2005 (9) TMI 82 - SC - Central Excise

Whether on the facts and circumstances of the case, the Commissioner was right in holding that the fragmented activities of M/s. Aldec Corporation, M/s. Vitthaleshwara Painting Industries (VPI) and M/s. Srinivasa Rolling and Engineering Works (SREW) taken individually or jointly resulted in manufacture of a separate, independent and distinct identifiable product namely, Painted Aluminium Slat (PAS) for Venetian blinds classifiable under chapter sub-heading 7616.90? Held that - Note 2 to Section XV, under which Chapter 76 falls, has not been considered. Similarly, Section 2(b) of Section XVI of the HSN has not been considered. Further, the functional utility of PAS as deflector of air-flow has not been considered. The issue as to whether the PAS in question was for general purpose or was user specific was not considered. In the present case, the Commissioner has not discussed the difference between the old tariff items 27(6) and 68 vis-a-vis Chapter Heading 76.06 and sub-heading 7616.90 of the Tariff Act, 1985. Even on marketability, there is no evidence as to the type of PAS (with particulars of dimension) being sold in the market. In the circumstances, we do not wish to interfere in the matter. Ordinarily, we would have remitted the matter to the Commissioner. However, in this case, we find that the department has accepted the decisions of the Commissioner (Appeals) and Additional Collector passed in 1986 and 1987 holding that each of the above process do not constitute manufacture . The respondent herein has acted on that basis for at least ten years. Hence, we do not find any intention to evade duty on the part of the respondent. We cannot expect the respondent to collect duty from its customers for the last ten years. The question of ownership was directly relatable to the clearances made in the names of M/s. VPI and M/s. SREW and, therefore, the Tribunal ought to have adjudicated upon the question as to whether the clearances were made in the name of dummy firms. Appeal dismissed.

Issues Involved:
1. Whether the fragmented activities of M/s. Aldec Corporation, M/s. Vitthaleshwara Painting Industries (VPI), and M/s. Srinivasa Rolling and Engineering Works (SREW) resulted in the "manufacture" of a separate, independent, and distinct identifiable product, namely, Painted Aluminium Slat (PAS) for Venetian blinds.
2. Whether the activities of slitting, rolling, and painting by M/s. VPI and M/s. SREW amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
3. Whether M/s. Aldec Corporation can be considered a trader or a manufacturer.
4. The applicability of earlier adjudications and orders from 1986 and 1987 regarding the classification and manufacturing status of the activities performed by M/s. VPI and M/s. SREW.
5. The relevance of marketability and the distinction between "chargeability" and "classification" under the Central Excise Act, 1944.
6. The impact of ownership and control over the activities of M/s. VPI and M/s. SREW by M/s. Aldec Corporation.

Detailed Analysis:

1. Fragmented Activities and Manufacture:
The core issue is whether the combined activities of M/s. Aldec Corporation, M/s. VPI, and M/s. SREW resulted in the "manufacture" of PAS for Venetian blinds under Chapter sub-heading 7616.90. The Commissioner held that the processes of slitting, rolling, and painting transformed the aluminium sheets into a new, identifiable product known as PAS, thus constituting "manufacture." This was based on the examination of documents, balance sheets, and the nature of the activities controlled by M/s. Aldec Corporation.

2. Activities of Slitting, Rolling, and Painting:
The Tribunal, however, concluded that the individual activities of slitting by M/s. SREW and painting by M/s. VPI did not amount to "manufacture." This decision was based on earlier orders from 1986 and 1987, which held that these processes did not result in the creation of a new product. The Tribunal emphasized that the processes remained unchanged since 1985 and did not warrant a different classification under the new tariff introduced in 1986.

3. Trader vs. Manufacturer:
M/s. Aldec Corporation argued that it was a trader in aluminium strips and not a manufacturer. The department contended that M/s. Aldec Corporation was the real processor, with M/s. VPI and M/s. SREW acting as dummies to evade excise duty. The Commissioner supported this view, stating that M/s. Aldec Corporation controlled all activities, making it the manufacturer.

4. Applicability of Earlier Adjudications:
The Tribunal relied on previous binding orders from the Commissioner (Appeals) and the Additional Collector, which stated that the activities of M/s. VPI and M/s. SREW did not constitute "manufacture." The Tribunal noted that these decisions were accepted by the department and thus could not be revisited to claim duty retrospectively from M/s. Aldec Corporation.

5. Marketability and Chargeability vs. Classification:
The Supreme Court highlighted the distinction between "chargeability" (arising on manufacture) and "classification" (determining liability to pay duty). The Court emphasized that for goods to be excisable, they must be both manufactured and marketable. The Court noted that the Commissioner failed to provide evidence on the marketability of PAS and did not consider relevant chapter notes and functional utility.

6. Ownership and Control:
The Tribunal did not address the issue of ownership and control, which was crucial to determining whether M/s. VPI and M/s. SREW were independent entities or dummies controlled by M/s. Aldec Corporation. The Supreme Court noted that ownership was directly related to the clearances made and should have been adjudicated by the Tribunal.

Conclusion:
The Supreme Court found that the Tribunal should have examined the combined effect of the activities and the functional utility of PAS. However, given the department's acceptance of earlier decisions and the long-standing practice of M/s. Aldec Corporation, the Court decided not to interfere. The appeals were dismissed, and M/s. Aldec Corporation was advised to get registered under protest, without prejudice to its rights and contentions.

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