1988 (5) TMI 171 - AT - Central Excise

Issues Involved:

1. Interpretation of Rule 173-H of Central Excise Rules, 1944.
2. Process adopted by the respondent company amounting to manufacture.
3. Validity of demands for duty based on the alleged manufacturing process.
4. Applicability of time bar on the demands raised by the department.
5. Manufacturing loss and its impact on duty calculations.

Issue-wise Detailed Analysis:

1. Interpretation of Rule 173-H of Central Excise Rules, 1944:

The core issue in these appeals is the interpretation of Rule 173-H. The respondent company, which manufactures glass vials, received permission from the Collector of Customs and Central Excise to bring defective duty-paid vials back to their factory and take out an equivalent number of vials without payment of duty under Rule 173-H. The rule allows retention or receipt of duty-paid goods in the factory for refining, reconditioning, repairing, remaking, or similar processes, provided such processes do not amount to manufacture. The department later alleged that the process adopted by the respondent company amounted to manufacture, thus disqualifying them from the benefits of Rule 173-H.

2. Process Adopted by the Respondent Company Amounting to Manufacture:

The department argued that the process of remaking vials by melting rejected vials along with other materials amounted to manufacture. This was based on the fact that the respondent company used rejected vials as raw material along with silica sand, soda ash, and other materials. The Collector (Appeals) agreed that the process was indeed a process of manufacture but noted that the permission granted by the Central Excise Authorities should not be revoked, as the respondent company could alternatively claim a refund of duty under Rule 173-L.

3. Validity of Demands for Duty Based on the Alleged Manufacturing Process:

The department issued six show cause notices alleging that the respondent company wrongly cleared vials without payment of duty during different periods. The original authority confirmed these demands, setting aside the plea of time bar raised by the respondent company. The Collector (Appeals), however, held that demanding duty would be too harsh given the permission granted under Rule 173-H and the possibility of claiming a refund under Rule 173-L.

4. Applicability of Time Bar on the Demands Raised by the Department:

The respondent company argued that three of the show cause notices were completely time-barred, and one was substantially time-barred, as they were issued after six months from the clearance of goods from the factory. The department did not allege any suppression of facts or willful misstatement. The tribunal found substantial force in this argument, noting that the company had been operating with departmental approval under Rule 173-H.

5. Manufacturing Loss and Its Impact on Duty Calculations:

The department contended that there was a 30% manufacturing loss in the raw material, implying that only 70% of the rejected vials could be cleared without payment of duty. The respondent company, however, had clearly stated in their letter that there was no loss of weight when melting glass vials, and this was not rebutted by the department. The tribunal found the department's assertion of a 30% loss to be unsupported by data or evidence.

Conclusion:

The tribunal dismissed the appeals, holding that the benefit of Rule 173-H could not be denied to the respondent company due to the ambiguity in the rule itself. The demands for duty were not sustainable, and substantial portions of the demands were time-barred. The tribunal also rejected the department's contention of a 30% manufacturing loss as unsupported by evidence.

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