2004 (11) TMI 107 - SC - Central Excise

Whether the activities in question involved manufacturing process? Held that - since the goods were received from the depots and not directly received from one factory, therefore, any duty (paying documents) were not available. It is to be noted that once the Jumbo rolls are cut into smaller sizes, they completely lost their earlier identity and cannot be used for the same purpose as was done before cutting. In a hypothetical case, even if the smaller sized ribbons are stitched together or fixed together in any manner, there is no possibility of its use as Jumbo rolls. The factual findings recorded that the processing resulted in coming into existence of a commercial product having distinct name, character, and use are on terra-firma. No case is made out for interference with the factual findings. In view of the factual position as noted by the Collector and affirmed by the CEGAT there is no substance in the plea that the extended period of limitation was not applicable. It is noted in the Collector s order with reference to the price lists, and some gate-passes seized from the Make up depot, that the assessee was manufacturing identical goods in their Thane unit apart from other varieties. Additionally, with reference to sales invoices it was noted that the price quoted is inclusive of excise duty, though no excise duty was paid in respect of the goods which according to Revenue was manufactured at Madras. As noted above, looked from any angle order of the Collector as affirmed on the point involved by CEGAT does not warrant any interference being based factual conclusions which cannot be termed as perverse. The conclusions are based on relevant materials.

Issues Involved:
1. Legality of the duty demand on typewriter/telex ribbons.
2. Whether the process of cutting and spooling ribbons amounts to manufacturing.
3. Applicability of extended period of limitation under Section 11A of the Central Excises and Salt Act, 1944.
4. Entitlement to Modvat credit.
5. Allegations of suppression of facts and intention to evade duty.

Detailed Analysis:

1. Legality of the Duty Demand on Typewriter/Telex Ribbons:
The Tribunal held that the demand for duty raised in respect of typewriter/telex ribbons was in order. The Collector of Central Excise, Chennai, issued a show cause notice proposing the levy of duty on typewriter ribbons cleared by the assessee during the period 1-3-1988 to 30-9-1992. The duty was affirmed under Rule 9(2) of the Central Excise Rules, 1944, read with the proviso to sub-section (1) of Section 11A of the Act. The CEGAT upheld the Collector's findings, concluding that the process of cutting and spooling ribbons amounted to manufacture, making the ribbons liable for excise duty.

2. Whether the Process of Cutting and Spooling Ribbons Amounts to Manufacturing:
The Tribunal and the Collector concluded that the process of cutting ribbons into smaller sizes and spooling them on automatic spooling machines amounts to manufacturing. The conversion is done as per consumer requirements, and the product becomes a saleable commodity only after spooling. The resultant product is distinct, identifiable, and has a separate market. The process results in a new and distinct identity, making the ribbons commercially distinct from the jumbo rolls received. The Supreme Court affirmed this view, citing various precedents that define manufacturing as a transformation of an article into a new commodity with a distinct name, use, and character.

3. Applicability of Extended Period of Limitation under Section 11A of the Central Excises and Salt Act, 1944:
The Tribunal concluded that there was a clear contravention of Rule 9(1) with the intention to evade duty, justifying the application of the extended period of limitation. The Collector observed that the assessee had clear knowledge of the excisability of the goods and deliberately suppressed material facts to evade payment of duty. The Supreme Court upheld this finding, noting that the extended period of limitation was applicable due to the suppression of facts and the intention to evade duty.

4. Entitlement to Modvat Credit:
The assessee contended that the inputs/raw materials used had suffered excise duty and sought Modvat credit. However, the Collector rejected this plea as the required documentary evidence was not produced. The Tribunal accepted that the manufacturers might have operated under exemption available to SSI Units, resulting in "nil" duty. The Supreme Court noted that once the jumbo rolls are cut into smaller sizes, they lose their earlier identity, and the factual findings supported the conclusion that the process resulted in a new commercial product.

5. Allegations of Suppression of Facts and Intention to Evade Duty:
The Collector and the Tribunal found that the assessee had suppressed facts relating to manufacturing and removal of goods with the intention to evade duty. The Supreme Court upheld this finding, noting that the assessee did not inform the Department about the manufacturing activity at their Madras unit and deliberately avoided paying excise duty. The conduct of the assessee indicated a lack of bona fides, and the extended period of limitation was rightly invoked.

Conclusion:
The Supreme Court dismissed Civil Appeal No. 4322/1999, upholding the Tribunal's decision that the process of cutting and spooling ribbons amounts to manufacturing, making the ribbons liable for excise duty. The extended period of limitation was applicable due to the suppression of facts and intention to evade duty. The connected appeals were allowed, and the duty demand was reinstated. No order as to costs was made in these appeals.

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