactured for excise purposes. The Tribunal highlighted that the inclusive definition under section 2(f) of the Central Excise Act, 1944, extends the scope of manufacture beyond its ordinary meaning. However, the Tribunal found that the activities performed did not meet the threshold for 'deemed manufacture', as they did not alter the goods' essential character or marketability.

Conclusion:

The Tribunal set aside the impugned order, finding that the proceedings did not sustain on factual grounds. The activities performed did not constitute 'manufacture' under the Central Excise Act, 1944, and the valuation approach was flawed. The Tribunal allowed the appeals, providing relief to the appellant from the excise duty demand.