1988 (3) TMI 192 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process by which goods were manufactured would disentitle the goods from being called as handicrafts.
2. Whether the goods are to be considered as handicrafts despite the manufacturing process employed by the appellants.
3. Whether a longer time limit can be invoked in the facts and circumstances of the case.

Detailed Analysis:

Issue 1: Whether the process by which goods were manufactured would disentitle the goods from being called as handicrafts.
The appellants were found manufacturing Dhoop sticks, Dhoop Coils, and Dhoop Powder with the aid of power and clearing the goods without payment of duty. The Collector held that the basic and vital stage in bringing about the essential character of the product is achieved by the use of power, and thus, the goods were not handicrafts. The appellants argued that the dhoop sticks had been recognized by the All India Handicrafts Board as handicrafts and that the use of power in the production process does not disqualify them from being considered handicrafts. They cited various authorities and reports to support their claim that Agarbatties are recognized as handicrafts. However, the Collector's stance was that the use of power in the essential stages of production disqualified the goods from being termed as handicrafts.

Issue 2: Whether the goods are to be considered as handicrafts despite the manufacturing process employed by the appellants.
The appellants' main arguments were:
- Dhoop sticks, coils, etc., are Agarbatties.
- Agarbatties are accepted as handicrafts by various authorities, including the Central Excise authorities.
- The use of power in their manufacture does not bar them from being called handicrafts.

The department argued that for an item to be treated as handicraft, it should result from manual skill. The essential character of the product must be derived from the 'hand-made' aspect of its production. The Tribunal observed that the essential shape of the appellants' products was given by machines, not by hand. The Tribunal also noted that the classification of Agarbatties as handicrafts for export incentives or development purposes did not necessarily mean they should be classified as handicrafts for excise duty exemptions. The Tribunal concluded that the goods in question were not handicrafts since their essential character was not derived from manual skill or handwork.

Issue 3: Whether a longer time limit can be invoked in the facts and circumstances of the case.
The appellants argued that the demand should be limited to six months from the date of the show cause notice, as they were under the genuine impression that their products were eligible for exemption under Notification No. 55/75. The department contended that the appellants had manufactured and removed the goods without informing the Central Excise authorities, amounting to clandestine removal. The Tribunal observed that the appellants had not informed the authorities about their manufacturing activities and had removed the goods without payment of duty. Thus, the longer time limit for raising the demand was justified. However, the Tribunal reduced the penalty to Rs. 5,000/- considering the facts and circumstances of the case.

Conclusion:
The appeal was dismissed, with the Tribunal upholding the Collector's order that the goods were not handicrafts and thus not eligible for exemption under Notification No. 55/75. The longer time limit for raising the demand was also upheld, but the penalty was reduced to Rs. 5,000/-.